Many people argue it doesn’t matter how much money you make — it’s about how much you keep.
And holding on to your cash requires experience, smart habits, and a bit of wisdom: “Without wisdom, gold is quickly lost by those who have it, but with wisdom, gold can be secured by those who have it not,” writes George S. Clason in his 1926 personal finance classic “The Richest Man in Babylon,” a collection of parables based in the ancient city of Babylon.
In addition to boiling down the “secret” to building wealth in seven steps, Clason reveals the five “laws of gold,” which, if mastered, he says can turn any person into a wealthy person. Bear in mind he uses “gold” to refer to money, not actual gold.
Here are Clason’s five truths about money, in his words and ours:
1. Money will come to those who save at least 10% of their income.
Getting rich begins with paying yourself first. If you want to build wealth, Clason says, set aside a minimum of 10% of your earnings:
Gold cometh gladly and in increasing quantity to any man who will put by not less than one-tenth of his earnings to create an estate for his future and that of his family.
The gold which I save earns more, even as yours will, and its earnings earn more, and this is the working out of the first law.
2. The money you save and invest can earn even more.
Once you’ve committed to setting aside a chunk of your earnings, that money can snowball:
Gold laboreth diligently and contentedly for the wise owner who finds for it profitable employment, multiplying even as the flocks of the field.
Gold, indeed, is a willing worker. It is ever eager to multiply when opportunity presents itself.
This second truth can be explained by compound interest, which is when the interest earned on your investments earns interest itself.
With diligent saving habits and long term commitment, compound interest can make you a millionaire. In fact, based on your current age and a 6% rate of return — how much you’d need to save per month in order to reach $1 million by age 65.
3. You must be conscientious to grow your wealth.
Being a conscientious, patient investor may lead to good things:
Gold, indeed, clingeth to the cautious owner, even as it flees the careless owner. The man who seeks the advice of men wise in handling gold soon learneth not to jeopardize his treasure, but to preserve in safety and to enjoy in contentment its consistent increase.
Clason may have said it 90 years ago, but even in modern day, the most successful investors leave their money alone.
If you’re looking for a professional “wise in handling gold,” you can find certified financial planners at LetsMakeaPlan.org.
4. Investing in things you know is more likely to lead to wealth.
A sizeable salary does not guarantee wealth. At the end of the day, your salary is just a number — and if the cash behind that number is not managed cautiously and properly, it can disintegrate in the blink of an eye:
The inexperienced owner of gold who trusts to his own judgment and invests it in businesses or purposes with which he is not familiar, too often finds his judgment imperfect, and pays with his treasure for his inexperience.
Again, we hear similar advice from legendary investor Warren Buffet, who said “Buy into a company because you want to own it, not because you want the stock to go up.” In other words, if you’re going to pick stocks, do your research and cast your chips with a company (or fund) in which you feel confident.
5. You can’t get rich quick.
The golden rule of investing and building wealth is to think long term and not get caught up in the “get rich quick” mindset. As Clason wrote nearly a century ago:
Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own inexperience and romantic desires in investment … Risks lurk behind every plan to make great wealth suddenly.
This truth is still heavily emphasized today. As Buffett likes to say, “It’s pretty easy to get well-to-do slowly. But it’s not easy to get rich quick.”