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The
important thing about money is to figure out how it works then money
can be a slave to you rather than you being a slave to it. The
capitalist system, that has engulfed most of the world’s economic
systems at this stage, is based on the premise that money generates
more money. The cycle is investment - return - more investment. This
is the happy situation where money is working for you rather than
the other way round. How do you get into this game if you are not
already in it? Well capital takes various forms. There is financial,
human, skill based, time based, technological, physical, social,
knowledge and many other types of capital that can be leveraged and
put to work.
First we
need to figure out what capital you have got however small as little
acorns grow into gigantic oak trees over time as each year’s layer
of growth builds on the previous one. Similarly investment growth
will be exponential if returns are reinvested so that the returns
are generating further returns.
Next is that
resources of whatever type should be moved from out of areas of lower
yield and into areas of higher yield. This could simply mean using your
time more productively. This is in fact the definition of
entrepreneurial behavior. If cash is generated on a fixed per hour basis
for doing work then the hours available place an upper ceiling on your
cash generation potential. However investments that produce income not
linked to your time or passive income have no such limitation. The only
rule is that the application
of resources must generate returns greater than the inflation rate. When
you have identified a vehicle to achieve this, returns can be leveraged
if they exceed the cost of capital or interest charged on borrowings. In
this scenario the limitations on returns are access to capital and
scalability. Risks must also be factored in and hedged where possible
You also need to look at your current lifestyle as resources dedicated to the maintenance of it detract from exponential investment potential. There is a building phase and we can only reap what we sow, but do this correctly and you will not work for money it will work for you. Secondly the more unencumbered you are the lower your requirement to earn to support yourself and the sooner paid work will be optional. At this stage you effectiveness can be maximized. This helps to provide the motivation to continue through difficult periods.
Then we come to what
I call cross functional pollination and this is when you are really
humming. In this situation you income streams are feeding into, out of
and supporting each other. This makes the growth curve even steeper. For
this to work well the investment and business models need to be scalable
and as light a touch as possible. Services like direct labor have limits
on scalability or rapid cost increases. When you reach this point give
something back because when you are creating value it comes back to you
in capital in the broadest sense.
