3 tips from The Richest person in Babylon

Hey,

Back in 2020 I came across a book named “The richest person in babylon” and it instanly blew my mind. This was the begining of understanding the game of money. In today’s newsletter, I wish to share the big idea from the book which I personally implement.

Big idea: Money you earn is yours to keep

You might think this is a stupid statement because you own the money you earn. But, dont you pay for your electricity bills, clothes, and food? and would these expenses ever stop? The simple answer is No.

To fight this problem The RICHEST PERSON IN BABYLON shared 3 powerful tips.

Tip 1 : Save 1/10th of your earnings Let’s say you have a basket that refills with 10 eggs everyday and on each day you utilize 9 out of those 10 eggs. At some point in future the basket would overflow due to the 1 egg which is saved every day. Similarly, plan your expenses such that you dont utilize more than 90% of your income. This will ensure sufficent savings.

Tip 2: Make slaves work for you. Until now you earn money only when you go out and work for it. But the real game is to make money work of you. The 10% of the money you save each month are your slaves who would go out in the market to make more money for you. In simple words invest the 10% of your savings into income generating assets. Hence, now your money is also earning more money for you.

Tip 3: Make the childrens of your slave work for you. This is a great idea, once you have a army of slaves (your savings,10% of the income) generating income for your. The money earned by these slaves (i.e. their childrens) must be reinvested inorder to strengthen your army. This term is also known as called compounding. Let’s understand with an example.

Suppose you earn 1000 rs and save 100 rs. as per tip #1 and you invest the 100 rs at 10%, Now, you earn 10 rs on your savings. So, now you have 110 rs in total. If you reinvest these 110 rs at same interest rate you now earn 11 rs instead of 10, if this cycle is repeated 10 times, you would end up with 159.37 rs earned from interest, which is almost 1.5 times the actual amount invested.

Leverage the power of compounding to increase your income.

I hope these 3 tips are useful.

But the question is where do we invest our savings?

we would explore some investment ideas in our next newsletter. Stay Tuned!!!