“Here’s how I think of my money – as soldiers – I send them out to war everyday. I want them to take prisoners and come home, so there’s more of them.” Kevin O’Leary
Kevin O’Leary aka Mr Wonderful is a hard-nosed Canadian businessman who is well known for his sharp and often insensitive comments as one of the venture capitalists on Shark Tank. I am not a great fan of the abrasive persona he has created on the show, although I do see that he is an essential ingredient for the show’s success, however this particular comment really resonated with me.
I do not think of my money as soldiers taking prisoners, and I do not really like the predatory analogy made by Mr Wonderful. However I do think of my money as a team of workers whose job it is to go out every day and work hard to make more money for my family. There is no point having lots of workers sitting idle all day doing nothing – you need them out there working hard to generate a passive income for you, in order to augment the money you earn by working yourself. The ultimate goal, of course, is that your money and assets work so hard and so efficiently, that the passive income they earn you is sufficient to cover your costs, thereby making you financially independent.
In other words at the end of the day if you want to achieve financial independence, it is not about how much money you manage to sock away, but about how well you get that money to work for you.
If you have your money in a bank account (or under the mattress) earning little or no interest, you are not putting your money to work for you as productively as possible.
If you use your money to buy things that do not generate any income or depreciate in value, such as an expensive car, or jewellery, or a fur coat, your money will not be working for you at all. You are missing out on a golden opportunity to create a passive income stream for yourself.
The message is this. It is not enough to make money or even to save money. Almost everyone does that. After all the average mortal needs a job to earn money to put a roof over his or her head and food on the table. The magic happens at a different stage, one that unfortunately most people never get to. Instead of spending all their money, or saving money but not putting it to good use, people who understand that money is supposed to work for them invest the time and effort required to identify how best to employ it. How to make their money work for them. They have the discipline to create a virtuous cycle, where their money makes them even more money, which can then be used to generate yet more wealth, speeding up their journey to financial independence.
Think of yourself as an orchestra conductor, directing your money workers in their endeavours, and ensuring that you get the best return on your assets possible.
I am not saying it is easy. It is actually very difficult, which is why so few people attain FI. However it is not impossible. With patience, discipline and planning it is possible to develop different sources of passive income that will transform your financial future. The most important thing is that you commit the time required to learn about different types of passive income streams that you can develop, and choose one (or more) that make sense for you.
Some ideas include buying dividend stocks that pay out regular dividends, generating income without you having to do anything at all. If you are more conservative you could opt for bonds, collecting regular interest payments.
The more adventurous might consider investing in rental properties, which could be either residential or commercial. Rental income is not totally passive because tenants often contact you with some issue or another. However most of the work is done by the property itself, so it is a great way to make your money work for you. Lots of people achieve FI by going down the property rental route.
These are all traditional ways of creating passive income, but the digital economy has also made it possible for creative and entrepreneurial people to produce digital assets that generate regular revenue streams. It could be an eBook, an App or even a Blog – there are different ways of doing it. Obviously the creation of such an asset is not passive at all. It will be you putting in the hard work initially, so it is not really a case of money working for you. However the result of your hard work will be an asset that will then be able to work for you in the same way that money can.
So there is a lot to think about when planning your route to FI. Over the last year and a half I have thought about my personal plan and the passive income streams that I would like to develop. My preferred options are dividend stocks and property rentals. After a bad experience with residential letting I have decided to focus on commercial property. I have had a property rented out to a company for the last 7 months and so far it has been a positive experience. In fact this year I plan to roll out the next stage of my Passive Income FI Plan by constructing a new office block that should be completed by 2019.
So decide on a plan and stick with it. It will probably take years to see the fruit of your labour, but it will be well worth it. Good luck!