Moving your livelihood from active to passive income

 

One of the best things you can do in your financial life is to transfer your source of livelihood from active to passive income. Active income is any income that requires ongoing work and your physical presence to thrive. Passive income is income that can thrive without your physical presence at work on it.

These two sources of income are the two main ways people earn money in the world. However, active income is stronger than passive income because all wealth is created through active income. And passive income is safer than active income because all wealth is preserved through passive income.

But not all passive income is created the same and not all passive income can thrive in any economy.

 

READ ALSOReps want doctors jailed, fined for unethical referrals

There are two kinds of passive income. The first is the economy impacted passive income and the second is the economy protected passive income. Economy impacted passive income is that passive income that goes fluctuates with the instability in the economy. This type of passive income requires ongoing maintenance and investments to thrive. This is the worse type of passive income to depend on.

If you want financial peace of mind you must depend on the second type of passive income.

The second type is the economy protected passive income. This is the passive income that can thrive in any economic situation. They are safe, stable and predictable and can relieve you of the pressure to keep working for money.

The economy protected passive income is thus the only type of passive income you should fully depend on. When you reach the stage in your life where you have this kind of passive income, you are said to have achieved total financial freedom.
Unfortunately, only a few people know how to get to this point or even create this kind of passive income that sets them free. Most people are just investing and hoping that they will build solid passive income someday. Yet hope is not a good investment strategy and these people never really achieve their goal. I know this because research shows that out of 100 people that invest only one person will become wealthy; four will become financially free; 15 will have some savings put aside. And a whopping 80 will be dependent on other people, on pension, or flat out broke in retirement.

The one big question to ask yourself is, where will you be at the end of your career; and how do you propel your life from an active income to an economy protected passive income?
The answer is simple and it is threefold.

The first thing you need to do is know your passive income profile. Second is to know how to move your life from active to passive income. Third, you need to know the passive income time wasters.

Let’s look at the first components in detail. You can get the other two components by sending an email to [email protected]

1.Your Passive Income Profile

Not everyone can build solid passive income that gives freedom from work and protection from economy fluctuations, neither is everyone at the stage of their lives where they can build solid passive income. So below are the different stages to building solid passive income

Stage 1 – Regular Income

All passive income is created from active regular income. Thus you need active income to create passive income. The more active income you have the more passive income you can create. That is big active income equals big passive income, and small active income equals small passive income. This means that a solid passive income is created by first focusing on building a strong regular active income. Spending time on investing when you should be spending time on increasing your active income is the key to delaying your financial freedom. Your investments in passive income will only kick in when you have large amounts of regular active income.

Stage 2 – The Saver

This is the stage where you save a big part of your income consistently each month without fail. Saving is critical for investing and is the seed for building solid passive income. According to W Clement Stone, if you cannot save, the seed of greatness is not in you.

Thankfully, everyone can save but most people choose not to save. They chose to sacrifice savings for other items in their lives. You can call it a savings problem but no one has a savings problem. People have priority problems; and if you must build a solid passive income you must make passive income investing a priority.

Stage 3 – Income Loss Emergency Protection

Protecting yourself from the possibility of a sudden income loss is one of the things you must do if you want to build solid passive income. Thus emergency protection that secures your income for 12-24months is ideal to maintain financial stability at all times. Without this kind of emergency protection, there will be investment disruptions, financial distractions and in most cases a complete abortion of your passive income journey.

Emergency protection is thus critical if you must build solid passive income. When you achieve emergency protection the next step for you is building a solid cash reserve.

Stage 4 – Cash Reserve

The cash reserve building stage is where you build extra cash reserves beyond your emergency funds that is dedicated for investing, free from financial distractions. Having this kind of cash reserves is important as it helps you engage in short term and long-term passive income investing without stress. You are able to put away money for a long period of time if it offers the right benefits, and still move on with your life.

A typical cash reserves for building solid passive income should be at least N1.8million  to N4.5million per year. This amount can be bigger or smaller depending on the passive income goal you want to achieve. The cash reserve building stage is what truly qualifies you as ready to build a solid passive income.

Stage 5 – Passive Income Investing

The passive income investing phase is when investing takes place. This is the phase where you build the asset base that funds your solid passive income. It comprises setting clear passive income goals; Choosing the right asset base; And setting up your passive income investment vehicle.

There are two stages involved in the passive income investing process. The first stage is the investing stage. This is where you fund the asset base that produces your passive income. The second phase is the Cash-flow phase, when you earn passive income from your asset base. Thus building a solid passive income require years of investing before years of earning.

Wherever you are in your investing journey you can begin to take the steps that leads to a solid passive income. The key is to recognize where you are and take the next step that moves you forward.

Vanguard  News Nigeria 

Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.