Your Money Machine: Growing Toward Financial Freedom
Your Money Machine houses all of your investments, including brokerage accounts, company-sponsored retirement plans, private pension plans, real estate, your business and other investments that generate cash, like products you sell on Amazon. You made a list of your income-producing assets in the article ‘Steps to Becoming Financially Stable’ on this website.
You’ll learn more about how to choose investments for your Money Machine in the next articles as we continue our conversation. For now, the key point is this: The time to begin growing your Money Machine is today.
Where will you be in a decade or more? What resources do you need and desire for your future years? Have you ever noticed that when you take the time to create a plan for financial independence, opportunities and tools for realizing that plan seem to present themselves? Our creativity kicks into gear, and we tap inner resources we never imagined existed. This happens in our money life as well: When you begin thinking about what your Money Machine can do to support you, all sorts of things might come to help you. But first, trust in the process. And second, create some motion. Action in the right direction takes on momentum.
Let’s take a look at a few women who are in various stages of gearing up:
First, there’s Patricia, young Maggie O’Neal’s mother. As confused and daunting as Maggie’s financial picture is, Patricia’s is an even greater challenge. Patricia is fifty years old and earns $50,000 a year as a senior publicist for a movie studio. But she has no savings, no outside income, and no investments.
When I met Patricia, I asked her to think about her relationship with money and how her beliefs were responsible for creating her life. As we talked, it became clear that Patricia’s money attitudes have held her back throughout her life. Her father was a political science professor who held strong socialist beliefs; her mother was a dance instructor who had spent time in the artistic quarters of New York’s Greenwich Village. When Patricia was growing up, her parents’ words and actions gave her the false belief that wanting money was somehow “greedy,” that living a bohemian lifestyle and eschewing investment, saving, and other activities associated with capitalism were better.
I asked her to question whether her deep-seated beliefs about money were helping her to enjoy success and security. If she found that some weren’t, I suggested that she use the “delete” key, just like the one on a computer keyboard, to wipe those negative messages off the screen. Being stuck in backward thinking was not going to work for her financial future.
Patricia is divorced. She lives in a low-rent apartment in New York City. As we’ve seen, she often gives young Maggie money to see Maggie through, even if it means sacrificing her own desires. Aside from the task of rearranging her belief system concerning money, she faces a major challenge because she doesn’t own anything in her Money Machine, and her working time frame is not a long one. Patricia needs to make a quick mental shift and go for it. Either she has to find another job that pays more, or she really has to commit to the “spend less than you earn and invest the difference” strategy. At Patricia’s age, she will have to make a deeply serious commitment. And she’ll have to cut out her stream of handouts to Maggie—for Maggie’s sake as well as her own.
Rule Of 72
Having pondered these realities, Patricia has determined that she can scrape together $10,000 for an initial investment. With the Rule of 72 and a variable universal life insurance policy, you’ll see how, with a $10,000-a-year contribution, Patricia could end up with $31,815 of tax-free income each year for twenty years, beginning at age sixty-five. If she works until she’s seventy—which is a likelihood—she could be set up with an annual income of $58,369 for twenty years from her Money Machine. In either case, this tax-free income will nicely augment the pension she’ll receive from her job at the film studio, where she first started working when she was twenty-three.
One thing is certain: Some income is better than no income, and despite her age, Patricia has a window of opportunity. She has some high hurdles to clear, but she’s on her way to taking charge of her financial future. She’s beginning to understand the power of money and her power to make money work for her.
Like Patricia, Betty is committed to investing $10,000 a year. She can get more gusto out of her options than Patricia because she is eight years younger. If Betty’s chooses the same investment (flexible premium variable life insurance) it will generate $89,600 each year beginning when she’s sixty-five and continuing until she’s eighty-five. This story illustrates the difference between investing now and waiting to invest later. Think of the game of golf and the rapid growth that’s possible when money has time to multiply. Betty gets to benefit from the upward curve of the growth of money because she’s taking action earlier in her life than Patricia. As a result, she’ll reach a point in her life when she no longer must work but chooses to because she loves doing what she’s doing. Patricia may have to wait longer than Betty to enjoy that option.
Now, if you really want to see what a dramatic difference age makes when you’re growing wealth, just remember Rachel’s story. As you may recall, she began investing when she was in her late twenties. At thirty years old, she’s still young, so there’s plenty of time for her money to grow. She and David have the opportunity to build a Money Machine that is capable of generating significantly greater income than they require to support their needs. As a result, they’ll be able to make charitable contributions so they can make other people happy, too. And Rachel plans to use part of the funds in her Money Machine to eventually pay for the education of the child they anticipate having.
Rachel and David decided they needed some discipline, so they signed up for automatic withdrawal: Their bank will automatically withdraw money from each of their checking accounts every month and contribute this money to their Money Machine. This way, they will never miss a chance to invest. Now they’re off and running. In time, they will have the option to stop working and enjoy the proceeds of their Money Machine.
Finally, there’s Maggie. Remember, she’s been living from paycheck to paycheck, accumulating more and more credit card debt and trying to keep one step ahead of total financial ruin. What can she do?
The first step for Maggie is to peel away the layer of hopelessness that’s preventing her from making any positive moves. Then she’ll make a strong commitment to herself: If she pays attention to the “first secret jewel,” she will probably find that she can save from $50 to $100 a month from her annual salary of $18,000 and any extra income she might get from odd jobs here and there. A hundred dollars a month in a money market account (housed in a new Plus IRA, which we’ll talk about) can accumulate and build enough cash for Maggie to invest in an ETF, mutual fund or stock. She’ll be surprised how much her money will add up. Later, if she moves on to a higher-paying job, she will be in the habit of regularly investing in her Money Machine. At twenty-five, she’s in great shape to watch her money grow—if she starts now.
All of us, one way or another, will eventually be looking to our Money Machines to maintain and enhance the quality of our lives. Trust that you have the talent, the tools, the knowledge, and the resources to start your Money Machine and to build it into a potent force to enrich your spirit. Go for it!
Joan Perry is the publisher of www.WomensWealth.money, the national authority site for women and money. She is a Best Selling Author of ‘A Girl Needs Cash’, Random House; and Living Proof, Celebrating the Gifts that Came Wrapped in Sandpaper (co-authored with Lisa Nichols). Joan is also the creator of The Women’s Wealth Model, A Heroine’s Journey to True Wealth,. As a pioneer in the field of women’s wealth, she founded the first female-owned investment banking firm that underwrote and traded municipal bonds for major governmental entities. Now as a women’s wealth advocate, she serves as a teacher, coach, writer and speaker.