Don’t Eat Your Babies

Many times, when I teach people how to become financially free we talk about putting money away in your “financially free” account. They ask two questions that don’t make sense. One is, “What am I going to do with the money?” That’s like asking, “How am I going to drive my Ferrari?” before you have even started saving for one! Start putting money aside, and when you have mastered that habit, we can start talking about what to do it.

The second question people ask is, “At what point can I start spending the money I’m putting aside?” I say, “Never.” They come back with a, “Well, there’s no use saving or investing money if I can never spend it!” That’s because they don’t understand. The money you invest, either in yourself or others, is like your children. You have your children, and then you put them to work for you. Their job is to make more dollars—your children’s children. And those go to make even more—your great-grandchildren. You’re allowed to eat your grandchildren and your great grandchildren, but you’re not allowed to eat your children.

For example, let’s assume you use your 10% savings to eventually purchase a rental property. The property brings in $300 a month in cash flow. That $300 is your cash’s children. Your children are the money you saved and used to buy the rental property. Its children are considered the cash flow. It’s ok to use that money. It’s ok to eat your grandchildren (money) but not your children. You don’t ever eat your children.

Another example: You put your money in the stock market by buying a stock. Let’s assume you pay $1,000 (your children) to buy 100 shares of XYZ stock at $10 a share. The stock pays a dividend of .50 cents a share quarterly, so every quarter you receive $50. You can either reinvest the $50, or you can use the $50. If you can reinvest, then you will grow your fortune even faster. But if you need, or want, to spend the $50, that is also perfectly ok as it is from your “grandchildren” and you’re not touching your children. In addition, if the stock price goes up to, say, $15 a share, you now have $1500 worth of stock. $1000 is your children and $500 is your grandchildren. You can keep the stock and let it continue to rise, you can sell part and reinvest your grandchildren, or you can sell some and “eat” the grandchildren. All of these are ok. What is not ok is to ever touch the original children, or $1000.

Since you have made the decision to invest in your financial freedom account every single paycheck, your children will continue to grow, and they will continue to produce grandchildren. I recommend, as much as possible, you use those children to buy assets—things that produce monthly income, or grandchildren. Then, if you can, let those grandchildren also bear children and continue on. You should never feel guilty if you need to, or want to, use this money, as it’s for that very purpose. What you must commit to is to never use the primary source of money that is creating the wealth— never eat your children.

Keep Living Every Minute,

Dr. Tim