It wasn’t until recently that I discovered George Clason’s book, ‘The Richest Man in Babylon’. And talk about value for money! Even though the book was written almost 100 years ago and based on life in ancient Babylon, it talks about money and the issues we face even in modern day society.
Ultimately wouldn’t it be nice knowing that our pot of money was growing year on year? Well in George’s’ words it’s all down to good money management.
According to ‘The Richest Man in Babylon’ growing your wealth is achieved using 7 money principles. Let’s check them out!
The ‘Seven Cures’ (AKA the 7 Money Principles)
‘The Richest Man in Babylon’ was written in 1926 by George Samuel Clason. It’s based on a fictional character who lived in Babylon. The book discloses the secrets, also known as the ‘seven cures’, that turned a poor scribe into the richest man in Babylon. The book quotes:
‘Wealth that comes quickly goeth the same way. Wealth that stayeth to give enjoyment and satisfaction to its owner comes gradually, because it is a child of knowledge and persistent purpose’.
It’s easy to spend money frivolously when you have no knowledge on how to save or purpose for long-term finances. Let’s check out George Clasons 7 money principles (or cures) that might help us.
Topics
- Start thy purse to fatten
- Control your expenditure
- Multiply your gold
- Guard your treasure from losses
- Own your own home
- Invest in a future income
- Increase your ability to earn
1. Start thy purse to fatten
It’s recommended as the first ‘cure’ to save 10% of what you earn every month. It makes sense that over time that our wealth will grow by adding 10% month on month.
The challenge is to do one better than this and think about the way we save our money. Unfortunately, due to inflation a pot of money that is just sat in a low interest savings account will ultimately depreciate in time. If you’re talking about long term wealth it’s worth thinking about investing our money and using the laws of compound interest to grow that pot even further.
Check out my blog post on how to build an investment portfolio to help get you started!
2. Control your expenditure
If at the end of each month you have no money left then it means you are spending every penny of what you earn, or are overspending.
The key is to list everything you spend money on, based on previous bank statements, and split items in to ‘necessities’ and ‘desires’. Your necessities are items you cannot live without, like housing, utilities and food.
For the remaining items, ask yourself two questions:
- Do they serve a purpose?
- Do they improve my quality of life?
If the answer is no to these questions, then you know what to do!
The reality is if you keep spending every penny you earn, or overspend, on your desires then your wealth is unlikely to grow.
Remember to keep spending under 90%, to ensure you keep 10% for savings.
3. Multiply your gold
This relates back to the first of the seven cures. Remember those 10% of savings? Don’t let them just sit there depreciating with time.
In the book, George makes it clear in order to grow our wealth we have to find a way of making our ‘gold multiply’.
We can do this by putting our money into labours which will allow our money to multiply. One way I like to do this is concept of compound interest and putting my money into an investment ISA and investing in the stock market. Don’t believe me? – then check out a compound interest calculator.
The beauty of investment ISAs and the stock market is they tend to appreciate with time. And as long as it’s beating the rate of inflation our wealth will grow.
Example: It is difficult to predict what interest rates and inflation will be over those next 10 years. But for the purpose of this example let’s predict it follows the same pattern as the previous 10 years.
If you save £100 per month for 10 years you would have £12000. Unfortunately, inflation means the cost of living increases year on year, meaning money depreciates with time. On average inflation has increased the price of living by 4.46% per year for the last 10 years.
If you brought an item for £12000 in 2014 that same item would cost £18564 in 2024. Scary right?
It’s important to invest money so that your money appreciates more than inflation! If you invested in the S&P500 (top 500 US companies) the average increase is 12.8% per year. So your £12000 would now be £40019 in 10 years time! There’s a big difference!
4. Guard your treasure from losses
It’s important to remember everything will carry an element of risk. I mean if there was something which was 100% risk free but guaranteed to earn you money, we would all invest in it.
The best way to mitigate risk is to do your homework. When investing make sure to research the company and consider the term of investment (long or short term). It’s important to feel comfortable with your investment.
5. Own your own home
‘Make of thy dwelling a profitable investment’
This point is a bit controversial. It will be very dependent on your financial situation and the location of where you’re buying.
Often paying a mortgage is cheaper or the same price as renting. But the hardest part can be raising the deposit. A lot of mortgage companies offer 5% deposits, which is often the minimum amount. But by starting with the other six of George’s ‘cures’, before you know it you’ll have your home deposit.
The idea of owning your own home is that you’re investing in property, which similar to the stock market, tends to appreciate with time.
6. Invest in a future income
This one is a fundamental! If you look to many millionaires or even billionaires they won’t just have one source of income.
Something so many of us desire is more time to spend with loved ones, travel and experience the world. The best way to buy more time is establishing passive incomes, investments and additional income sources that all earn you money by ticking away in the background.
We’re all waiting for that million pound idea. I’ve spent a long time waiting for mine. But some times the only great idea you need is just starting.
7. Increase your ability to earn
This one is probably my favourite out of George’s ‘seven cures’. After all, one of the best investments is in yourself.
It’s important to continually improve your skill set, not only for employability, but your own business potential.
There are endless possibilities on how to improve your skillset. It’s easiest to start small and as you achieve your goals, work your way up to bigger things you never thought possible. Wealth is accumulated in small sums and then in larger ones as you become more capable, so start small and go from there.
Final thoughts..
Wealth-building is as much about habits as it is about money. These 7 money principles create a robust framework for anyone looking to grow their wealth year after year.
By sticking to these core principles, you’ll make financial decisions that not only benefit you today but also create a stable foundation for the future. Start small, be consistent, and remember: wealth-building is a marathon, not a sprint.
Good luck and happy saving!
