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£5,000 to invest? This is how I’d get rich by following George Clason

George Clason’s best-selling book The Richest Man in Babylon was quite a sensation when it was first published in 1926. It’s set in ancient Babylon, thousands of years BCE. But the common sense recommendations on how to get rich are still relevant today. That’s why millions of people working for banks and insurance companies have been reading it ever since. In my view, the recommendations George Clason makes are also useful for people who have £5,000 or any other amount to invest.

The richest man in Babylon and his tips

Arkad, the richest man in Bablylon, is the main character of these Babylonian parables. His most important principle is to save at least one tenth of his income. It might seem hard to do. But according to Arkad, it’s quite realistic as long as you control your expenses. Does it mean you wouldn’t have any money to spend for pleasure? Not necessarily, say Arkad and Clason. In some cases, you could buy the same products for far less, while enjoying better quality. For example, I used to order food online but I wasn’t happy with the quality and the prices. So, I began buying essentials from a large supermarket. As a result, my food expenses plunged by about 50%, which allowed me to set aside some cash.

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But setting aside some cash isn’t all you have to do to get rich.

So, why not invest the cash?  

Clason and his characters give another vital, if out-dated, tip. “Every gold piece you save is a slave to work for you. Every copper it earns is its child that also can earn for you.” In other words, make your money work for you. How? Well, some of my colleagues suggest investing in an index fund. Such funds normally pay you dividends, So, the “gold piece” earns you some “copper“. This “copper” or dividends can be reinvested back in the index fund to make you more money. 

How do I save without losing?

This brings us to another important point. It’s a well-known fact that all investments carry some sort of risk. Even Cash ISAs do. In his book, Clason mentioned the walls that protected the Babylonians and their riches. He gave a modern example of insurance companies acting as “the walls” to protect their clients’ wealth. But remember the 2008–09 crisis. Some insurance companies failed to compensate their customers’ losses because they didn’t have enough cash to go around. 

The best solution to the problem is to avoid investing in companies you don’t understand. An index fund is a good solution for you to diversify risks. A great thing to do is to buy shares or the Footsie when they are near record lows. This provides you with more opportunities to profit and with fewer risks of losing your wealth.   

So, how can I get rich?

The best investment should also provide you with an opportunity to get a regular income. This wouldn’t just let you reinvest it, it would also improve the quality of your life. The most obvious example is buying undervalued FTSE 100 companies with a good dividend track record, I think.

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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.