One of the best ways to become wealthy is to spend your money on streams of profit. Another way of saying this is to collect cash generating assets. These can be anything that generate cash. They can be a franchised fast-food restaurant, ownership in a stock that pays a dividend, or royalties from a book you have written. If you collect enough of these throughout your younger years, you will be very wealthy very quickly.
One of my Dad’s friends franchises Taco Bell restaurants. He owns or partially owns 20-25 Taco Bells. Of course he didn’t buy all of them at once, but he has chosen to reinvest his profit into more franchises. Let’s say that one Taco Bell generates $50,000 in cash a year, and you save the money until you can buy another Taco Bell, and another, and another. If you are successful, it is possible to end up like the gentlemen with 20 or so Taco Bells. If each of them makes around $50,000 a year, then your total revenue is $1,000,000 a year. What would a successful wealthy person do with the money? Naturally, their mindset is to reinvest that money into stocks or another business venture in order to make that money work for them. Hopefully the businessman spends $500,000 on family vacations, new furniture, new car, fancy watches, exquisite art pieces, or something that makes him happy. The key here is that he will not spend all of it on fun things. One might say well it is easy for him to not spend the other $500,000 because he just blew through the first $500,000. What if a person only had a yearly passive income of $2000? It would take discipline to only spend half of it. It is that discipline to reinvest the other half of the money that is the mark of a wealthy mindset. If you can gain this mindset, you will more than likely become rich with relative ease.
Let’s say that the businessman took all of his earnings from the Taco Bells and put it into dividend yielding stocks with an average yield of 3.5%. Not even counting returns from the stock price appreciation, he would make around $35,000 a year for merely being an owner of a company through stock ownership. At the beginning I described owning cash generating assets as buying streams of profit. This is evident here because you have just used your $1,000,000 to buy a stream of $35,000 a year. This is regardless of the stock price. The stock could go up, down, nowhere, and the dividend would still be paid. At this point the businessman is using the Taco Bell restaurants as an economic engine to generate cash which he is then putting into stocks to generate more cash. What is your economic engine? It could be a day job. It could be a small home business you created. It could be anything that constantly brings income to you.
Imagine that you wrote a book, and you decided to sell it on Amazon. You would collect a royalty every time that someone purchased a copy of the book. What if you made $150 a year from this? Is that a lot of money? Most people would say not really. That isn’t a whole lot of money for an entire year. However, $150 is the equivalent of owning $4285.72 in a 3.5% dividend yielding stock. Most people would definitely not scoff at $4200. Your book that is collecting royalties of $150 a year has a value of about $4,200 when compared to dividends alone. That is a great value.
It is no secret that the rich get richer. They have resources to buy more streams of profit. They have the discipline to reinvest money rather than spend it on things that will depreciate and throw off no extra money. The question is why aren’t you doing the same if you want to live like the rich? Develop the mindset of investing and reinvesting when you are in your 20’s, 30’s, or even 40’s, and you can be wealthy or have a very wealthy stream of passive income by retirement. This is my plan. I love being able to spend my time how I see fit.