To “nurture a tree and live off the branches” is a great metaphor I’m using for this post. I want to highlight the importance of not chopping down your tree (as in savings or investments) as soon as it starts becoming significant!
Nurture a tree – save and invest!
You all know how important money is in our lives. Some are happy with less and some feel they need more, still, it’s a fact that we all need money to live. When I was thinking about my upbringing the other day, it just hit me. I come from a blue collar background and my parents have been working all their lives and been relatively frugal or economically minded I would like to say as we have never been short on anything in our house. Every month, there was more money coming in than going out and the difference was saved in mutual funds and savings accounts.
These funds were very expensive which was often the case 30 years ago and when people complain about the bank fees today (fund management fees), I often reply with: “It’s your choice as to what you invest in and how much you pay for those services and it always has been. Also, if you are with the same bank now as you were 30-40 years back and they were the ones who got you to start saving and investing in the first place, maybe the fees were worth it! Had you not started back then (and paying those high fees), maybe you wouldn’t have started at all! Basically stop complaining and look at it from a different point of view and if you are still not happy about it, change it!”
So my parents were really nurturing this tree (their investments) every month but every X years they would chop down the tree almost by its roots by making a big purchase like a new car, build a garage, replace the roof or something along those lines. Even though they never “wasted” their money, they spent a significant amount just when this tree was starting to grow those larger branches.
They always had money but they never became financially free as they always chopped down the tree before it was big enough to continue growing whilst making significant purchases!
Let me give you a clear example
Let’s say that every other year or so you make a larger purchase of say 20k USD. If you save and invest your money and then use them all once you reach 20k, you will go back to zero and in my metaphor you are chopping down the tree or actually pulling it up with its roots!
If you instead were to wait with the purchases, or continue adding more money and not make these purchases till you had say 100k instead. Let’s then also assume that your investments are doing great and you manage to get a return of 20% per year, equaling 20k.
In this scenario, you could then be spending 20k per year and still have 100k left. So every year or so you will be cutting off a large branch but you are nut chopping down the whole tree as you still have your 100k!
Maybe the 20% is a bit unrealistic but what if we say 10% per year in return instead? Well, if you are not adding any money and the return is 10% (10k) and you spend 20k per year, you are still chopping down that tree. If you instead add 20k every year and then spend those 20k, your tree (100k) would still grow stronger and stronger by the year! Continue doing that long enough and your tree will turn into a big strong oak, allowing you to cut off plenty of branches whilst still standing strong!
Let’s say that tree is now an amount of 500k USD and growing with 10% every year, that is 50k per year. If you were to only use this tree for your large expenses, (the 20k ones), your tree will just be growing bigger and bigger!
Be uncommon amongst the common!
Most people either have no savings or some. Those who have some tend to do what my parents did, chopping down the tree every x years and then start from scratch or almost from scratch again!
Don’t be like everyone else who save some and then spend it all or more. Be smart about it by sticking with your savings and investments for longer and you will become uncommon amongst the common! In our case, this means you will have a tree that can nurture you and your family for life!
Think about this metaphor when it comes to your money and investing as well as for those large purchases. Don’t chop down the whole tree. Nurture it and live off the branches but let your tree grow large and strong for you and your family!
Actions to take:
- Learn the Language of Money
- Have a Financial Toolbox to serve you
- How to change your money mindset
- Low costs – the effortless way to create wealth
- Why you must automate your finances!
- Why you have to know your numbers!
- Why Warren Buffett recommends Exchange Traded Funds (ETFs)
- Why we invest for our kids and how – maybe you should too?
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