If I could go back in time, that would be shocking.
But assuming I could do it, here’s the one piece of financial advice I wish I knew sooner:
Passive income is king.
I grew up in a household that believed in the value of hard work. My parents worked tirelessly to provide for my sister and I. (Thanks mom and dad!)
I appreciate the many great lessons I learned from them.
Unfortunately, there was one lesson that I wish I’d learned differently and if I could go back in time I’d tell myself this lesson:
(I’m not saying this to disparage my parents or their hard work; they were raised in households that taught them that lesson too.)
So, what is the better way?
THE BIG LESSON…
Your time is the most valuable commodity you have. It’s there one moment and gone the next. And, many people trade their time for dollars in a job. Unfortunately, when you do, that time is lost and you miss out on other ways you could have used that time.
Passive income allows you to continue making money without spending your time to do it, which gives you the freedom to use your time for other things… whether that’s spending time with family or whatever you want.
To illustrate, compare two people:
Person #1 works at a job. For simple math, let’s say they earn $50,000/year by working 40 hours a week. At the end of the year they’ll have “spent” 2,000 hours (40 hours a week for 50 weeks) to make that money.
Person #2 creates passive income. For simple math, let’s say they create something that earns them $10,000/year. They put in some hours and maybe a financial investment early in the year, and then this cash-flowing asset generates them money for the rest of the year with little or no additional input.
Let’s tally their results from the year:
Person #1 invested 2,000 hours and got $50,000 in return. They’ll never get that time back but they have money to spend.
Person #2 gave some up-front value (of time and money) and got $10,000 in return… but they also got 2,000 hours throughout the year.
… and that is the key. Because they can spend those 2,000 hours with family and enjoying life, but also building more passive income assets.
So, at first glance, Person #1 is financially better at the end of the first year but Person #2 has been able to enjoy (not sacrifice) their time PLUS they can use that time to create more cash-flow.
The following years will look much different:
Person #1 will continue to be trapped in a cycle of “spending” 2,000 hours to get $50,000. Although they were ahead in the first year, they are trapped in the same cycle the following years and largely dependent on raises or promotions to increase that annual income.
Person #2 is free. They can spend their free time each year creating assets that generate passive income, for which there is no ceiling; meanwhile, the time they have available can be spent on whatever they want. Simply put, Person #2 has way more options.
And at the end of their life?
Person #1 ends their working years and hopes they have saved up enough to live out their golden years.
Person #2 can retire (actually, they’ve lived a life of near retirement already) and their passive income assets continue to give them money through retirement.
PASSIVE INCOME CREATES FREEDOM AND OPPORTUNITY
That’s the financial lesson I wish I learned when I was younger: many people trade hours for dollars but you don’t get those hours back and you can end up trapped trading hours for dollars. The better choice is to build passive income to create freedom and to create more opportunities.
What kind of passive income can you create? Here are a few ideas:
- Rental real estate
- Teams who run your business for you
- Affiliate income
- Ad-based income
I’m building all of these now, and I have been for a while. But I wish I’d known about the power and possibility of passive income sooner because it opens so many doors. It also gives options when things change: for example, when I was a lone freelance copywriter and I wanted to take a vacation, I’d put my clients on pause and go on vacation, then feel the financial pinch when I returned (since I didn’t earn any money while away). But now, thanks to passive income generated from the assets I have above, I don’t have to worry and I don’t have to dig into my savings to cover me until I’m generating income from clients again.
Wondering where to start? Start by figuring out something you do really, really well that other people want to know. Then capture that information in some way (such as a book or infoproduct) and make it available for sale, then market it to the right people. You may not make a fortune on that first thing but you’ll get a taste for the life-changing possibilities that come with passive income.
Even if someone else does the same thing you do and sells a solution for it already, you bring your own unique approach and personality to it. Start by building something and selling it for a low amount. Don’t try to get rich in one go. Sell it for a few bucks and learn from those sales; get testimonials and feedback, then improve and raise your prices.
If you are wondering what the next few years of your life should look like, do yourself a favor and spend some of those years building passive income assets. You’ll get a taste of freedom and you’ll give yourself more options.