5 Timeless Tips to Achieve Financial Freedom
A summary of “The Richest Man in Babylon”
Did you know that the US Dollar lost 16% of its purchasing power in the last decade alone? At this rate of decline, a millionaire in 2008 would only be worth $840000 today.
This is how Darwinism manifests in the modern world: only the financially fit survive.
Learning these vital skills in school would have simplified our transition into adulthood. It’s unfortunate that the powers that be don’t agree.
I struggled with finances all through my early twenties. Between rising rent and falling wages, my money would dry up. Fighting a pandemic with zero savings was sobering.
I’ve been educating myself ever since. Reading books, watching videos and following podcasts helped me get back on my feet.
My journey started with George Clason’s The Richest Man in Babylon. In this post, I’m summarizing the classic bestseller.
I hope it will help bring out your money’s full potential.
Synopsis
The Richest Man in Babylon teaches personal finance through several parables set in the ancient city-state.
The book starts with two artisans cursing their lives. Despite acquiring great renown, neither is happy, and both struggle with money.
Curiosity strikes when they notice how well their former classmate, Arkad, is doing. A three-way conversation follows, with Arkad dispensing knowledge. He talks about saving, investing, growing and protecting wealth.
Although Clason expresses concepts in archaic terms, his core ideas are as applicable in 2022.
The Best Time To Start Is Now
Let’s say you’re a financial genius. Maybe your razor-sharp intuition can predict markets with 100% accuracy.
But without actually applying those skills, you won’t achieve anything real. And this is the first lesson Arkad imparts upon his friends: stop thinking, start doing.
This quote is a succinct summary of the idea —
Therefore did I decide to find out how one might accumulate wealth, and when I had found out, to make this my task and do it well (Clason, 1)
Success comes to those that for it. That’s why the best time to work is when you’re young.
Because the sooner you start, the sooner will you succeed. And if things go south, you’ll have plenty of time to recover. You’ll also be in your physical prime, and have the energy to put in massive action.
In fact, you have a plethora of options to earn money quickly in 2022. Digital skills like blogging and video editing are easy to learn and deploy.
Work hard to upskill yourself when you’re young. Then begin monetizing those skills.
Who Are You Really Working For?
In the ancient world, the slave toiled while the master made profits. They built entire nations and economies this way.
There’s no overt slavery today. Instead, we have the salaried middle class: a section of people that dedicate their lives to an office cubicle. The modern worker spends at least one-third of their adult life at their place of work.
While the employees toil away, their corporate masters make the most of life. What little we earn, we lose to taxes. There’s direct income tax and indirect taxes in the form of inflation. Rent, fees and subscriptions exert further stress.
It’s no surprise that so many of us find life disappointing. That pushes us to lead high-consumption lifestyles, acquiring unnecessary material comforts. And thus, we save nothing.
But it’s not sustainable. If we allow this to continue, we’ll never be able to retire. It’s clear that you need some way of preserving your income. You need to learn the how to pay yourself first.
Clason suggests that you make a habit of setting aside 10% of your monthly salary for your own purposes. The rest of your income should go towards settling liabilities.
This strategy forces you to get creative with your finances by imposing an artificial dearth. To stay on top of your liabilities, you’ll have to make a smart budget.
To summarize, paying yourself first offers twofold benefits—
- You build up savings
- You learn budgeting.
It is your first step on the journey to financial freedom.
Minimize Expenses
From media houses worshipping celebrities to banks pushing their credit cards, everybody wants you to burn money.
Even I dreamed of a lavish life when I was young. Adulthood made me realize that opulence is not conducive to wealth building. Rather, giving in to societal pressure is what traps so many people in the middle-class today.
To break free, you must realize that material comforts add little value to life.
For example, you don’t need an expensive sports-car to live your day-to-day life. In fact, these status symbols can only drain your resources: think about how much you’ll spend on maintaining a sports-car.
If you want to be rich, you have to control your expenses. Clason terms this as living below your means. The basic idea is simple: you shouldn’t waste hard-earned money on inessentials.
A study spanning two decades shows that America’s richest understand and embody this concept. You must, too, on your journey to freedom.
Make Money Work for You
When you start paying yourself first, it’ll be like having loose cash in hand. This opens up options: you can satisfy short term wants, or you can put the money to use.
Both options are attractive in their own ways. The former brings little dopamine hits and thus prevents burnout. The latter lets you acquire money-making assets that will build wealth.
You have to grow out of the mindset of working for money. If you want to be wealthy, learn the art of making money work for you.
Investing is the best way of utilizing money to make more money. You buy growth assets stocks and bonds. These will gain value over time, and you’ll make money without putting in any physical work.
Protect Your Wealth
The final step is to learn how to protect your wealth.
You can expect long-term value preservation from paper assets. Though investing in stocks, bonds and mutual funds is great for increasing your cash, it’s not ideal for long term holding.
If you want to protect what you built, you must convert cash into hard assets. Real estate, gold and fundamentally sound cryptos are attractive options.
- By renting out real estate, you can create parallel income streams. This is value added to its bare bones price.
- Gold is great due to its sentimental value and because it exhibits naturally low supply inflation (which means it’s price can’t fall sharply)
- Good cryptos like Bitcoin are a great store-of-value. They will be the primary mode of payment in the upcoming Web3.0 ecosystem.
Final Thoughts
TRMIB is an easy to digest book on financial awareness. Clason’s approach of presenting ideas in story format makes his content relatable. That’s what makes his book an evergreen guide to wealth.
I covered all the core concepts in TRMIB. To reiterate, you need to take 5 steps to achieve financial freedom —
- Stop daydreaming and start working on yourself
- Pay yourself first
- Learn to live below your means
- Make money work for you (not the other around)
- Protect your wealth by accumulating hard assets.
I hope this guide will help you manage money. Let me know what your favorite takeaway is.
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