The Richest Man in Babylon, written by George S. Clason, has been one of the most influential and inspiring books for me. The protagonist Arkad, who is the richest man in Babylon, was commissioned by the king to teach his citizens how to acquire riches. The citizens of Babylon seem to be experiencing the exact same problem that our society is currently plagued with — a lack of financial intelligence. This article will dive into the five most important lessons — or cures — that taught me to conquer my financial ignorance and become financially free.
Arkad is famous for his “Seven Cures for an Empty Pocket.” The seven cures are filled with common sense advice, yet few individuals follow his sage teachings.
Here are the “cures” that I found most influential.
5 Cures to Financial Mediocrity From The Richest Man in Babylon
Start thy purse to fattening (Cure #1).
I refer to this cure as the cornerstone of my financial planning. Arkad tells us to save 10% of our earned income, or in his words, one out of every ten coins. I have labeled this savings account my “financial freedom” account.
This account is only to be used for investing and growing your personal wealth. Once you begin to save for investing, the law of attraction kicks in. The account will continue to grow and attract more coins. This also forced me to concentrate on saving money for investment purposes only. The law taught how to budget my earnings and set up a plan for investing. Failing to plan is planning to fail!
Control thy expenditures (Cure #2).
I always tell my students to get their financial house in order before pursuing a huge endeavor as real estate investing. Begin by controlling your expenses, and learn the difference between personal and business debt. Most personal debt is to be avoided, while business debt is to be used to leverage the business and pay for your personal expenditures.
My father once told me it wasn’t how much I earned that was important, but how much I kept. Most of us stuck in the middle class run off and spend our increases in pay instead of investing the excess in ourselves or putting it into a financial freedom account. Learn to control your expenses and reinvest the excess!
Increase your ability to earn money (Cure #7).
This is one of the most important cures. If an educated person loses their wealth, they have the ability to create new wealth. The education makes a person wealthy, not the money. In real estate, there are countless strategies that an investor can utilize. An investor should become proficient in one strategy before attempting to learn another. The key is to always be a student and never assume that you have become an “expert.”
My career in real estate exploded when I decided to “get educated.” What are the steps I took? I sought out a real estate coach, I devoured real estate books on multifamily investing, I became a licensed real estate salesperson, and I bought countless training programs. I made a commitment to myself that I would learn as much as possible about multifamily investing before I invested in another deal. I spent approximately two years educating myself before I purchased my first investment property with my partner Jake. The education allowed me to connect with partners, find deals, and create a terrific team.
Guard thy treasures from loss (Cure #4).
Warren Buffet said it best: ”There are two rules in investing. Rule #1: Never lose money. Rule #2: Never forget rule #1.” This rule has become one of my mantras. My focus is on the buying aspect of real estate. Any successful investor will tell you that your money is made when you “buy right.” Allow me to expand this law a bit further.
Many in real estate do not have time to personally manage a property, so they choose to hire a management company or partner with others. Yet others seek a more passive approach and look to a syndication to invest their capital. This law demands that you consult with wise men and “secure the advice of those experienced in the profitable handling of gold.” It seems fairly obvious to follow this advice, yet many investors fail to perform proper due diligence when entering into these investments.
The story about Arkad entrusting his hard-earned money to a brick maker who was supposed to purchase rare jewels in Phoenicia illustrates the pitfalls in investing with those who have no experience. Arkad lost his entire investment and learned an invaluable lesson. I often hear investors asking their friends and family for real estate advice. We all have an Uncle Charlie who is always spouting that real estate is risky and should be avoided. If you dig a bit deeper, Uncle Charlie doesn’t own any real estate — and should keep his unfounded opinions to himself. Don’t listen to Uncle Charlie; seek out Mary, who owns 300 units and is growing her portfolio.
Insure a future income (Cure #6).
This is one of the main benefits of real estate. The average American has been brainwashed into funding a pension plan for their retirement. Although this strategy has several benefits, it does not compare to a portfolio of multifamily properties. The options are exciting. Should I sell part of my portfolio, should I hold and cash flow, do I sell some assets and take back a note as part of my payment? Arkad defines the cure as “provide in advance for the needs of thy growing age and the protection of thy family.” With real estate, an investor can create generational wealth while providing for his family and his retirement.
Set up your own personal financial freedom account (FFA). The time is today, not tomorrow. Create a monthly budget to track all of your expenditures and to find ways to save money to invest into your FFA. Next, choose a niche in real estate (ex. fix and flip, buy and hold), and begin your education. Seek out a mentor/coach to help shorten your learning curve and propel you to success more quickly. All that’s left is to take action. Then the fun begins!
Have you read The Richest Man in Babylon? What’s your favorite tip from this classic read?
Let’s talk in the comments section below!