Growing up, I remember watching cartoons where the main character would go out into his backyard and get money from a money tree.
I was fascinated by this idea so much that I asked my parents “can money grow on trees”?
They said no, but I wasn’t deterred.
I wondered if we had a money tree in our backyard.
I set out one summer afternoon looking at all of the trees we had in our backyard.
Unfortunately, I did not find a money tree.
As I’ve grown, I’ve come to realize that a money tree is more of a metaphor than an actual thing.
But then I got to thinking, could you really create your own money tree?
The answer is yes, you can!
With a little bit of work, you can plant some money seeds and instead of your tree bearing fruit, it will bear money!
How great is this?
Now, you might think I’ve lost my marbles, but hear me out.
I will grant you that you won’t have a physical tree in your backyard that you can go out to and pluck a few $100’s off of whenever the mood strikes you.
But you can create a system in which you grow your wealth and money will not be an issue or a stress in your life.
How To Create Your Own Money Tree
Understanding What Trees Need To Grow
To understand how this is possible, we need a quick lesson on how a tree grows.
For a tree to grow, seeds need to be planted.
These seeds take root and with sunlight and water, they slowly grow into a sapling.
From there, the roots grow deeper into the ground and become stronger, and the tree responds by growing to its full potential.
When talking about how to grow a money tree, we need the same resources.
While when planting flowers, vegetables, or trees, the seeds are what you need.
But there is no such thing as a money seed.
The reality is, the money seed in this case is you.
You are the engine that makes everything run.
Everything you do or don’t do will determine if and when you build wealth in your lifetime.
As you will see, there are other factors that come into play, but at the end of the day, what will ultimately determine your wealth is you.
The soil for your money tree is the basic building blocks of personal finance.
If you want to build wealth, you can’t have poor money habits.
You need to have a strong foundation.
Otherwise, in the off chance you build a tree and become wealthy, you will most likely lose it all because you have no foundation.
There is an old adage that says family wealth typically lasts 3 generations.
The first generation builds it, the second generation enjoys the wealth, and the third generation wastes it.
The reason this happens is because the third generation doesn’t see the hard work and discipline it took to build wealth.
In other words, they don’t have a strong financial foundation and thus destroys the wealth.
The soil is also your mindset about money.
You need to have a positive belief about money and have a wealth mindset.
If you have a poor mindset, never thinking it is possible to grow your wealth, chances are you will never see success.
In this example, the water is the streams of income you have.
The more income streams, the more water you can give to your tree.
And the more water it has, the more it grows.
Of course, too much water will ruin the tree and will ruin you too.
Because of this, it is ideal to have 2-3 streams on income.
This would end up being your career and possibly 2 side hustles assuming you are single.
If you are married, you could have 2 careers and 1-2 side hustles.
The benefit of having more than one source of income is to protect yourself and rapidly grow your wealth since you will be earning more than you are spending.
The sunshine comes back to you again.
It is the knowledge you gain throughout life.
You not only learn by reading and listening to experts and mentors, but also by watching the mistakes you and others have made.
And just like in life there are cloudy, gloomy days, there will be times in your life when this is true too.
You will make a dumb mistake with your money.
The key is to not let it determine your future, but to learn from it and move on.
It takes many years for a small tree to grow into a mature tree.
And your money takes time to grow as well.
In this case, your money uses compound interest to grow.
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Over time, your money earns interest and that interest earns additional interest.
As the cycle repeats itself, the snowball effect takes over and your money grows faster and faster.
You just need to be patient and let the power of time work its magic for you.
12 Steps To Growing Your Money Tree
Now that you know the resources to grow a money tree, let’s dig deeper into the things you should be doing to grow a healthy and long lasting tree.
#1. Create A Budget
I said the B-word.
A budget is your key to wealth.
Most people ignore a budget because they look at it as a bad thing.
They see it as something painful that will restrict their spending.
This is not the case at all.
Look at a budget as your tool to grow your wealth.
- Read now: Click here to learn how to start your first budget
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It isn’t stopping you from spending, it is helping you to spend smarter so that you can save and grow your wealth.
The most important part of a budget is understanding who you are.
I say this because it will determine the best budget for you.
If you like a hands on, manual approach, then an excel based budget is for you.
While this budget system takes more work, it is fully customizable, which people love.
Alternatively, if you like a more automated approach, then software like You Need A Budget (YNAB) or Tiller Money is for you.
YNAB is a favorite of many, but it has a learning curve to it.
The alternative I prefer is Tiller Money.
It is an automated spreadsheet budget that gives you control to customize it.
The key to making a budget work is this.
Have fun today while still working to reach your goals.
You can’t be successful at budgeting if you can’t live for today and have fun.
So find a balance between living for today and saving for tomorrow.
#2. Start An Emergency Fund
An emergency fund is a savings cushion to help cover unexpected expenses.
All that matters is that you are adding to it each month to get it fully funded.
When is it fully funded?
When you have between 8-12 months worth of living expenses.
- Read now: Learn more about Dave Ramsey’s Baby Steps
- Read now: Find out how to save money for your emergency fund
To figure this amount out, look at your monthly bills, total them and then multiply that number by 8 or 12.
Yes this will be a lot of money, but you will be thankful you have it on hand should you ever need it.
As for where to keep your savings, I like to use an online bank account.
They are safe and they do pay a decent amount of interest.
You can read a detailed savings account comparison I created for ideas.
If you are short on time however, I highly recommend Capital One 360 and CIT Bank.
- Read now: Learn why you need to make CIT Bank your bank
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Both are super easy to work with and I haven’t had any issues in the years I’ve been with them.
You can open an account with CIT Bank through the link below, and start earning a great yield on your savings.
#3. Pay Off Your Debt
Debt is a wealth killer and when it comes to a money tree, it is a deadly disease.
You will never reach your financial goals or be wealthy if you are in debt.
It just can’t be done.
Once you learn to live within your means, then you can take the steps to start to slash your debt.
What is the best way to accomplish this?
There are a few options and like budgeting, the tool you use depends on the type of person you are.
For most people, using the debt snowball method works best.
You can use it for all your debts and it will motivate you to achieve your goals.
#4. Save Money
If you save nothing, you will never build wealth.
It’s a simple fact of life.
No matter how tight money is for you, you can save money.
You just have to make it a priority.
Most people try to save what is left at the end of the month after they pay all their bills.
This is why most people save nothing.
I want you to save first.
Before you pay any bills, you save money.
How do you do this?
There are 2 steps.
If you are covered by a 401k plan at work, you need to invest in it.
Not only will you save money first, but you will lower your taxes too.
Find out how much you need to contribute to get your employer match.
- Read now: Learn the pros and cons of a 401k plan
This is free money they give you for simply saving.
In most cases it is 5% of your paycheck.
If you earn $40,000 a year and are paid bi-weekly, that means you save roughly $77 from each paycheck.
In other words, your paycheck will be $77 less than it is now. (In reality though because your taxes will be lower, your paycheck might only be $70 less than it is now.)
After you contribute to your 401k plan, now you need to actively save money into your emergency fund or just for long term savings.
Luckily, you can easily do this by setting up automatic transfers.
Log onto your bank and set up a transfer for every two weeks or however often you are paid.
Your goal is to save 20% of your income.
So if you make $40,000 annually, this comes to $8,000 in savings.
You are already saving 5% in your 401k, so you only need another 15%.
This means you have to save $230 every time you are paid.
If you can’t do this, don’t give up.
Just save as much as you can.
If that means you save $20, then save that.
Then as you earn more money, work on saving more until you are at a 20% savings rate.
Lastly, if you really need help with saving, check out Qapital.
It’s a free app that will round up your purchases and transfer the difference to a savings account for you.
So, if you spend $10.59, Qapital will round up to $11.00 and transfer $0.41 to your savings account.
I’ve been using it for a few months and have already saved over $250!
You can learn more by clicking the link below.
#5. Invest Your Money
If you understand investing and stick with it over the long-term, you can earn on average 8% annually.
This doesn’t mean each year you will earn 8%, but over time, you will average 8%.
Some years you will earn more, some years you will earn less or even lose money.
But over the long-term, if you stick with it, you can realistically see 8%.
One great simple formula will help you to see how quickly you will be creating wealth in the stock market.
It is called the rule of 72.
Simply take the interest rate you expect to earn and divide that by 72.
So in our case we would take 72 divided by 8.
The answer is 9 and this means we can expect our money to double in roughly 9 years.
If you have $100,000 invested, you can estimate it will be worth $200,000 in 9 years.
- Read now: Learn the tricks to save $100K fast
Want more than $200,000?
Simply save and invest more money.
While it will still take roughly 9 years to double, if you have saved $200,000 this means you will have $400,000 in 9 years.
Don’t fall for the trap of trying to earn a higher return.
You add too much risk to the equation and instead of creating wealth you will be destroying wealth.
Now comes the question of where do you invest?
There are a lot of options out there.
If you are a seasoned investor, you can check out my online broker chart that will help you pick the right broker for your needs.
If you are new to investing, the key for you is to keep things simple.
You can read the post I wrote below on creating your own portfolios if you want to do it yourself.
- Read now: Find the best sample model portfolios
If you want some hand holding, I recommend Betterment.
They are a robo-advisor, which is a fancy way of saying they do the work for you.
You simply take 10 minutes to set up an account and a monthly transfer.
They will invest your money in a portfolio that is right for you.
I wrote many topics on investing and keeping it simple for you to be successful.
I encourage you to check out my investing category where you will find all the posts.
But here is a short list of the basics you need to understand to be successful.
- Read now: Learn the basics of investing
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- Read now: Click here to understand your risk tolerance
By investing in the stock market, you will grow your wealth and your money tree faster than you otherwise would.
#6. Understand Your Values
One of the best things you can do for yourself is to know what you value and what makes you happy.
Too many people buy things to appear wealthy because they think these things will make them happy.
The reality is all this stuff moves them farther away from happiness.
Take some time to think about what truly makes you happy and spend money on these things and stop spending money on things that have no value to you.
It will feel odd at first, but in time you will notice you are happier.
And you will notice you have more money because you aren’t wasting money on things you don’t need.
- Read now: Learn the biggest wastes of your money
#7. Buy Quality
You have to buy quality items.
They will cost more upfront, but they will last you longer making them a smarter buy over time.
That is the key to this point. The long term.
If you want to grow a money tree and your wealth, you need to focus on the long term.
By ensuring you make these habits routine, you increase your chances of growing a strong, healthy money tree that will last many years.
Without this foundation, you may see success in the short term, but over the long term, your money tree and your wealth will not survive.
Now, this isn’t to say you need to buy a higher priced, high quality item if you intend to use it once and throw it out.
You need to use common sense here.
For items you plan to keep a long time or use a lot, most times it is better to pay a little more upfront as you will pay less overall in the long run.
#8. Be Patient
I talked earlier about a key resource is time.
You need to be patient when building wealth.
You won’t become wealthy in a week or 6 months or even 2 years by saving and investing.
But in time, you will create loads of wealth.
This is because of the power compounding.
Your money grows because of compounding of interest and as time passes, you start earning more and more interest.
How long are we talking?
It all depends on how much money you save in the first place.
The more you save, the faster compounding will work in your favor.
Here is a chart showing you both a savings amount and the interest earned, assuming a 5% return.
As you can see, when you don’t have much in savings, you won’t earn a whole lot in interest.
But look further down the list and you start seeing some big interest numbers.
That has to be exciting!
Of course we all have to start at the beginning, so that means small interest earnings at first.
But this chart should give you the motivation to save as much as you can so that you can start earning nice amounts of interest.
#9. Think About Every Purchase
The next tip for growing your money tree and your wealth is all about spending and it is easy to do.
All I want you to do is to question any purchase before you make it.
Simply ask yourself if buying the item is going to get you closer or farther away from your goal, in this case, creating wealth.
This little trick works magic.
The reason is because we have 2 sides to our brain, the emotional side and the rational side.
When we buy on impulse, this is the emotional side working.
Unfortunately for us, this is the part that works first and the fastest.
Advertisers know this and attempt to get us emotionally connected to the product so we buy.
After a few days pass and you regret the purchase, this is your rational side kicking in.
By taking a moment to think about the purchase first, you can calm the emotional side down and help the rational side fire up.
To prove this, try this little test.
Next time you are watching TV or are out shopping and see something you want, write it down on a piece of paper.
Then put the paper in a drawer. A week later look at the piece of paper.
Chances are you forgot about the item completely.
This shows you that the advertisers were able to connect with you emotionally and you never really needed the product.
So the next time you are looking at buying something, stop and simply ask if it will help you to create wealth or not.
Will you use the item once or twice and never again?
Or will it become a staple item you use all of the time? Will it help you to save time or cause you to waste time?
By answering these questions you will get a good idea if it is a good buy or not.
#10. Be Resourceful
There is a simple way we can create more wealth that many of us overlook.
This is being resourceful.
If something breaks, we toss it and buy new.
In some cases, we might hire someone to do the work for us.
Before you go down either of these roads, take a minute to see if you can fix or repair the item yourself.
While it might sound overwhelming at first, many things are easy to do yourself.
In fact, YouTube has a video for how to do just about anything.
For me, I learned how to turn my yellowed car headlights clear again by simply buying a kit to buff them.
This saved me a couple hundred bucks.
Another time, our pull down attic stairs weren’t closing all the way.
The springs were giving out.
I watched a video and replaced the stairs myself.
That saved me another couple of hundred dollars by not hiring a handyman.
Learn to fix things yourself and give yourself more credit than usual.
You can do a lot more than you think.
With the money you save, just add it to your saving or investing accounts and let compound interest take over.
#11. Become Valuable
Did you know you are your greatest asset?
Most of us will generate more wealth from our careers than we will from investing.
Because of this, it is critical that you earn the most money over the life of your career.
How do you do this?
You have to find a way to become valuable at work.
You have to stand out from the crowd so that you can earn a healthy raise each year.
You may be wondering why a healthy raise is important.
It’s all because of our friend compounding.
Let’s assume you are making $40,000 a year.
What is the difference between earning a 3% raise each year and a 5% raise each year?
As you can see, the difference is huge over time.
This is because of compounding.
When you have a larger base salary your raises have a greater impact.
The greater the raise you earn, the greater your base salary is for the upcoming year which means an even larger raise.
Now, I realize that you can’t stay in the same position your entire career and expect to earn the top end of the chart above.
All jobs have limits to salary.
But you can move up in the company and earn promotions and thus a higher salary.
So how do you become invaluable at work?
I lay out the entire plan in the post below.
But in a nutshell, you have to make it so that your manager can’t live without you.
Take tasks from them that they don’t want to do.
Develop a new process that is more efficient than the current way of doing things.
Find ways to cut costs.
The more things you do to stand out, the greater the chance you will become valuable and increase your chances for larger raises each year.
#12. Create Additional Streams Of Income
For you to grow your money tree to its greatest potential, you need to work on the side.
No, this isn’t some boring part time job that pays virtually nothing.
You need to find a side hustle you enjoy doing and do it on the side.
If you can do this, you can increase your earnings greatly.
How do you start?
Make a list of the things you enjoy doing and then see if there is a way to earn an income from them.
This will take some time and research, but if you put in the effort, you should be able to find something you enjoy doing to generate a side income.
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I’ll use myself as an example here.
I enjoy personal finance. I ended up writing about that here on this blog.
The funny thing is that in high school and college, I never enjoyed English class.
But I now love writing because I get to write about a topic I am passionate about.
My point is, don’t be too quick to dismiss something because you don’t like a part of it.
If I did that, I never would have started this blog.
And when I got laid off in 2013, I probably would have found another full time job.
Instead I turned my side income into my main income.
While there are all sorts of options out there, the internet is a good place to turn for ideas.
You can find sites like this one that have endless ideas of side gigs you can start.
While it isn’t for everyone, it is a good place to get the wheels turning as they say.
And here is the real benefit to side hustles.
If you can make $10,000 a year on the side and not budget that money for living expenses, you can save 100% (after taxes of course).
In 5 short years, you have $50,000 before compounding works it magic.
So now you have the steps you need to take in order to make money grow using your money tree.
Remember, you cannot just skip the first steps and work on growing your money tree.
While you may succeed in the short term at growing it, your tree and your wealth will never last.
This is because you ignored the key first steps of budgeting and living within your means.
The bottom line is if you want the biggest and strongest tree and the greatest wealth and chance of keeping that wealth over time, you have to start at the beginning.
It will take time to grow your wealth, but it will be worth it in the end.
Don’t fall for the con artists that sell you on getting rich tomorrow.
If it was that easy, we all would be billionaires.
It takes time and work and this is why so many can’t make money grow.
They don’t want to wait.
Be patient and wealth and your money tree will exceed your expectations.