Timeless Wisdom on Prosperity

The foundational laws of creating, growing, and preserving wealth are universal and timeless. These laws were true in the ancient Babylonian era, they are true today, and will be applicable thousands of years in the future. The laws are simple. Anybody with a middle school diploma can understand and implement them. Just because the laws are simple, doesn’t mean they are ineffective.

“Deride not what I say because of its simplicity. Truth is always simple.”

Let’s start with some history.

Babylon was the capital of the ancient Babylonian Empire. Babylonian Empire is a term that refers to either of the two separate empires in the Mesopotamian area in antiquity. These two empires achieved regional dominance between the 19th and the 15th centuries BC, and again between the 7th and the 6th centuries BC. The site of the ancient city lies just south of present-day Baghdad.

Babylon became one of the wealthiest cities of the ancient world because its citizens were the richest people of their time. It is claimed by some historians that ancient Babylonians were the first people to discover the universal laws of prosperity. They appreciated the value of money. They practiced sound financial principles in acquiring money, keeping money and making their money earn more money.

Ideas in this article are derived from the book The Richest Man in Babylon, written by George S. Clason, and was first published in 1926. Clason used parables that were set in ancient Babylon to teach the fundamentals of finance and business. The Richest Man in Babylon is considered the bible of financial freedom.

First Law: Payeth Thyself First

Pay yourself first.

A part of all you earn is yours to keep. It should not be less than 10% of your earnings, no matter how little you earn. It can be as much as you can afford. But, never less than 10%. You can use the rest of your earnings for your living expenses.

Here’s a strange truth. When you start using 90% of your earnings for your expenses instead of 100%, you’ll notice that you are getting along just fine. There won’t be any significant degradation of your lifestyle.

Think about it. What do you desire the most? Is it the gratification of your daily desires, nicer cars, a bigger house, branded clothes, dining at fancy restaurants, a lifestyle tailored for Instagram and Facebook posts, things that are quickly gone and forgotten? Or is it substantial wealth, real estate, and income-generating investments? 90% of your earnings pay for the former. 10% that you pay yourself will bring the latter.

Second Law: Control Thy Expenditures

Budget your expenses such that you have money to pay for your necessities, to pay for your enjoyments, and to gratify your worthwhile desires without spending more than 90% of your earnings.

Understand the difference between your needs and your wants. Having two pairs of shoes could be your need. But having 5 pairs or more is clearly a want. Send me a note if you think otherwise.

What we call our “necessary expenses” will always grow to equal our income unless we protest to the contrary. Just as weeds grow in a field wherever the farmer leaves space for their roots, even so freely do desires grow in us whenever there is a possibility of them being gratified.

Make a list of all the things on which you desire to spend. Select those that are necessary and others that are possible through the expenditure of 90% of your earnings. Strike out the rest and consider them as a part of the great multitude of desires that must go unsatisfied and don’t regret them. Life will be quite boring if all your desires were met, wouldn’t it?

Desires must be simple and definite. They defeat their purpose when they are too many, too confusing, or beyond your ability to accomplish.

Pro-YOLO followers may argue that you shouldn’t spend your one precious life being a slave of your own budget. Here’s a counterargument to that mindset. The purpose of a budget is to help you in having your necessities and attainable desires. It is to enable you to realize your most cherished desires by defending them from your casual wishes. It helps you in practicing restraint.

Third Law: Make Thy Gold Multiply

Make your money work for you.

If you want to become wealthy, the money you save from your earnings must earn too. In addition, the dividends from your investments should further generate more earnings.

Your wealth is not in the money you saved from your earnings. It is in the income your savings generate. Your savings must generate an income stream that continuously flows into your wallet whether you work or travel.

In the modern world, this can be achieved by investing your savings on a regular and consistent basis. While you invest, keep the following principles in mind:

1. Develop a simple investment strategy. You will never converge on the most optimized investment strategy. It is a continuous process. Do not defer your contributions just because there are too many variables to consider: stocks, real estate, crypto, NFTs, art, wine, and more.
2. Make regular investment contributions. Great things come from consistency and compounding - whether it is investments, relationships, or learning a skill. Make biweekly or monthly contributions wherever applicable.
3. Automate the investing process. You’ll lose motivation if the process of making contributions is tedious. Automate the process when you can. For example, you can make automated biweekly transfers from your salary account with the bank to your brokerage account with your brokerage company. Automated your brokerage account to invest in certain stocks or index funds on a biweekly basis.
4. Never liquidate investments for pleasureful activities. You should never touch your investments unless it is an emergency. Emergencies mostly include medical emergencies. Liquidating your investment to buy a new car or to go on vacation is a bad idea.

Fourth Law: Guard Thy Treasures from Loss

Guard your savings against loss by investing only where your principal is safe, where it may be reclaimed if desired, and where you will not fail to collect a fair return on investment.

The first principle of investment is the security of your principal. Study the investment domain and opportunities carefully before parting with your hard-earned money. Make sure your principal can be safely reclaimed. Don’t be misled by your own romantic desires to make wealth rapidly. Acquaint yourself with the dangers which may threaten your investment.

Do not be over-confident with your own wisdom in entrusting your money to the possible pitfalls of investments. It is better to consult the wisdom of those experienced in handling money for profit.

Consult with people who are knowledgeable in the investment domain you’re interested in. When you have stomach pain you go to your physician, not to your car mechanic, isn’t it?

Take advice only from people who have a proven track record in profitable investments. Let their wisdom protect your hard-earned savings from unsafe investments.

That doesn’t mean you can’t become an expert in a specific investment domain. But to do that, you need to spend enough time and energy reading books, researching online, taking courses, and talking to experts in that domain.

Fifth Law: Make of Thy Dwelling a Profitable Investment

Own your own home.

I acknowledge that this might get tricky depending on the part of the world you live in, whether you live in an urban, suburban, or rural setting, your current local and national housing market conditions, average annual home appreciation in your area, annual percentage rate (APR) of home loans, and your age.

But here’s a rule of thumb that’ll help you determine whether buying your own home is a good financial decision or not.

If the total monthly payment towards your home including home loan payments, homeowners insurance, homeowners association or community maintenance fees, and estimated home maintenance expenses, but excluding property taxes is approximately the same as renting a similar home, you should probably think about buying than renting.

With a decent home appreciation rate, you’ll end up making a good return on investment if you were to sell the home after 20-30 years. Also, real-estate investments are inflation-proof. As the value of paper money decreases with inflation, in countries where home loan interest rates can be locked in for a really long period of time (15-30 years), you basically accrue more equity of your home without paying extra towards the principal.

There is also a sentimental reason beyond the purely financial aspect to decide whether it is a good idea to buy your own home or not.

If you have a family, or you’re planning to start one soon, you’ll make a lot of good memories in the home that you can call your own. There is an inexplicable peace of mind when you live in your own home with your children and do not think about whether your landlord is going to approve of a modification you want to make in the house, an unpredictable rent increase, or even an unforeseen eviction.

Sixth Law: Insure a Future Income

Provide in advance for the needs of your growing age and the protection of your family.

Although it might be hard to imagine today, there will be a time when you won’t be able to work like you’re working today. With progressive aging, your mind will slowly wear down, and your body won’t be as energetic as it is today. In worst circumstances, you may die prematurely.

Therefore, you need to make sure you have a consistent source of income when you can’t hold a regular job anymore, commonly known as retirement, or support your dependents such as aging parents, children, and an unemployed (by choice or by compulsion) spouse.

In many cultures, children support their aging parents after retirement. Although there is nothing wrong with that approach, I think one should plan for their own retirement income to maintain dignity, independence, and self-esteem.

You should actively and regularly contribute to employer-sponsored or self-sponsored pension plans. Unfortunately, in the US, most corporations stopped offering pension plans in the 1980s. However, there are several other retirement plans offered by employers including 401(k) and Roth IRA. If you are fortunate enough to have additional savings after contributing to tax-advantaged plans such as 401(k) and Roth IRA, you can consider investing in stocks, real estate, or anything else. Whichever investment route you choose, DO NOT forget the Fourth Law: Guard Thy Treasures from Loss.

For unforeseen events such as partial or full disability caused due to an accident or a life-threatening disease consider disability insurance. To make sure your dependents do not need to scramble for money in case of your death, consider getting life insurance.

Seventh Law: Increase Thy Ability to Earn

The last and most vital law of prosperity is to increase your ability to earn. Cultivate your powers to study and become wiser and to become more skillful.

The more knowledge and skills you acquire, the more you can earn. If you seek to learn more of your craft you shall be richly rewarded. But it is also important to be aware of the skills that are more highly rewarded than others.

Employers hire for specific skills. But all skills are not created equal. Some pay higher than others. Some can be acquired in a shorter period of time than others. Some can be taught through formal education, and some need to be acquired by doing.

You should try acquiring high-leverage skills. Skills that you can use to earn more by spending less time working. In my opinion, the skill with the highest leverage is investing. Particularly, investing in stocks, businesses, and real estate. But investing in any of these domains requires specific knowledge that can be hard and time-consuming to acquire.

Other skills with high leverage include creating media (e.g. YouTube videos, blogs), and coding. Both of them take relatively less time to learn. You can start creating income-generating assets such as YouTube videos and software in under 6 months of learning.

You might argue that what if you’re not interested in any of these. It is a fair point, and I don’t have a good answer. But here’s something I learned over the years. Passion is overrated. If you start seeing tangible benefits of doing something, you develop more interest in it. Once you develop more interest you have more concentration on your tasks, and more persistence in your efforts. Soon you’ll start getting better than others and earn more than others in the same line of work.

I want to end this article with a closing thought on money. Money in itself is neither good nor bad. It depends on the value you try to draw from it. It is a tool that can help you accomplish great things. Money can’t buy true happiness, but it can get rid of the common causes of unhappiness.

Everyone’s purpose for earning money is different. Most people earn it to live a pleasureful life. Others try to earn more because they use it as a metric of personal progress. I don't hold a moral high ground to judge either of those reasons. But, I can tell you why I desire to earn more money. I want to earn more because I want to give more. Here’s the principle that I follow:

Earn like a millionaire.
Live like a monk.
Give like a saint.

More on this principle in a future article. Until then, live long and prosper.