A strategic guide to becoming a polymath, millionaire, and living a fulfilling life.

Money

Building a Cash Generating Machine

· By

 

Summary

  • To build wealth, one needs to understand the true meaning of an asset.
  • Perception of a liability as an asset is a dangerous thing.  Think of your primary home.
  • An asset needs to be taken care of.
  • If you take care of the asset, it will take care of you.

Related Topics:

———————————————————————-

What is an Asset?

And asset is an entity/creation/instrument – cash, tool, machinery, institution, etc. – that produces or generates income or revenue. Think of an asset as the story of the golden goose that you heard about when you were a little kid.  The goose produces the golden eggs and it makes the owner of that goose rich.

How Do You Get One of Those Golden Geese?

You, yourself, need to understand that you are the first goose. When you start working, you start generating income.  The key is to save a portion of that income until you have enough money to buy another asset or goose that (can) generate additional income (or lay the golden eggs).

The problem is, many people, as soon as they have saved some money, they spend that money immediately on things that don’t generate income.   They buy an expensive car, go on lavish vacations, etc.  So, they not only waste their saved money, but they also waste time because that money could have been used to purchase an asset and started generating returns.

The Laundromat Owner

I will share with you a story of a person we met in the east coast in 2006.  He had a day job and was making roughly $120,000 at that time.  Over the 6 years he had been working, he was able to save over $100,000 and he thought of investing that money.

He found an investment opportunity a few months later. He bought a small laundry service shop.  He used all his savings and borrowed some money to close the deal.  The laundry service made a net income (after cost, interest payment, fees, salary, etc.) each year of $27,000 (I am making this sound easy, but running a laundry shop requires work).

In short, he kept his day job and had a passive income of $27,000 from that business.   That is a ~22% increase of earnings.

The Laundromat story I shared is one example of the goose that lays golden eggs.  There are many ways you can venture into that can generate returns, and these can be in the form of machinery, IT, real estate, and others.

Even if you don’t use the money, and let’s say you just put it in an index fund, over the long haul, it will generate returns.

When you finally have the goose that lays the golden eggs, the key now is to protect and preserve that goose. You need to take care of it, and keep it in healthy condition.  The laundromat owner always made it a routine to visit his shop every day and check on his workers, customers, and friends after his day job.  He made sure he fixed broken dryers or washers as soon as possible to avoid incurring lost revenues due to down time.   He kept at it and became really good at taking care of his business.

Eight years later, when visited the east coast again, we had the opportunity to drop by at his place. We were so happy to see him.  We found that he had expanded his service and then had 4 locations, four more geese (two were large outlets).  He quit his day job and focused on doing what he loved best – finding, building, and taking care of these golden geese.   He didn’t disclose to me how much he was earning, but based on what I could synthesize, his business was netting about $300,000 annually.

What I want to disclose to you here is that person was the owner of the laundry service we used when we were living in NYC. His parents were poor immigrants from China.  He admitted he was not the smartest kid in high school and college.  He was average.  Yet somehow, his prudence in saving his money, taking the risk to invest, and working hard paid off.

The Ebay Shoe Trader

During the same time I met the owner of the laundry shop, I also met this 15 year old kid in our neighborhood. They were not rich.  They lived in this tiny apartment.   Both of his parents were working odd jobs.

Now, he was not the straight A student in his school either, but he was so passionate about finding and sourcing cheap and abandoned vintage Nike shoes and would sell them on eBay.  He told me he wished he had a lot more capital so that he could buy and sell more (believe me, these vintage Nike Jordan shoes sell for $400 to $600 whereas new top end shoes sell for $120.  See how much profit he was making?)

I saw an opportunity.  I really liked the kid.  I really like how passionate he was and he just knew which shoes would sell well and how much money he would make.   I decided to cut him a check of $500 as an initial investment.   Over one year period, he turned that $500 to $2,000.  He then went on to roll what he earned for more profits.

In this case, he utilized eBay as his golden goose.  For a high school kid making that amount of money is pretty impressive.  Many kids rely on their parents to give them lunch money, only to really make that lunch money become food money.  This kid decided to save his lunch money to start something and because of his prudence in handling his money he was able to start his business on eBay and ultimately picked up the attention of yours truly.

Action Items

Please feel free to share your comments and experiences.   Would love to hear your success stories.

Share