26 December 2010

Income To Make You Rich

This is Pt 1 of a 3 Pt series

So far I have spoken a great deal about my fundamental plan and how I will build a solid foundation by splitting my money between Metals And ISA's

The first thing I discovered and commented on in A Financial Plan For Security is that 'nobody ever gets really wealthy’ from a job, even when they are at the very top. My inspiration to reach my destination originally stemmed from seeing my mother in dire financial circumstances as I grew up. It was at a particularly tough time financially that I decided to seek out the answers to free myself and my loved ones from the absolute illness of poverty. Climbing the greasy ladder of the workforce from a personal point of view seemed to be wayyy too slow and a plan that would never allow me to offer more to the world besides looking after myself and perhaps being comfortable. It also seemed like a plan that would provide me with very little time. Everybody I saw who managed to reach those stages seemed to be working absolutely ridiculous 60+ hours on a weekly basis, always stressed and dashing off to meeting after meeting. The lifestyle seemed to be one that required a constant struggle between the work/home balance and didn't seem to ring true of my vision of true financial success.

The people I saw and wanted to emulate were those who seemed to be working less as their income went up, leaving them with the free time to do whatever they wanted; Those who were able to live a fantastic lifestyle, see the world, build a financial fortress around their family and give benevolently to charitable causes. Those who were able to have all the excellent toys and experience the wonderful things the world has to offer. Those people never seemed trapped in a financial box, having to work to the bone just to maintain an income bracket. Conversely, they were the ones who would be having a relaxing day at the golf course, or soaking in the sun in the Maldives with their feet up. THAT was the path for me. Then I discovered and devoured all of the completely paradigm shifting work of Robert Kiyosaki, and more specifically ‘Cashflow Quadrant'. This is a fantastic book which highlights the different kinds of people in the world of money and how to slowly but surely shift yourself into the quadrant that will provide you with the kind of income to help you reclaim your time.

Types of Income

The income I was thinking of that was providing the lifestyle I was looking at was portfolio or passive income; money that appears in the bank even when you lie in bed watching daytime TV. Generally, with this kind of income you may still work hard in terms of initial effort, but typically you work very hard once and get paid repeatedly, and then in some cases take on extreme light maintenance! 

Once I discovered this, I realized that income, even for those on 100k+ PA in a job position was classified as earned income, which as Robert points out is the one you work the hardest and get taxed the most for. It is also the one that you have to work repeatedly for. For me, answering the following question was very easy: ‘should I have to work repeatedly to get paid repeatedly? Or should I learn how to work once and get paid repeatedly?’ Enter my plans to be rich….

Portfolio income is the kind that resides in the middle; one that I will definitely be using to support plans of being comfortable. Some people also utilize this income to get rich, and many succeed, yet I figured that personally this wouldn’t be the path for me. The money for this kind of income is usually derived from stocks in the form of price gains of the stock and the 'dividend' income the stock may provide. I discovered an excellent blogpost entitled How To Invest which explains very well how this can be achieved. As a simple tip, one that may be obvious but which I recently started utilizing in my pharmaceutical sales job, if your company provides stock options, find out about them and grab them with both hands! Consider of course that it's subject to your company performing well. In part 2 of this post, I discuss some key learning’s I have picked up in terms of ETF's, Index Trackers and other such vehicles.

As an individual who absolutely loves music and is still in the process of writing songs for aspiring artists, a few of whom I hope will eventually make it, I realized that when this happens I will be receiving a different kind of income from the one I despised. This will be an income that I will work once for in terms of writing a song, and will get paid for repeatedly depending on the level of success of the song I’m writing. This will come to me in the form of royalties and is classified as passive income. Therein lays the path to true wealth. As this is a hobby of mine, this is something that I can do without interfering with the larger parts of the rich plan I have developed.

Passive income is predominantly derived from property. After initially working hard to acquire a property that will provide cash-flow, money then flows in each month for as long as you hold onto the property. This is a strategy that I will provide more information about in part 3 of this series

In a nutshell, there are many other ways to generate sustainable income that stretches beyond working in a job. We must all start from somewhere however, so we should at least learn how to stretch our paychecks!  Check out part 2 in this 3 part series, and feel free to leave some comments below!

This whole series is part 1, part 2 and part 3


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