This Is How Donald Trump Builds Wealth (and You Can Too)
For most people the name Donald Trump conjures up many images — the hair, the pout, the Tower, the casinos. And, of course, "The Apprentice." He is certainly one of our culture's most recognizable personalities, and since the 1970s he has accumulated enormous wealth. But has that wealth made him financially independent? Not necessarily, at least not until recently. To see why, let's take a brief look at how his financial investments and priorities have evolved over the years. (See also: Money Lessons From Millionaires)
1970s to 1980s: The Asset Accumulation Years
In 1971 Donald Trump moved to Manhattan, where he quickly established a name for himself as a leading New York City real estate developer. At first, he focused on multi-unit residential complexes, but he then expanded into commercial properties, including hotels and office buildings. By the 1980s Trump's assets from real estate holdings, development activities, and property sales had grown significantly. There were liabilities (mortgage debt) associated with these assets, but at first they didn't appear to be excessive. As a result Trump had substantial net worth, or wealth. (See also: Investing in Real Estate)
1990s: The "Bad Wealth" Years
By 1990 Donald Trump had broadened his investment interests to include football, airlines, and casinos. It was the latter, in particular the Taj Mahal Casino in Atlantic City, that together with increasing debts on his other properties led to a serious debt problem. In fact, by the early '90s his personal debt had grown to $900 million and his business debt was nearly $3.5 billion.
The problem? Despite having substantial assets, the liabilities were excessive. To make matters worse, the assets weren't generating sufficient cash flow to cover the debt payments. On paper, Trump might have still been a multi-millionaire, with total assets several million dollars more than total liabilities; so he had wealth. But negative cash flow meant he was far from financially independent. In fact, he was on the brink of personal bankruptcy. Hence, the "bad wealth" years.
2000s: The "Good Wealth" Years: The Apprentice to the Rescue
In 2003, NBC launched "The Apprentice," a reality TV show hosted and produced by Trump. During the first season Trump was paid $50,000 per episode, or roughly $700,000 for the year. These days, Trump is reportedly paid $3 million per episode. Calling this venture a cash cow would be an understatement. It is a great example of "good wealth:" an asset (in this case a business) that generates substantial positive cash flow.
The Lesson? Cash Flow Is King
"The Donald" knows how to take a good thing and make it better. Starting with his real estate activities and especially now with his media success, Trump has established and fully leveraged the branding of his name. And he's done so with a particular focus on relatively low cost (and therefore low debt) ventures that generate multiple income streams. Some examples:
Books and tours
"The Apprentice" memorabilia and game items
Speaking engagements, where he reportedly receives up to $1.5 million per presentation
Allowing (for a fee) his name to be displayed on buildings owned by others
These specific types of activities are generally beyond our reach. But the financial principles they illustrate are simple and relevant to us all: Seek to develop a portfolio of assets that generate positive cash flow.
How the Rest of Us Can Learn From Trump
What are some examples of cash flow-generating assets available to common folk like us who don't have Donald Trump's resources? Here are a four.
Retirement and Savings Accounts With Matching Contributions
If your employer offers a 401(k), employee stock, or savings program that includes a company match, you are being offered free money. Where else can you find a deal like that? It's a no-brainer. Contribute an amount that gets you the maximum match from your employer. (See also: Valid Reasons Not to Contribute to Your 401(k))
Yes, you too can start your own business without quitting your day job. The challenge, of course, is getting it to cash flow positive. Increase your odds of success by avoiding or at least minimizing the two biggest cash flow drags: paying employees a salary and paying rent. These two expenses are common to traditional retail businesses but not to service businesses, so think about providing a service.
Some examples of service businesses include writing, conducting or coordinating webinars or live workshops, giving music or other lessons, and consulting. Or perhaps you have an invention, product, or service that can be licensed to multiple users, thereby creating multiple sources of income. (See also: 10 Great Home-Based Businesses)
Stocks are one of two major asset types owned by the financially successful, because in general stock growth outpaces inflation. Stocks that increase in price and also pay dividends offer the added bonus of quarterly cash flow payments (which, by the way, can be reinvested to compound the growth).
The other major asset type owned by the financial elite is real estate. But not just any real estate. Remember, we don't want to fall into the debt trap, with excessive monthly mortgage expenses and other carrying costs. Generating rental income from a property can offset, or in some cases exceed, the negative cash flow. Being a full-fledged landlord isn't for everyone, however, so keep in mind that renting a room, a garage, or a parking space can create a regular income stream with a little less responsibility.
Other types of properties can be rented, too. For example, trucks or trailers. So can specialty equipment and tools. Have a boat or a classic car? They can also be rented.
So, what kind of apprentice will you be? Will you take advantage of opportunities to create "good wealth" — the kind that generates cash flow? Or will you accumulate assets with debts that spiral out of control? Having been there himself, The Donald has an expression for people who let that happen: "You're fired!"
Have you thought about how to turn your assets into cash flow generators?