The 7 Simple Rules of Money

8 min readDec 3, 2020

Money is important.

If you want to make your dreams and desires become a reality, you must learn to be successful with money. You need to know how to acquire it, how to maintain it, and how to grow it.

The good thing is that the core concepts of money aren’t complicated. In fact, they’ve been the same for hundreds of years. If you can understand and master the fundamental rules, then you can build wealth beyond your wildest dreams.

One of the best books about money is The Richest Man in Babylon by George S. Clason. The book tells the story of Arkad, the proclaimed richest man in Babylon. At the bequest of the King, Arkad shares his “seven cures to a lean purse” to teach the people of Babylon how they themselves and the entire city may come to acquire great wealth. These cures or “simple rules” are still applicable for building wealth today.

(1) Start thy purse to fattening: save money

Starting simple, Arkad’s first money rule is to save money — or more accurately, pay yourself first.

Most people clearly don’t do this. When you buy a new iPhone, you’re giving your money to Apple; when you order a coffee, you’re giving your money to Starbucks (or whatever your favourite coffee shop is). That’s giving away your money, not keeping it.

The way to pay yourself first is to find a way to keep, i.e., save as much of your money for yourself as possible. The entire process of wealth-building stems from your ability to do so. You want to be using as much of your income as possible to add to your net worth.

Arkad recommends putting aside 1/10th of what you earn by default, more if you can afford it. If that means that you have to reduce your leisurely expenses, well, then that’s what you have to do. Just make sure you’re always setting some money aside. That 1/10th may not seem like much at first, but over time it will add up fast, especially as you apply the other money rules.

(2) Control thy expenditures: don’t spend more than you need

This is essentially learning to live within your means and avoiding lifestyle creep.

It’s a natural urge to want to spend more as your income increases. But this is an urge you must resist if you want to grow your wealth.

If your income increases by $10,000 but then you decide to take an extra vacation to an exotic location, buy new furniture and a new TV, well, then you’ve just burnt up your increase in income. Unfortunately, this is not so uncommon — there are bankers, lawyers, and surgeons living in New York City that have a negative net worth, all because they couldn’t resist the urge to constantly upgrade their lifestyle.

Spending less than you earn, and avoiding lifestyle creep will rapidly increase your wealth. Always make sure that your total expenses are lower than your income by a comfortable margin. When your income increases, only increase your spending by a small amount — save or invest the rest. Every extra dollar you get will add to your wealth. Every time you increase your income, the speed at which your wealth grows will also increase. That’s the true key to building up your money.

(3) Make thy gold multiply: invest your savings

Saving money as you’ve done by rules 1 & 2 is great, but there’s a lot more money to be made here. With a regular income, it will be hard to build up your wealth. There are only so many hours you can work in a day to earn more money. Even if you could work more hours, any money you have sitting in a bank account will lose money over time to inflation, roughly 3% per year on average.

The way to grow wealth is to put your money to work to make you even more money. There’s a word for that: investing.

You should be investing as much of your savings as possible. Stocks, bonds, real estate, and precious metals are all investments that are thousands of years old (though their precise form may have changed). You buy assets, and then those assets grow in value while you sleep with no additional time or effort from you. If you have money sitting in a bank account, try to look for ways where you can use it to buy an asset with better growth potential.

On top of that, you should be taking advantage of compound interest. When your assets pay you dividends, use that money to buy even more assets. Your money makes you money, and that new money makes you even more money. It’s a beautiful snowball of wealth.

4. Guard thy treasures from loss: avoid risky investments

There are many different options out there for investing your money. But the biggest thing is to avoid the loss of your principle.

Warren Buffett once shared his two rules for money:

“Rule №1: Never lose money.
Rule №2: Never forget rule №1.”

Losing your principle means that the hard work you put in to earn that money just went down the toilet. That’s terrible! You should always pick investments that you have done thorough research on and that you are confident will grow in value. Even if the potential growth is slower, at least make sure that you won’t lose money.

Now, of course, all investments come with some form of risk attached to them. The higher the potential reward, the more the risk of loss. The key is to strike a balance: take some risks that you can get big rewards from, but don’t do it with all of your saved money. Put most of your investments in rock-solid assets, and then you can take a few risks to get bigger rewards. The barbell strategy may be a good option here. Balance your portfolio and diversify.

Most importantly, always always always do your research before buying any kind of asset. Make sure that the risk justifies the potential reward and that those rewards are based on reality. If something sounds too good to be true, then it probably is.

5. Make of thy dwelling a profitable investment: your home is an asset

Out of all the expenditures one makes in their life, their home is usually the largest. It will be a huge advantage to you if you can somehow leverage the money you put towards your home to your advantage, to earn you more money like any other asset.

The most common way to leverage your home to make money is to buy a house. Houses have grown at nearly the rate of the stock market over the past 100 years. On top of that, you can upgrade them through renovations to add value to the house. The best part: your primary home often comes with numerous tax advantages, including any appreciation in value being tax-free in some countries!

That being said, buying a house is not the end all be all strategy. Renting a home can also be a viable option, especially in the short term. The money you save by renting and not paying a mortgage can be invested in other places such as stocks, bonds, cryptocurrencies, and more in order to diversify your assets. The prices of houses in some major cities are actually so high that renting and investing the spare money actually makes you more wealthy over the long term. There are rent vs. buy calculators if you want to do some calculations on this yourself.

Final point: leverage your home to grow your wealth.

6. Ensure a future income: retirement planning

No one works forever. You will be old one day, perhaps still able to work but not at the same level as you did in your younger years. It’s important to plan for such things.

When you have your money invested in assets, you should be keeping as much of that money invested for as long as possible. If you start to take out that money before retirement to spend it lavishly, then you may find yourself out of money when you do actually need it in your later years yet can’t work to earn it.

On top of that, time will work to your advantage with asset growth, especially with compound interest on your side. Retirement and tax-free savings accounts are also a great thing to leverage here. If there is any way to increase your methods of getting money and reducing your taxes while you don’t work, do it. Use every advantage that you can when it comes to long term wealth building. Even seemingly tiny 1% gains add up big over decades.

7. Improve thy ability to earn: strive to become wiser and more skilled

At the end of the day, you are paid in an amount that you have the skill to earn. If you want to increase your income and make more money, then you need to become wiser and more skilled so that your contributions are worth more.

You can pay for online or night classes to upgrade your credentials. You can study new technical skills on your own. You can read books to learn more subtle yet powerful soft skills. You can go to networking events. Anything that can increase your value to society where people are willing to pay you more.

This kind of learning should be targeted. If you go read a book about spaceships, but you work in sales, then it won’t really help you make any more money (unless you’re a salesperson in the spaceship business). Look at the potential return-on-investment for every skill upgrade. That way, you’re always positioning yourself in a way that increases your income.

In Summary

These are the 7 simple money rules we learned today:

Pay yourself first
Spend within your means
Invest your extra money
Avoid risky investments
Leverage your home as an asset
Plan for retirement by targeting long-term growth
Upgrade your skills to earn more money

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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.