Sunday, October 26, 2008

The Money Tree

I've frequently used a tree analogy in teaching my students how to write proper essays and research papers. It occurred to me that the tree analogy would also work perfectly when trying to teach or talk about finances and budgeting.

We have two kinds of trees: evergreens and deciduous. The evergreens stay green year round. The deciduous trees lose their leaves in the colder weather of the fall and have their leaves return in the warmer spring and summer. For my purposes evergreens will represent the ideal of finance, while deciduous trees will be what really happens to most people.

What are the main parts of a tree? The roots, the main trunk, the main branches, the secondary branches, the twigs and, for blossoming trees or fruit trees, the buds and flowers and the fruit. Also important for growing trees are properly enriched soil and a prime planting location.

What is properly enriched planting soil and prime location from a financial perspective? If you want your money tree to grow you have to be knowledgeable about precisely what conditions are necessary for growth. You need to learn the terminology of financial planting. You need to do what is necessary to prepare your soil for real growth, such as formal education or training. You need to understand what a budget is and how to prepare one. If you want to grow mighty oaks you had best provide a soil in which those oaks will grow.

As to location, think real estate and geography here. If you have only mediocre soil don't try and plant your tree in a location where only highly enriched soil will produce strong trees. Better a smaller, healthier tree planted in a soil and location where its roots can support real tree growth than a tree sunk into soil and in a location where its roots cannot take hold and where its roots cannot sustain the growth desired. Think not having champagne tastes on a canned beer budget.

What are the roots of a financial tree? Money. At first these roots are only salary based. Later on, as the tree matures, it may also develop feeder roots that use savings and investments as their nutrients. It is the root system that determines how well a tree will grow, how large, how sturdy. A shallow rooted tree will find itself at the mercy of every rainstorm and windstorm that arises;it's roots aren't deep enough or strong enough to withstand outside forces. Some trees compensate for this shallow root structure by not growing very tall or very broad: the tree fits itself to its roots. Those trees which try to overgrow their shallow roots will find themselves toppling. Pay attention to root growth and maintenance and your tree has a chance to live. Pay attention to how much actual money you have on hand and your financial tree has a chance to live.

What is the trunk of a tree? The trunk of a tree from a financial standpoint is you and your needs. What is necessary for life? Here are the things that no one can live without: food, shelter, clothing to cover ourselves with, care when we are ill. The trunk is there to support the rest of a tree's structure; you can have a trunk without branches but you cannot have branches without a trunk. And again, that trunk, our financial needs, can only grow as well as the roots--the money we earn--that sustain the trunk.

Main branches divide out from the trunk. They are analogous to the members in a family. They are also analogous to our wants and desires. Like trees, some families have only a few branches attached to their trunks. Other families grow a multitude of branches. Some trees do not have the deep root system that will support a highly branched tree; they become top heavy and are prone to attack by forces of nature. Some people have few wants; others want everything. Overcrowding the branches can also mean that each individual branch may not have what it needs to reach full maturity. Some branches may be stunted and never reach their full potential. Some branches may be twisted out of shape. Too many branches--too many people or too many wants--stress a root system.

There are also secondary branches. These secondary branches are only as healthy as the branches that they stem from. Sometimes a secondary branch coming from a stunted main branch can fight for its share of nutrients and find itself growing strongly. Other times those secondary branches reproduce with the same problems seen in the parent branch. There are also twigs; these are the offshoots of branches. Sometimes these twigs want to be big branches themselves. When they grow overlarge they threaten the structure of the tree. Too many twigs growing from one branch can become so heavy that the branch breaks off. Like branches and twigs, our wants grow other wants and then these also grow yet other wants. Too many wants can threaten the life of the whole tree.

Leaves are both necessary and unnecessary for a trees survival. They serve the purpose of giving the tree an extra dose of clorophyll. But a deciduous tree can survive without its leaves; it does so throughout the colder, less sunny times of the year. It's a poor financial farmer who oohs and awes over a tree's leaves, who prides him/herself on how many leaves that tree has but ignores the roots and trunk of the tree. Think of those leaves as the things we own or buy or think we have to have right now, wants for a short period of time, like the latest style of clothing or electronic doodad. People think of these things as if they were branches,but they are only leaves. We can certainly do with fewer or none at all if a financial "season" says no leaves are affordable right now.

Fruit and flowers? Like leaves,these items only come about for a very short season. The only way to extend that season is to find a way to preserve those fruits and flowers for later use. If you eat all the apples now you won't have any when it's not apple season unless you've figured out how to make applesauce and apple juice.

Even if you have done everything just perfectly in planting your tree you aren't finished yet. Trees need steady maintenance. They need to be checked for root rot. They need to be checked to see if insects are boring into their trunk. They need to be checked for diseases. ( One of the deadliest diseases for financial trees is excess credit card debt. It can topple the entire tree.) Their branches and twigs need pruning so the tree won't be misshapen. And yes, sometimes a tree needs to be transplanted because there is no way to fix what ails it where it is presently located. You also need to consider the age of your tree. Trees will need different things at different points in their growing cycle; have you prepared yourself and your tree for what is coming later on?

And you need to prepare for the unexpected. What if there is a drought? What if there is a flood? What if the summer is unexpectedly cold? Or too hot? What if there is a hurricane? You need to ask yourself if you have a plan in case the unexpected should materialize.

So, like growing a tree, financial decisions have to be made in a specific order and with a real understanding of how a financial tree grows. Like real trees, financial trees grow from the bottom up, not the top down, and no amount of tinkering on our parts will change that reality. You cannot start out by deciding how many branches and twigs and blossoms and fruits your tree HAS to have. First, you need to see what kind of roots you are growing and what kind of trunk you will get from those roots. Then you will need to see how strong your branches are growing and do some pruning to those branches when they threaten the overall health of the root and trunk system. First come needs and then come wants, but not necessarily every want we have.

It's little children who put a seed in the ground and are disappointed when that seed hasn't sprouted the next day. For healthy growth you need patience. And before any growth is possible at all you need a plan. Thinking comes before planting. Just keep in mind that mighty oaks from little acorns grow.......if you've planted that acorn correctly.

1 comment:

Lissa said...

Imagine you won't mind but I borrowed part of your tree analogy to show one of my kids why he can't have an item he wants right now. His piggy bank--his roots--doesn't have enough in it to buy what he wants to buy. When he said I could just charge it I told him that you can't grow that tree and have it to use until all the roots are there or the tree is in trouble. Won't say he was happy but he did understand the comparison.