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How to assess passive income opportunities

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Be very selective when it comes to passive income opportunities. Do you know how to screen your income-generating assets?
“I have a couple of fixed deposits, I earn interest income, why on earth would I need more passive income?” Why not just dump all your spare cash into the bank or stock market - easy money!
There is no argument. Interest income is passive income. You also don't have to actively work for it on a monthly basis. But is it the right passive income source for you?
►Passive income is the cornerstone of wealth creation
If you truly want to build a life of quality, then you must master the ability to invest in the right passive income opportunities.
Otherwise, whether you work for a boss or for yourself, you’re gonna be a slave to your job (unless your life’s purpose is your current job that is).
For example, if you own ten fixed deposits you have ten sources of passive income. The interest you earn on your bank account is the bank’s way of saying, ‘Thank you for investing with us.’
There are a number of other sources:
  • Rental Income
  • Interest from savings and investment accounts
  • Business income
  • Dividends from a share portfolio or investment fund
  • Royalties on intellectual property
►Learn how to screen your assets
Have a look at the following example:
Say you need $10 million in 20 years time to retire comfortably and you currently have $1 million in savings.
If you invest your million in a fixed deposit at 6% interest over the next 20 years, you will have about $3.2 million in your bank account – way short of your target goal.
At an interest rate of 10%, you’ll land up with approximately $6.7 million after 20 years – still short of your $10 million goal.
At 12.2% interest, your $1 million will grow to $10 million. Mission accomplished.
What this example is getting at is that you need to only consider passive income opportunities that will give you the required return on investment, which in this example is 12.2% per year.
If your plan requires a 20% return on investment each year to achieve your goal, you’re going to have to make sure that your passive income source(s) delivers.
You simply cannot chuck your money at any business or investment without understanding your requirements. Does your current return on investment meet your requirements?

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