Building a Perpetual Money Machine
Perpetual Money Machine
You too can have a perpetual money machine, but you have to build it. There are no short cuts. There are no easy pathways short of speculation. Whether investment or career speculation, the road is risky at best. But if you are willing to work, willing to stay focused, financial independence is a hop, skip, and a jump away. Although doubted by the great majority of our population, financial freedom is neither unattainable nor particularly complicated. It is, however, hard. So you have to work, especially in the beginning.
Financial Independence Defined
Financial independence is nothing more than a perpetual money machine. This machine, once built, runs on its own energy with only minor upkeep by its owner. The idea is to build a portfolio of assets that do all the heavy lifting on their own. We often talk about the four percent rule or having saved 25X yearly spending. The reason, of course, is because with basic index investing this amount of money should be able to compound enough to provide both spending cash and stave off inflation in perpetuity. And if you don’t like indexes or want to uncorrelate from the market, there are also other asset classes like real estate. Many of us prefer to diversify by having at least a four-legged financial plan.
If You Build It…
If you build it, the cash will come. But there is no way around it. You have to build your perpetual money machine. Here is where the real work comes in. As our friend John would say over at ESI Money, you have to earn, save and invest.
Earn: The path is simple but not easy. Avoid career speculation and invest in education and training that will make you competitive in the market place. Front-load the sacrifice in the form of hustle when you are young so you can let both earnings and experience compound.
Save: Use frugality as a tool when it serves, and a lifestyle if necessary.
Invest: Squirrel that money away in a diversified portfolio of asset classes. When it comes to stock, choose high quality low-cost indexes and develop a good sense of market apathy. If your interested in real estate, buy a condo, or a single family home, or a building or two. Learn a few landlord hacks to streamline your operation.
Time Is On Your Side
Then dig in. For years. Put your head down and work. Invest. As you accrue wealth, you will have time to come up for a breath, and may even be able to speculate a little bit. Follow a passion project and start a side hustle. Side hustles are just another form of diversification and will add sturdiness and strength to your perpetual money machine.
By the time you are thirty, or thirty-five, or forty, you will look up one day and your perpetual money machine will be humming along.
And you wont have to work if you don’t want to. Of course, if you did things right, you will hopefully enjoy some aspects of your W2 and than can start downsizing to early retirement. This will not only insure you against sequence of returns risk but also bring your safe withdrawal rate down closer to zero.
Final Thoughts
The good life was never really about financial independence. FI is a superpower that allows you to pursue long-term contentment by concentrating on your life’s work unhindered by the bonds of fiscal responsibility. So build that perpetual money machine, schedule occasional maintenance, and find better things to do with your time.
More fulfilling things.
Hello, nice blog, but I regulary come across W2 acronym. What does it mean?
Keep the money flowing!
Cheers.
The W-2 form is the form that an employer must send to an employee and the Internal Revenue Service (IRS) at the end of the year. The W-2 form reports an employee’s annual wages and the amount of taxes withheld from his or her paycheck.
So in other words, your wage paid by an employer.
The perpetual money machine is a beautiful thing. Like you said, because of the perpetual money machine, we will become financially independent with little work and energy necessary once FI is achieved. Additionally, because of the perpetual money machine, it feel so hard to reach our first million… but once we do, it feels so much easier to accumulate more in net worth due to the magic of compounding. So put your head down, dig in, and work hard… it seems difficult at first, but once the front loaded sacrifice is made, it gets easier from there! 🙂
That first million is a killer. it gets much easier after that. But it will take work.
The perpetual money machine is one of the most beloved images in the FIRE community. Its very appealing to think of a self sustaining money machine working away so you don’t have to.
While I enjoy this thought as much as the next FIRE disciple, I think the process of actually building the machine does not get focused on nearly enough. The years walking the road to financial independence will represent a huge chunk of your life, and likely some of your best years. Enjoy the assembly, one day you may look back and realize that building your money machine was even more satisfying than reaping its rewards.
-Ray
I couldn’t agree with you more. The path to FI should hopefully be enjoyable and worthwhile unto itself.
In a post I did, I coined the term, “Capital Snowball” in homage to Dave Ramsey’s Debt snowball. At one point the capital will be producing money of its own that then adds to the system making the snowball larger and carrying more momentum as it continues to roll downhill. It is in essence a perpetual money machine I have created and continue to throw more into it to magnify its money making abilities years down the road. Once you get to the tipping point where system is self feeding you can sit back and relax.
Yep. That’s the idea. As long as you realize it tales work in the beginning.
That tipping point where the market returns on your accounts exceed your yearly savings rate and eventually income makes everything easier.
For sure. That’s the goal.
I like my perpetual money machine. It’s called owning an apartment complex. It now spins off more money than I spend each year.
Dr. Cory S. Fawcett
Prescription for Financial Success
I fine way to set up retirement. I think stocks and dividends can do the same thing.
During the early and mid career years, it’s all about building perpetual money machines. What’s great is there are so many different ways to go about it. I think real estate is a good one, but index funds, businesses, side hustles, other alternative investments are all legit.
Yes. I try to make sure I have a few money machines going at once! Diversification.
Money machines are not perpetual. They are merely machines which has some kind of risk strategy which may or may not work. They are projections of possible success surrounded by a standard deviation of certain failure.
Example 4% x25 in a bad sequence of returns has 83% success in 30 years and 50% success in 50 years. An apartment building is good until someone burns it down or someone blows up a drug lab in the basement. Yes you’re insured but your money machine is destroyed. You spend 1000 hours building a blog and brand and a year later it’s boring as hell and the page views crater. You play the guitar ona MTV and get a blister on your thumb. Social democrats come in power and anybody with property gets to give 80% to the government. Someone pops an EMP over St Louis…. Russia Russia Russia.
I just read an interesting article over at the NY post
https://nypost.com/2018/07/25/millennials-are-bailing-on-their-high-paying-jobs-to-travel/
43% of millennials expect to quit their jobs in the next 2 years. Stick that in your pipe and smoke it. Guess you better turn that apt building into Air BnB and hope it rents while getting trashed. Who’s going to take care of you when everyone is retired? The beaches are going to be crowded. ‘Scuse me the Uber is here….
Yes. Some millennials, I think, may be in for a rude awakening. They’ve inverted the mastery cycle (tomorrow’s post).
My Money Machine is humming nicely. Very little maintenance needed.
That’s the best way.
Yep, one day my perpetual money making machine will work for me. For now, I just keep feeding and forgetting about it or as you say, I practice market apathy.
Feed it today, it will feed you tomorrow.
What you guys are talking about here, the Perpetual Money Machine, is a concept I really wanted to do when I was young, but it didn’t work out. My parents Wouldn’t talk to me about money or money management, and I wasn’t in a position to just pick it up along the way, being female I didn’t have exposure to those kinds of conversations growing up that I might have if I had been a guy. Trying to figure it out on my own is noble, especially once the internet appeared, but it doesn’t change the fact that I’m now in my 40s, have debt, and have been just making it from paycheck to paycheck for 20+ years. My question is, is it possible to build a Perpetual Money Machine starting in your 40s if your prospects for high(er)-income earning in order to make that happen are realistically pretty slim? Or is it time to just throw in the towel, keep working on paying off debt, and take up a lottery habit?
Hey LM. Every situation is different, but I don’t think it is impossible. The first steps have been hashed out elsewhere not he internet but it seems like there are a few common pathways.
1)Track your budget carefully and see where expenses can be cut.
2)Take every extra cent and pay off debt as fast as you can
3)Save everything else and start investing in broad based index funds to start building your perpetual money machine no matter how small.
4)Work on maximizing your W2 and creating side hustles if possible.
I know many people in their forties who are just coming to this path. I think it is hard work, but possible.
The answer is yes you can!
I’m a financial coach who works with women in similar situations to your own. They just didn’t have the knowledge or access, and now they’re trying to piece all this disparate info together. Let’s talk.
Hey Suzanne, you are so right. Coaches can provide powerful feedback and help! Feel free to email me.
My perpetual money machine started out looking like a Rube Goldberg Device, but I like how it is taking shape!;)
They all do.
Try this out, it’s called Perpetual Income 365, give it a try: https://bit.ly/2JKWAhY
LOVE the idea of a perpetual money-making machine. I only learned about FIRE in the last few years thanks to the pandemic which allowed me to work from home and watch a ton of YouTube videos on financial independence. I’d always been a good saver but didn’t really know what to do with my savings, so I ended up squandering a lot of it. After learning about FIRE and how living on 25% of your income and investing the other 75% in low cost index funds shortens the average years to retirement from about 40 years to just 7, I’m now on a whole new trajectory.
Here’s to living intentionally and building that perpetual money-making machine to achieve that ultimate freedom with financial independence!