►There are two types of income sources:
Active or earned income
Passive income (also known as residual income)
Active income is basically the money you earn as an employee or self-employed individual. Active income is linear in nature, meaning that if you stop working your income stops.
Investment income from financial products, like interest on bank accounts and dividends from share portfolios, may also be considered active income. If you stop saving or investing, you will hampen the growth on your capital.
Wealth creation is about generating income (while preserving your capital) in accordance with your lifestyle needs. It is NOT only about capital growth.
A major drawback about active income is that one has to put in a lot of time and energy into maintaining it. Just think about your own job requirements.
The Wealth Equation: Financial Freedom = Income + Time
Financial success hinges on two things:
Having enough income to support your desired lifestyle
Having enough time to do what you want
The problem with owning an active income stream is that you exchange time for money. In most cases when you retire, you have the time but not enough income. During your working years, you may have the income but limited time.
Active income alone is an ineffective way to create wealth. What you need is passive income.
This is money earned irrespective of whether you actively work or not. You don't have to work for a boss to get paid. In other words, you do not have to trade your time for money.
This type of income is crucial for financial success. As a wealth creator, your job is to build a business using income-generating assets.
An asset is basically anything that makes money for you. You don't do the work, your assets take over that role. And the more assets you own, the greater your total income and wealth.
In most cases, a passive income stream is not completely hands off. Once you set up your business, some maintenance is required to keep things going. However, the beauty is you can earn a great living while only working a couple of hours every month.
►Types of passive income streams
There are various business systems that one can set up. The idea is to dedicate yourself to one model until you feel it is time to diversify or move onto different passive income opportunities.
Examples of different income streams include:
Real estate (rental income)
Royalties (from books or music)
Licensing fees (from products created by you)
Online advertising revenue
Business revenue from selling your own products and services
Property and internet business models have made the generation of multiple income streams doable for almost everybody. And I'm grateful for having been able to use these systems to achieve my own goals.
These systems work! You can redesign your lifestyle and achieve all your dreams using either buy-to-let property or an online business. Alternatively, you can use both systems, which is what I've done .
Your job is to find something that works for you and WayToWealthTM will help you get there. It may be property, it may be online, it may be a structured passive income business that follows the P-Principle or it may be another system.
Please bear in mind that passive income is not a get-rich-quick model. Achieving true success requires time, dedication and definitely patience on your part.
Diagram adapted from Robert Kiyosaki's Cash Flow QuadrantTM