- The Insider Memo
- Five Laws of Wealth
Five Laws of Wealth
These laws are essential to getting you on the road to becoming money-savvy. It is all you need to manage your personal finances.
These are the five laws of wealth taken from a book published in 1926, titled The Richest Man in Babylon by George S. Clason.
This book provides common sense financial advice through tales from the time of ancient Babylon, which can still be applied today.
The five laws of wealth (mentioned as five laws of gold in the book) is a ‘wealth-management’ philosophy handed down to later generations by the richest man in Babylon, named Arkad. Here are the five laws, with commentary on what they mean in a modern setting.
Gaining financial independence is the desire of everyone who wants a financially secure future for himself and his loved ones. This law is incredibly fundamental, but many people don’t follow it. A person should put away 10% of their “take-home” income for the future as an absolute minimum.
Where the first law is about saving your money, this second law is about growing it. Investing your money is about making money work for you, which in turn will make more money. How many people say they “don’t have money to invest”. That, again, is because they failed to follow the first rule. Once you begin saving money, you then need to find investment opportunities where your money can grow. Whatever that investment is, whether a small business you see a huge potential in or a mutual fund or the stock market. Money under your mattress will simply lose value over time. It’s time you start making money work for you.
This law encourages cautious investing. How many times have people invested in what they “felt” was a lucrative investment, only to then lose all their money. In order to invest your money, your decisions must be well thought out, reasonable, based on information and not impulsive and irrational. Seek out expert advice, pay for it if you need to. In this ‘age of information’, there is no excuse for ignorance as there is plenty of information available online that can be used to your advantage.
As Warren Buffett says: “Don’t invest in a business you don’t understand”. Before you invest in any opportunity or buy any stock, you should have a thorough understanding of how the business makes its money, how it expects to continue to make money going forward and how that market works. Getting into something you don’t fully understand is a recipe for disaster. If you don’t understand something then there are qualified people who do. It’s best you pay them a fee to manage your investments for you.
All that glitters is not gold. If it sounds too good to be true, then it most likely is. It really goes back to the third rule. Only invest after thorough investigation. Don’t act impulsively or under pressure. It’s your money and only you can decide where to invest it. As Abraham Lincoln said: “If I had four hours to chop down a tree, I’d spend the first two hours sharpening the axe.” So, take your time investigating before you invest in an opportunity.