Mandelbrot
George S. Clason lays out guidelines on how to build wealth over a lifetime. These straightforward steps take incredible self-discipline and can have life-altering implications if followed.
What did I get out of it?
I discovered this book in 2018, a few months after becoming a father. At the time, I was in debt and had virtually no savings. Reading it was a turning point in my life.
The straightforward wealth management principles it presents can be transformative if learned early enough. Applying them has allowed me to turn my life around.
This book has had such a profound impact on me that I now feel compelled to share it. I plan to recommend it often and give copies to friends, family, and anyone else I think could benefit from its wisdom. It’s a small book that has the power to change lives.
Who Should Read It?
“The Richest Man in Babylon” is a timeless classic that teaches fundamental financial principles in a simple, engaging manner. Its lessons are so essential that they should be introduced to students at a young age. This book should be part of middle school curriculum.
Notes and Highlights
Pay yourself first
For every ten coins, thou placest within thy purse take out for use but nine. Thy purse will start to fatten at once and its increasing weight will feel good in thy hand and bring satisfaction to their soul.
We cannot accumulate wealth if we do not save what we earned. We can do that by paying ourselves first and foremost before we spend any of the money we have earned. The book recommends that we set aside 10% of what we earn at the start of the month and live on the remaining 90%.
Live below your means
What each of us calls our ‘necessary expenses’ will always grow to equal our incomes unless we protest to the contrary. Confuse not the necessary expenses with thy desires.
Paying ourselves first, at least 10% of our income, leaves us with 90% or less to live on. Controlling our spending allows us to make the most of the remaining money. Frugality advice has been around for years, but it won’t solve the problem for most of us until we define what money means to us and understand the difference between needs and wants.
The key to building wealth is to keep expenses low, even as income grows (avoid lifestyle creep).
Controlling expenditures means living below our means. When we do this, we accumulate wealth faster.
Make your money work for you
After we have accumulated 6-8 months’ worth of expenses in our Emergency Fund it is only then that we should consider about investing our money on other investment vehicles. Our Emergency Fund is a security blanket especially during this time of economic downturns.
The gold we may retain from our earnings is but the start. The earnings it will make shall build our fortunes. Learn to make your treasure work for you. Make it your slave. Make its children and its children’s children work for you.
Put each coin to work so that it may reproduce its kind even as the flocks of the field and help bring to you more income, a stream of wealth that will flow constantly into your purse.
Compounding is introduced here. Time is our greatest ally in compounding. As our investments earn interest, and that interest earns interest, our money multiplies.
There are many investment vehicles, but we should never invest in anything we don’t fully understand.
Investing requires knowledge about the investment, potential consequences if it doesn’t work out, and exit strategies for when we want to withdraw our money. We can invest in various ways, such as stock markets, real estate, and businesses.
We should invest our money to ensure a steady, safe income while benefiting from the compounding interest our investments generate.
Protect your wealth
The first sound principle of investment is security for thy principal. Is it wise to be intrigued by larger earnings when thy principal may be lost? I say not. The penalty of risk is a probable loss. Study carefully, before parting with thy treasure, each assurance that it may be safely reclaimed. Be not misled by thine own romantic desires to make wealth rapidly.
The primary goal of our investment plan should be capital preservation. We must understand the risk and return characteristics of each investment vehicle we’re considering.
Risk management is crucial. Diversification, position sizing, and insurance are key strategies to mitigate risk.
Diversification involves spreading investments across different asset classes, sectors, and geographies. This reduces the impact of any single investment’s performance on the overall portfolio.
Position sizing refers to the amount of capital allocated to each investment. By limiting the size of individual positions, we can minimize the potential loss from any one investment.
Insurance may come with a cost, but it’s a proactive approach we should consider. The idea is to have protection in place before we need it. If something unexpected happens, insurance can provide financial coverage for the losses incurred.
While we hope never to use insurance, having it offers peace of mind and financial protection against unforeseen events. It’s a vital component of a comprehensive risk management strategy.
Build or rent a home you can comfortably afford
I recommend that every man own the roof that sheltered him and his. Nor is it beyond the ability of any well-intentioned man to own his home. To own his own domicile and to have it a place he is proud to care for, putteth confidence in his heart and greater effort behind all his endeavours
Housing is often our largest expense. Many of us rent instead of owning a home, which is perfectly acceptable. The key lesson is to manage this major expense wisely.
Some people take on substantial mortgages to buy a home. After the real estate market crashed, many found themselves with homes that had lost value, and they were underwater on their loans.
The takeaway is that we should “live below our means” and buy or rent a home that we can comfortably afford. This approach helps to minimize financial stress and risk, even in challenging economic times.
Plan for retirement
The life of every man proceedeth from his childhood to his old age. Therefore do I say that it behoves a man to make preparations for a suitable income in the days to come, when he is no longer young, and to make preparations for his family should he be no longer with them to comfort and support them.
When we start putting money away for retirement early, we take advantage of a magical thing called compounding interest.
Invest in ourselves
That man who seeks to learn more of his craft shall be richly rewarded. The more wisdom we know, the more we may earn. Cultivate thy own powers, to study and become wiser, to become more skilful, to so act as to respect thyself. Thereby shalt thou acquire confidence in thyself to achieve thy carefully considered desires.
Those eager to grasp opportunities for their betterment, do attract the interest of the goddess of fortune. She is ever anxious to help those who please her. And who is she pleased with? She is pleased with those who do - rather than those who merely talk and engage in wishful thinking. Action will lead you forth to the successes you desire.
The most effective way to increase our earning potential is by investing in ourselves. We can do this through continuous learning and personal development.
Today, acquiring new skills is more accessible than ever. Free courses on platforms like YouTube and Coursera, as well as paid options, make it possible for us to constantly upskill.
Embracing a mindset of lifelong learning and self-improvement is essential for staying competitive and increasing our value in the job market.