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Blog Post Date: Oct 18, 2005
I've been trying to come up with a good way talk about my favorite pipeline of cash illustration. I thought I would draw it with my Adobe Illustrator package as that seems to be the easiest way. (My art skills are not as well developed as my writing skills)
PIPELINE OF CASH ANALOGY
This really talks about a person's economy and their ability to earn cash. For example a person who makes minimum wage needs a smaller pipeline than a person who has a business that generates $1 million in sales and a personal income of $250,000.
SMALL CASH FLOW MEANS SMALLER PIPELINE
If you're starting off your career and making a smaller amount of cash, you generally don't need a larger and stronger pipeline to flow your cash through. You don't need a well insultated reservoir to hold your cash in. A bank account usually does well enough.
MORE CASH FLOW MEANS BUILDING BIGGER PIPELINE
If you decide to make more money, you've got to increase the pipe size and wall thickness in order to properly house the flow of more cash into your economy. The more money made means greater complexity as far as what to do with it, taxes, investments etc.
MORE MONEY REQUIRES MORE EDUCATION
More complexity means more education and research into your financial situation. The best way to lose all your money is through lack of education and practice of using or investing your money. The more education you acquire, the 'thicker' the walls of the pipeline become. Thicker walls insulate your money much better.
CITY OF NEW ORLEANS PIPE LINE EXAMPLE
Increasing the pipe size/diameter is important to getting more money flowing through.
I've recently seen images on CNN of Louisiana pumping out water out of the city of New Orleans. Apparently they're using 16" diameter pipe and all told they're pumping out 27,000 gallons per minute. This is a huge amount of water to pump out all at once. That's 1,620,000 gallons per hour.
If the city of New Orleans decided to use 1" diameter pipe, it would take them infinitely longer to pump out the same amount of water. You get the idea.
The whole idea is to get the money to flow safely into your bank account. Next the next point is to keep your money and investments safe and insulated against predators.
Building a bigger pipe line for your cash flow comes with the following:
- Developing bigger goals
- Educating yourself to achieve the bigger goals
- Educating yourself on how to handle more money
- Learning how to insulate your money against outside forces
- Learning how best to work your money and investments so as to pay the least amount of interest and taxes
- Watching and Managing your money and investments on an ongoing basis.
You cannot make more money if your mindset and education don't allow for it. If you have a small money mind set and then all of a sudden start making big money, you'll lose it right away. The reason is that you're not ready for it emotionally and mentally. How many times have you heard of people who have received money and then spent it right away on frivolous items.
There are generations of families who don't have money because they're not educated for it. They don't understand money.
THE RICH GET RICHER
There are generations of rich families who have money and build their wealth because they understand the pipeline theory, and how to insulate and grow their pipeline. That's why the rich get richer. Because they understand, or hire people to understand how to manage their money for growth and security.
By Monty Loree - Financial Maturity blog - Topic - CashFlow Pipe Analogy. Why the rich get richer.
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