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Monday, March 26, 2012

Money grows on trees

We’ve all heard the saying, “Money doesn’t grow on trees.” It’s a cliché: a catch-cry of people who need to make excuses.  It is a saying that has come to mean that money does not come in abundance.  But that is a misrepresentation.  Money is abundant and people can access that abundance whenever they see fit.  If you believe that money does not grow on trees, perhaps it is because you have not learned how to plant and tend your money trees.  This should be primary school stuff.  As a child who grows up on a farm learns instinctively how to plant and manage crops, so too should all children be taught how to plant and manage their money trees.  If “money doesn’t grow on trees,” then I suggest you have no trees.  Read on for information regarding the planting of your very own money tree.

Money trees are like any other trees, they need to grow from a seed and for the first few years, will not bear substantial fruit.  If you are starting your money tree from scratch (ie putting a few savings away in a separate bank account) don’t expect too much from your tree until it grows to a substantial size.  This could take years. But have faith that in the long run it will grow.  We know this about trees: it is also true with money.

If you want to go ahead and buy an established tree so that it grows faster and bears fruit immediately, you will need substantial funds.  If you don’t have these funds you may need to borrow them.  The fruit that your tree bears will be needed to pay off your loan and my not cover the interest in full for quite some time.  For example, if you buy residential property, you can borrow the amount from a bank. Most of these investments will require all of the rent (fruit) to cover your mortgage and you will still need to put up the costs of management fees, insurance, rates, water and maintenance. But your investment will grow over the next ten years and you will eventually be able to harvest more fruit than you need for the upkeep of the tree. 

Take into account the seasons.  During a drought, trees need more care and attention and regular watering.  So too will your investment property during a real estate slump.  If you have invested in shares, they too die off a little during their own drought.  Do not be too quick to dig up all of your sick and dying money trees because there is a lack of water.  Do your best to keep them healthy, knowing that there will be a change of season and when this comes, your trees will grow taller and bear more fruit than ever before.

Do not put all of your faith in one tree.  Sometimes, for whatever reason, a tree will not do as well as others.  If you have a money orchard instead of just the one money tree, you will be able to fend off natural disasters that may single out one tree.  Continue to plant small trees even if you have some large ones that are doing well.  Reap the fruit and replant the seeds instead of wasting the entire crop.  A share portfolio will grow much faster if you reinvest your dividends. A positive cash flow property will be paid off faster if you use the extra money to pay down the loan.

That is all I have today on money trees.  We can go into detail in another post.  For now, begin by planting your first money tree.  Put 10% of your income into a separate bank account until it grows enough to purchase an investment.

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