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Wealth creation systems: Which option is best for you?

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There are two types of wealth creation systems at your disposal. Which system are you relying on to build long-term wealth?  
 
►Active and passive wealth systems
 
An active system is the most widely used and includes working for a boss or yourself.
 
As the title suggests, this type of system requires a significant amount of time and energy to maintain. Consider your current job. How many hours do you spend at work every week compared to quality time with your family?
 
One of the biggest downfalls of employment is that when you stop working your income stops. Will you continue to receive a monthly salary if you quit today?
 
The same goes for your own business. If you throw in the towel you may as well consider yourself unemployed.
 
A passive wealth creation system relies on other people and technology to produce income. You essentially separate yourself from your business.
 
As a result, if you are retrenched tomorrow or permanently disabled your business system will continue to pay you a salary. Income streams are passive in nature.
 
A property portfolio for example will not stop generating rental income if you decide to cut ties with your boss. 
 
►Financial freedom = More time + More monthly income
 
Financial freedom is relative. Having more free time is important, if not more important than money. Have a look at the following two scenarios:
  • Scenario 1 (Active wealth): You earn $500,000 a year working a day job for a large corporation. Free time comes in the form of weekends and annual leave.
  • Scenario 2 (Passive wealth): Your wealth creation system generates $500,000 in income each year. You only need to work a couple of hours every month to maintain your business. Free time is ‘whenever you decide’ time.
So what are you after – time, money or both? What I can tell you is that wealth creators focus on both. And a passive wealth system is one of the best ways to accomplish this.
 
Whichever system you decide to use, it is important to understand the major pros (return) and cons (risks). Only then are you in a position to make an informed decision. 
 
►Active wealth creation
 
Risks:
  • You sacrifice time for money. In other words, you need to work to generate an income.
  • As an employee, you may have no or limited control over business decision making.
  • Active income stops when you retire.
Return:
  • A job instils a sense of security.
  • Employment is a great learning curve. It teaches you the basics of building a passive wealth system.
Strategy:
  • High risk low return
►Passive wealth creation
 
Risks:
  • A system is a business, which means you will have to contend with some risk factors.    
Return:
  • You do not sacrifice time for money.
  • You are in full control of business decision making.
  • Passive income continues whether you actively work or not.
Strategy:
  • High return low risk

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