There are broadly two sources of income. There is people working for money, and there is money working for money. There is linear income and there is non-linear income. Linear income is the direct exchange of time for finance – it is limiting. Non-linear income is passive or residual income, its income coming not from the direct exchange of time for money. Whatever it is that occupies your time today, you need to find a way to begin to not only generate extra income, but to generate passive income. Before you get involved in anything, ask yourself, does this have the potentials to give me passive income. Passive income is generated from the Business or Investor quadrants, not from the Employee or Self-employed quadrants. Make sure you are involved in business that you can automate, or investments that are good. Investing without education is gambling, get education and enlightenment.
Financial freedom is when your passive income exceeds your living expense. There are 5 key sources of passive income that are currently available. These 5 sources are opportunities that will enable you to achieve financial freedom in your lifetime and also leave a legacy for the next generations to come. You can develop passive income streams in any of them. I usually recommend that you play in all, the generally accepted avenues to this passive income include: Real Estate, Paper Investment, Automated Business, Intellectual Property and Network Marketing.
I will take time to explain the above listed.
1. Real Estate: Many people wonder what is the meaning of real estate? I jokingly say to people it is the only estate that is real. However, real estate was originally known as Royal Estate that was basically meant for kings. It is an income generation engine that will always be significant, it is most secured and long lasting and can give you good earnings, and most rich people invest or keep their money in it. Income generated from this wheel of income is known as rental income.
The capital required to invest in real estate is usually high and that is why many people believe they do not have the opportunity to do it.
You can become a player in the real estate business world by accumulating money in your escrow account till you are able to take advantage of opportunities that will come your way or generating funds from other sources. It is said that opportunities only come the way of people who prepare for it.
Real estate gives you 3 income streams namely:
- Yield – Rental income
- Capital appreciation – The property appreciates except if there is an epidemic/natural disaster within the location
- Debt – Can be used as a collateral to collect loan for investment
When you are investing in real estate, do not invest for the value appreciations rather invest for rental income which gives you cashflow and make sure you diversify. You can buy in Nigeria or outside Nigeria. The only thing you need to do is to make sure that you have a proper analysis done for you by an expert before you invest in any real estate opportunity.
Don’t build the kind of house you want to live in but a house that will give you passive income through rent, play at the bottom of pyramid then grow upwards.
Real estate provides wealth engines as follows:
- Compound interest
- Residual income
2. Paper Investment: This type of investment ranges from Shares/Stocks, Bonds, Treasury Bills, Fixed/Term Deposits etc. Any investment you make where what you have for keeps is certificate stating the details of the investment then it is known as paper investment.
The passive income made from paper investments are dividend, return on investment (ROI) or interest. A lot of money is also required to have a meaningful quantity of paper investments that can give you good passive income. This, however, does not mean one should not start small. Start from where you are now and build your assets to become a big one. Leverage is inconsistent in this investment, in time past different countries and financial policies have allowed people to enjoy some level of leverages but it is no more today due to its inconsistency, the ratios are quit wide between 1 – 15%. I don’t score this highly but it’s good to diversify. People who get rich only get there because they invest with the long term in mind. Begin to do so now. In 5, 10, 15 or 20 years you will be glad you did.
3. Automated Business: It means a business you are running in tandem with someone in partnership with an organization where your involvement is financially. Once in a while the board members meet to discuss on way forward. Or a business that you have been involved in times past from which you have retired or businesses that have been in existence that you can leverage on.
The organization runs as a full company that can be involved in trades, services, manufacturing, support services and several things and then on monthly, quarterly or yearly basis you share percentage of the profit made. Usually business yield good returns between 20% – 40%, the higher the risk, the higher the returns.
You get comfort when you understand the business and have a level of control. If you have built your business where it is self sustaining it falls under Automated Business. It means you have put a system in place that is self sustaining. Examples of automated businesses are franchises, or online businesses that use e-commerce platform or proving a truck for a haulage company who pay you monthly for using your truck yet you are not directly involved.
You can be a part of this early in life or position yourself to partake in one as the opportunity arises for you. The passive income made from automated business is directors’ bonus. The type of business will determine the kind of capital that will be necessary to be a part of this.
4. Intellectual Property: Intellectual property are creations of a person’s mind for which he has personal rights according to law. This wheel of income is big in America, Europe and challenging in Asia. Royalty is what you earn from intellectual property through speaking, writing, acting movies, developing software and innovations. You estimate this by the number of books you have written or songs you sang.
One good thing here is that you’re building a brand. Developing your intellectual property properly can lead to enormous wealth. Examples of intellectual property are copyrights, trademarks, patents, design rights and trade secrets. You can begin to develop any skill you have in this regards. You can never be sure of the kind of passive income it will bring your way if the process is properly managed.
The ratio you can earn from intellectual property can be between $50 – $1m per month per product, you have to learn how to leverage on your brand.
Wealth creation engines are:
- Residual income
This requires skill, talent and perseverance and not everybody has this.
5. Network Marketing: Network marketing also referred to as multilevel marketing (MLM), is a marketing strategy in which the sales team is rewarded for sales they generate personally and also for sales of other sales people that they are able to recruit into their team. The sale of product is expected to be done via word of mouth or relationship referrals. A network marketing business is different from a pyramid scheme which is illegal. There are different categories of network marketing businesses such as Uni-level, Binary and Hybrids amongst others. Network marketing is one of the most exciting because it leverages on the 3 wealth creation engines. The passive income you earn here is bonuses, it is best to say your network marketing will give you passive income after you have run it for 5 years.
Interestingly it is rated as the number 1 industry that has created millionaires in recent time irrespective of your educational background or qualification. The start up capital is also very low compared to other passive income options like real estate, paper investments or automated business. Top guns are playing in it and the International Labour Organization says you are most likely to make a 6 digits income from network marketing than a normal paid job.
To become part of a network marketing opportunity you need to be sure you can afford the joining fees and are prepared to learn. The most interesting opportunity in a network marketing business is the opportunity to develop yourself personally.
Robert kiyosaki says that network marketing is business for people who love helping other people. It’s an exciting way to meet new people, do business at your own convenience, and grow your alternative sources of income. Network marketing is a business model that suits the interactive and social nature of Nigerians. It’s a tool that is being reviewed for use in various sectors, our banks are already heading in that direction, oil companies and many others network to grow their businesses.
The ratio in network marketing is between $500 – $1m per month. Wealth creation engine are:
- Compound interest
- Passive income
In addition, when sourcing for a network marketing there are 3 things you need to look out for:
- The people behind the business: Ensure you know at least the profile of the people running the business
- Product the company offers: Is their product such that you can earn without referring people?
- Their reward system: The company reward system should be in binary.
As stated above, position yourself to participate in all 5 sources of passive income. Increase your earnings, manage your expenses properly, save, save and then invest in assets that will in turn help you increase your passive income sources.
Categories: Financial Intelligence