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Dude, You Need a Money Tree

Very few people get rich without creating at least one money tree, and more likely, several of them. But what is a money tree? It starts with you planting a financial seed and nurturing it with attention and resources until it grows into a tree that starts to produce money on its own. That sounds like some crazy woo-woo stuff I know, so let me give a few examples.

• Opening up a bank CD. Maybe you worked 2-3 jobs during the summer, lived on the cheap with your parents, and saved up $10,000. The CD pays say 3%, so now you have a small passive income stream of $300/year or $25/month. Keep nurturing it and the income stream could grow into the thousands. Plus it’s a low risk asset because the FDIC insures all bank deposits up to $250,000.
• Getting some dividend stocks. You took every penny you saved last year and bought a few hundred shares of a company that pays a 4% dividend. If you’re investment was $15,000 then your dividend earnings would be $600/year. Plus the stock price may go up and then you could sell it for a large capital gain. Or if the stock price goes down you could just hold onto it and collect the dividend. You could even consider selling covered call options against the stock to generate even more passive income. But be careful, you need to beef up your financial education before you start putting money in risky assets like stocks or options.
• Buying several vending machines. Before you bought the machines you pre-sold some local businesses them on the idea of installing vending machines at their facilities. They agreed to pay for the electricity and you’ll split the profits with them 50/50. For an investment of $12,000 in machines and snacks maybe you’re passively earning $50, $100, or even $250/month. Filling snack machines and emptying the coin boxes once a month is not much work.
• Buying your first rental property. You shopped for a deal for months, put in several offers but lost them all. Now finally you bought your first duplex. If it was a cheap one maybe your down-payment was only $25,000 and your monthly cash-flow is $500/month. If you don’t want to deal with being a landlord then hire a property manager. It will reduce your cash-flow, but now it’s truly a passive investment. But be careful, I know several people who have lost big time money in real estate because it’s a super complex investment and the returns are directly related to the financial knowledge of the investor. I cover real estate investing in great detail in my Lecture #201: Real Estate – Basics.

I’m sure some of you are looking at these investment figures and thinking “I can’t come up with that kind of money.” That’s bullshit. You absolutely can, but you need to be willing to work your tail off and learn to get your money right. In order to have capital to invest you must create a monthly surplus—in business we call this a positive net income. That surplus can then be used to pay down high interest debts, and once that’s done it’s used to increase savings (capital). While you’re accumulating capital you should be learning everything you can about money and investing. Before you know it, you’ll have enough to plant your first small money tree.

The second money tree is faster and easier to plant because now you have the extra income from the first money tree to accelerate your savings rate. Plus now that you’re a successful investor with your own money tree, you’re confidence has increased, and you’re starting to learn about investing by doing it. If you stay focused and keep up the momentum, then your second, third, and fourth money trees will soon follow.

Some of you may be thinking “wow that’s great, but it can’t be that easy…” As a high level concept it’s absolutely this easy, and if you’re investing in something really simple like a bank CD then you really don’t need any specialized knowledge. But if you’re going for much larger returns of 20%+ then you’re going to have to put a lot of focus on learning as much as you can about the investment vehicles you’re interested in. I routinely get 20-50% annual returns on my real estate investments, but I spent thousands of hours reading, researching, talking to experts, and acquiring/running properties to build up the kind of expertise I needed to perform at that high level.

There are 3 main species of money tree. They are paper investments (stocks, bonds, CDs), business, and rental real estate. They are all powerful vehicles for building wealth, but if you don’t fully understand them before you start shelling out your hard-earned capital then you aren’t really investing, you’re gambling. I lost $10,000 when I was in my early twenties buying a telecom stock that declared bankruptcy and went all the way down to zero. I was overconfident and didn’t know what I was doing. Don’t be that guy.

Create a surplus, set aside capital, learn to invest, and then plant your own money tree. Then repeat, again and again. If you don’t start to do this soon, but instead rely solely on the income you earn from a job, then you’re probably going to work until the day you die. Is that the life you want for yourself?

Decide today whether you want to learn how capitalism works and struggle your way up into the 1%, or do what everyone else is doing and settle for a life of mediocre finances. But be prepared to live with that decision because it will follow you for the rest of your life.