As with anything, it's extremely important to begin with a solid foundation in the world of money and generating income. So let's begin there...
In the world of money, there are two types of income. Linear income and residual income. "How many times do you get paid for every hour you work?" If you only get paid once, then your income is "linear". If you get paid multiple times for the work you did once, then your income is "residual". "Residual Income" is what you should be working towards.
The secret of the wealthy is not that they have more money but that they have more TIME freedom. With more time, you can create more residual income streams. It becomes important then to begin shifting your income streams from linear to residual. So how do you do that?
First, you need to pick the right income stream that will soon create residual income for you. I have a formula that I use to pick the right income stream. All opportunities are passed through the filter of the money tree formula - the nine characteristics of the ideal income stream. It's called the "MONEY TREE" formula because it spells the word MONEY TREE.
M in the Money Tree formula stands for Multiple Streams of Income
Multiple Streams of Income
The first goal in starting your own home based business is to add another stream of income to your life as a safety net for when other of your streams of income dry up. But the home based business you select should be a source of more than just one stream of income. It should eventually be a source of multiple streams of income all by itself.
For example, suppose you’re considering buying an existing restaurant. What possibility will you have to grow? Can you add more shops? Is your idea franchisable? Can one of your food entree’s be sold nationwide as a frozen item? Can you license your special cooking secrets to other restaurants. Is there a cookbook in there somewhere? What about bottling and selling your special sauces? Get the drift? Don’t even consider a business that doesn’t have expansion potential for additional streams of income. That’s why the first M in the formula reminds you of Multiple Streams of Income.
The O in the Money Tree formula stands for outstanding.
Outstanding product or service
If your product, service or information isn’t distinguishably excellent it will eventually become a casualty of competition. The goal of creating a money tree is to do the work once and to have the money flow for the rest of your life. What good does it do to create a business and eventually have it succumb to competition. In order for your source of income to survive through the next ten recessions...as there will be many more recessions in your lifetime...you must select a product, service or source of information that has the possibility to be permanently and perpetually profitable. When times get tough, people gravitate either to price or to quality. Don’t get stuck in the middle. That’s a sure formula for disaster. And don’t compete with the rest of the world on price. Make sure the quality of your produce is outstanding...the best in the world at a fair price. And you have a good chance of succeeding long term.
The N in the Money tree formula stands for Nothing Down.
Nothing Down
Why nothing down? Well, it doesn’t have to be completely zero down...but as little of your own money as possible. If you’re like most people, you probably don’t have a couple of hundred grand lying around to invest in your business. But what if you do have a nice chunk of cash. Should you run out and find a business to match your money and launch in? I think that one of the greatest curses is to have a lot of money to put into a new business.
Suppose you want to buy a hot franchise. It might cost you $100,000 and that’s just for the franchise rights. Then, you need to purchase inventory, leasehold improvements, special equipment. And what do you get? For most franchises, you get the right to be tied to a business 12 hours a day, to manage a lot of undereducated, under motivated employees, and make a steady paycheck for yourself. In a sense, you are just buying yourself a job. Why spend tens of thousands of dollars of your own money just to buy yourself a job...with a lot of risk?
I’m going to show you businesses that you can launch with little risk, little or no money down and the possibility of creating what I call "walk away" cash flow --money that flows to you whether or not you show up.
The E in the Money tree formula stands for "Employee-resistant."
Employee-resistant
That’s right...you don’t want employees. Employees are dangerous! They begin to feel they are entitled to their jobs. ("You can’t fire me. I own this job." ) The rapid increase in employee/employer litigation should be enough to convince you that you want to find a home based business that can be done by yourself, with a very low employee to income ratio.
I used to be the president of a seminar company with over two hundred employees. I made the decision to downsize when one of the employees sued me for age discrimination. He was in his late sixties when he came to work for us and when we layed him off during an economic downturn, he slapped us with a $500,000 lawsuit. We settled out of court for $2,000 but that was the last straw. I decided to never again put myself in a position where one disgruntled employee and his smart attorney could take it all away.
Today, I have zero employees. I make as much today as I used to make with 200 times less hassle. I like it that way. All of my streams of income can be monitored from a telephone anywhere in the world on only a few hours a day.
A friend of mine, Dan Kennedy puts it this way, "When it comes to employees, hire slow and fire fast." Most business people do just the opposite. They hire fast and fire slow. I say, try to find money tree businesses that don’t require any employees and then you don’t have to worry about either hiring or firing.
The Y in the Money tree formula stands for the world "Yield"
Yield
The streams you choose should be high yielding, high profit cash cows. Five years ago a friend of mine, Collette, started such a home based business. In less than a year she was making about $10,000 per month. What’s more, this business was a money tree business. It generates cash flow even if she stops working! But why stop when she is having so much fun? Today, after five years, she has grown her business till she now earns over $500,000 a year net, net, net.
What’s the yield on that kind of income? It’s the equivalent of having TEN MILLION DOLLARS in the bank earning only 5% interest! That’s my idea of yield. In this book I’ll be sharing exactly how Collette did this...as well as other business that meet the same kinds of money tree characteristics.
The T in the Money Tree formula stands for the words Trend and Timing.
Trend and Timing
Starting a business against the trend is like swimming up stream against the current. . Running a business is hard enough without trying to swim upstream. But when you choose a business that is with the trend it’s like floating downstream with the current. How do you select a business that’s on trend?
The first time I started a business was just after college. I started buying real estate...and as luck would have it...it was the exact right time. The baby boomers wanted real estate and the demand drove prices upward. Anyone who owned property made a killing. You could almost do no wrong.
Then, I started teaching people how to buy real estate with little or no money down. My little classified ads brought hoards of calls. It was a feeding frenzy. I was on trend. My seminar businesses took in more than a hundred million dollars in the next decade.
The secret is to get in front of a trend and ride the wave. The biggest wave of our century is the Baby Boom – 76 million people. This generation is four times the size of the previous generation. As this mass of humanity rolls forward through time it creates a huge demand wave. Picking businesses which are at the leading edge of this age wave has created thousands of fortunes. You need to make sure that your new business is leading this trend and not following it. It can make a huge difference in your lifestyle.
The R in the Money Tree formula stands for Residual
Residual Income
We’ve already talked about the importance of this part of the Money Tree formula.
But to emphasize this concept even further, let’s compare it to an escalator. Have you ever walked up a down escalator...the wrong way? When you walk up the down escalator, you have to walk fast just to stay in the same place. And to get to the top, you have to walk at double speed. People on the Up escalator don’t have to work hard at all. They just stand there holding the hand rail and the escalator takes them to the top.
These two escalators represent the two kinds of income that you can earn...linear income and residual income. Our economy is a down escalator. You work hard for your money but with inflation you have earn 3-5% more next year just to stay in the same place. But this puts you in higher tax brackets. The more you make the more they take. It seems you work harder and harder without making any progress. Your bank account balance earns 2% and your credit card balance costs you 20%. You’re going in the hole 24 hours a day. You wonder why you can never catch up. And if you stop...the escalator just takes you right back down to the bottom.
That’s what it’s like to earn linear income. When I think of this kind of income I think of how they catch monkeys in Africa. A native takes a coconut and cuts off one end to make a small hole just the size to allow a monkeys fist to enter. To the other end of the coconut they attach a long cord. They place a few peanuts inside the coconut, place the coconut in the middle of a clearing and hide behind a tree to wait for the monkeys to come. The monkeys come and smell the peanuts inside the coconut shell. One monkey reaches inside the shell to grab the peanuts, but with the peanuts inside, his fist is too large to escape the hole in the coconut. And then the native yanks on the cord and hauls that silly monkey to captivity because the monkey will not let go of those peanuts to save his skin.
Are you working for peanuts?
If you’re walking up the down escalator, you are caught in a Monkey Trap. What you want is Up Escalator Income. Which escalator are you on?
Here’s a list of the many types of residual income that you want to be exploring:
Savers earn interest
Song writers earn royalties on their songs.
Authors, like myself earn royalties from their books and tapes.
Insurance agents get residual business
Securities agents get residual sales.
Network marketers get residual commissions
Actors get a piece of the action
Entrepreneurs get business profits.
Franchisers get franchising fees
Investors get dividends, interest and appreciation.
Visual artists get royalties from their creations
Software creators get royalties.
Game designers get royalties.
Inventors get royalties.
Partners can get profits.
Mailing list owners get rental fees
Real estate owners can get cash flow profits
Retired persons can get pensions
Celebrity endorsers get gross percentage profits
Marketing consultants get % of profit or gross revenue
When you go to bed tonight, ask yourself this question, "What percentage of my day did I spend creating residual income?" If the answer is zero, you’re in trouble. You’d better wake up tomorrow and get busy. More on residual income later. I hope now you see why it’s such a vital part of our money tree formula
The E in the Money Tree formula means Essential to Everybody Everyday.
Essential
Whatever you sell, try to pick something that’s essential or is perceived as essential by a large and very motivated segment of society. Let me give you the real reason that real estate has always been a great wealth creation vehicle and a prime source of residual income for hundreds of thousands. It fits the Money Tree formula. Check it out for yourself and you’ll see why..
Whatever product you choose to market just make sure it’s essential. The more people need it and the more often they need it, the more successful your business can become.
The final E in the Money Tree formula stands for Enthusiasm.
Enthusiasm
You’ve got to love what you do. If you hate what you sell, you’ll never be any good at it. The prime admonition from Gary Halbert one of the all time great marketing gurus is this; SELL WHAT YOU LOVE. Truth is, you’ll never be truly great unless you do.
Well, there you have the 9 major characteristics of the Money Tree formula. These 9 characteristics are essential to the kind of hands off, hassle free businesses that create lifelong streams of cash flow.
Robert Allen is the author of two of the largest selling financial books in history; Nothing Down and Creating Wealth, both New York Times best sellers -- read by millions of people in the past 20 years. My other best-selling books include Multiple Streams of Income, and my current Mega-Best-Sellers, One Minute Millionaire and Cracking The Millionaire Code co-authored by Mark Victor Hansen. I am selecting a group of people to with on my latest challenge. To learn more visit http://www.robertgallen.com
