A Personal Finance Guide

Wealth Induction Loop

“Father Abraham has many sons. Many sons has Father Abraham.” These are some of the words of a children’s song sung in church. Father Abraham also had many sheep, many cattle, and many oxen. The size of flocks and herds was the standard by which wealth was measured and perceived in the ancient world. Did Abraham start with many critters? No, he started with just a few and allowed them to grow by “looping”. Abraham was a capitalist and he looped.

A Highly Technical Description of the Wealth Building Process

(Actually About as Technical as a Drawing of Stick Figures)

A “THING” PRODUCES A RESULT.

RESULT IS NOT CONSUMED, BUT IS ALLOWED TO “LOOP” BACK INTO THE “THING”.

THIS NEW LARGER “THING” PRODUCES A RESULT THAT IS USUALLY, THOUGH NOT ALWAYS, EVEN LARGER.

THIS NEW RESULT IS NOT CONSUMED, BUT IS ALLOWED TO “LOOP” BACK INTO THE “THING” AGAIN.

THIS NEW LARGER “THING” PRODUCES A RESULT AGAIN.

THIS PROCESS CONTINUES LOOPING OVER AND OVER AGAIN THROUGH THE YEARS AND DECADES.

Due to the restraints of html code, I can not show an arrow arising from the “result” and curving upward and then curving back to the left and pointing to the original thing. In “The Debt Destruction Engine”, a book which I give away for free, there is a picture like this illustrating the process of the result “looping” back into the thing.

Example of an Ancient (and Modern) Wealth Induction Loop

10 SHEEP —— EXERCISE THEIR MULTIPLICATIVE PROCLIVITIES —– NOW THERE ARE 13 SHEEP

The shepherd is having a hard time making it and has to eat one of the sheep, but manages to “loop” 2 back into the process.

12 SHEEP —— EXERCISE THEIR MULTIPLICATIVE PROCLIVITIES —– NOW THERE ARE 15 SHEEP

The shepherd is having a better year and is able to survive from his crops and other animals without eating a sheep.

15 SHEEP —— EXERCISE THEIR MULTIPLICATIVE PROCLIVITIES —– NOW THERE ARE 20 SHEEP

The result is allowed to continue. It is not consumed, which is stupid and “loopy” to the prairie chicken person, hence the name, the wealth induction loop. I am just kidding. In a sense, the result is looped back into the thing from whence it came. As this process loops over the years, it induces wealth, which is why this is called the wealth induction loop.

The key to producing wealth is to loop as much of the increase as possible back into the process. The loop requires effort to maintain, but delivers no immediate gratification. This is a problem for the prairie chicken person who takes his “buzz” up front and then pays for it later. The eagle operates without immediate reward and trades it for greater wealth in the future, while the prairie chicken wants the reward for his effort now and consumes it now.

There have been cases where someone would explain wealth building to a friend. Then, to help them out, they would give them a wealth induction loop. For example, they might give their friend some cattle. What happens? Invariably, the giver comes by several months later to see how things are going and discovers that the receiver has sold all of the cattle. A wealth induction loop, such a few cows, has to be fed, maintained, and looked after. This requires time, money, and effort for something that will benefit you off in the future.

In the prairie chicken world, every reward for work done is received and consumed right now. When a prairie chicken is given a wealth induction loop, he will very quickly consume the increase because that is what he has always done. Then, he will consume the loop itself. When you do not have the discipline to create the wealth induction loop yourself, you usually do not have the discipline to drive it past subsistence.

Driving the Wealth Induction Loop Past Subsistence

An activity or possession or process produces a result in terms of number or size over time.

So, xxxxxxxxxx (10 units) produces xx (2 units).

The total increase is not consumed, but is “looped” back into the process.

Then you have the new larger thing: xxxxxxxxxxxx (12 units).

Once again, this activity or possession or process produces a result in terms of number or size over time.

So, xxxxxxxxxxxx (12 units) produces xxx (3 units).

The total increase is not consumed, but is “looped” back into the process.

Now, you have the new larger thing: xxxxxxxxxxxxxxx (15 units).

Let us say that I have the wealth induction loop pictured above operating in my life and I decide I need 8 units to live on. Can I retire when this wealth induction loop produces an increase of 8 units? No, because I want to allow for inflation and I just want to grow my wealth so I can bless others. I would want the loop to grow past subsistence. In other words, I want it to produce more than 8 units of increase before I retire so the units that I do not use to live on can be looped back into the process and cause it to grow.

When the wealth induction loop produces 11 units of increase each year on a regular basis, I could loop 3 units back into the process to make it grow. And retirement, as I think of it, is not what it is usually thought of. It is not just an opportunity to relax and recreate oneself. It is freedom. Freedom to work on things that you care about, to champion causes that you believe in, to invest yourself in people you care about, and, yes, freedom to play when you want to.

This activity or possession or process produces a result in terms of number or size over time.

So, xxxxxxxxxxxxxxx (15 units) produces xxxxx (5 units).

The total increase is not consumed, but is “looped” back into the process.

Then you have the new larger thing: xxxxxxxxxxxxxxxxxxxx (20 units).

Once again, this activity or possession or process produces a result in terms of number or size over time.

So, xxxxxxxxxxxxxxxxxxxx (20 units) produces xxxxxxxx (8 units).

The result is 8 units, which is the requirement you set for retirement, but you need more than this to actually retire because of inflation. You need more than 8 units so you can live on 8 units and have money left over to loop back into the process to achieve continued growth. At some point in the future, you will need more than 8 units to retire because of inflation, so you have to let this loop on up to a larger size before you can retire on the result.

The total increase is not consumed, but is “looped” back into the process.

Now, you have the new larger thing: xxxxxxxxxxxxxxxxxxxxxxxxxxxx (28 units).

This activity or possession or process produces a result in terms of number or size over time.

So, xxxxxxxxxxxxxxxxxxxxxxxxxxxx (28 units) produces xxxxxxxxxxx (11 units).

The increase or result is 11 units now, which is greater than the subsistence requirement. So, 8 units could go to your subsistence and 3 units would be available to loop back into the process for continued growth. So, you have driven this wealth induction loop past subsistence.

IS IT TIME TO RETIRE?

You might not, in real life, retire at this point, because the “loop” could have a bad year the very next year after this and actually decline. You might let it run up even larger before you retire. This, though, still illustrates the concept of driving the loop past subsistence. This process is ponderously slow at first. It may take 80% of the time to accumulate the first 20% of the wealth. Then it may take the last 20% of the time to accumulate the last 80% of the total wealth that will be amassed over time. As time passes, the power of compounding goes to work for you and works its magic. You have to go through that early season of slow, plodding growth before you get to enjoy the latter season of rapid growth.

THE WEALTH INDUCTION LOOP IS THE POWERPLANT THAT DRIVES THE WEALTH INDUCTION ENGINE.

IT IS THE STEAM ENGINE THAT DRIVES THE LOCOMOTIVE THAT INDUCES (CREATES) WEALTH NATURALLY AS IT OPERATES.

A WEALTH INDUCTION LOOP CAN BE ANYTHING THAT CAN GROW BY COMPOUNDING OR REPLICATION SUCH AS A MUTUAL FUND, A HERD OF ANIMALS, YOUR JOB (THROUGH CONTRIBUTIONS TO A 401K, IRA, AND TO OTHER INVESTMENTS), RENTAL PROPERTIES, ATM’s, JANITORIAL CONTRACTS, AN MLM OPPORTUNITY, A BUSINESS (HOME-BASED OR OTHERWISE).

We think of someone who lives this way as odd. Actually, it is unnatural to live any other way. The abnormal has become the norm. Building wealth is not the exclusive domain of those who were born rich. In fact, if you research those who become multi-millionaires, you will find that they often come up from nothing.

Billionaires are generally from families that are not especially well to do. They build or acquire or create a wealth induction loop of some kind. The loop is often tiny at the beginning. They faithfully operate the wealth induction loop without consuming its result so the increase can loop back into it to make it larger. They drive it past subsistence and then use its increase to acquire more wealth induction loops. You can make excuses about your disadvantages (background, lack of education, lack of money) or you can make a plan and work the plan.

ARE YOU LOOPING?

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