What is the purest form of Income?

What forces you to continue to work in a job that you are no longer interested or passionate about? Is it because you will run out of money if you quit working or is it because you will not be able to live the lifestyle you currently have if you quit your job? Everybody dreams about buying a house, driving a nice car, providing good education for their kids, traveling around the world, taking care of family members, etc. You need money for doing these things and that comes in the form of income provided by your job. A job that pays well enough to cover all the debts you have collected (student, home, car, credit card & other personal loans) as well as additional expenses to leave behind a net positive cashflow for your household. So, you hold on to this job even if you are tired, disinterested, see no scope of improvement and desperately want a change. Why not think of some other sources of income to supplement or replace your single source of income? Something that can be a better source of income. 

But what is the purest form of income? This is not a tough question to answer. But building such a source of sustainable income has been the most challenging experience for lots of people around the world, throughout the ages. As described by author Robert Kiyosaki in his Best Seller book titled “Rich Dad Poor Dad”, almost all income can be classified into two types - Active income & Passive income.

Active income is a source of income that you can get only when you show up to work and put in time & energy. The world is filled with different jobs that offer active income. In the US, as the year 2018 draws to a close, the unemployment rate is historically low and there is no shortage of jobs for anyone who is looking for active income. Companies are hiring at record rates and economy is going strong for around the 8th consecutive year (2010 onwards, considering 2008-2009 years being recovery from housing/financial crisis). 

An asset according to me would be something that increases its value over time and can be converted to cash at any point in future. A liability is something that loses its value over time & can drain your cash reserves. People who have wealth have figured out ways to buy assets that can generate recurring passive income for them. That is the purest form of income - Passive Income. What it means is a steady flow of cash from a source even after you stop working to build that source. Alternatively, it means money working for you, instead of you working for money. Building a source of passive income would mean you would essentially retire from what you currently do & not fear of having no money left to provide for you & loved ones. As appealing as it can be to binge watch all day/night, ordering food from Amazon or Uber and lazily enjoying your new found free time, retirement also doesn't mean you need to stop working. Your new found time can be used wisely to explore new areas of interests or pursue passions that you would have otherwise never been able to. You can choose to work if you want to, doing something that you love to do without worrying for how much money you would make from your passion or hobby. Because, people who are not financially independent are mostly stuck at jobs that they do not enjoy & always on the look out for something better since they do not have the luxury of not working or working on something that they love. 

Here are some of the examples of passive source of income. 

1. Savings accounts & CDs
2. Bonds
3. Invest in Stocks (Growth Stocks, Dividend Paying stocks, etc. - More on this Later)
4. Real Estate ( Own Residential or Commercial rental properties; OR buy shares of high dividend paying REITs)
5. Income from writing books
6. Patent Royalties
7. Ad revenue through Blogging or posting videos on Youtube or Facebook
8. E-commerce (Selling things online in your spare time)
9. Rent out space in your home (Example - AirBnB)
10. Lending money out to others & earn interest, etc.

These are just some examples to get you to think about passive sources of income generation. Not all sources of passive income have equal returns. Some of them take more time & effort than others offering high returns, while others are easy & hence offers lower to no returns. But, irrespective of what you do, there is a steep learning curve you have to go through. You can’t assume to be successful the moment you try something new. There would be failures. The people who succeed at anything are the ones who are not afraid to fail & would not take no for an answer. But, it can be a rewarding experience if you can sustain through the challenges to generate such a source of passive income that can ultimately replace any active source of income.

I would quote Robert Kiyosaki again to say that every individual if they can generate up to 10 different sources of passive income, can build a phenomenal fortress of financial independence. Even if any one or two or few of those sources stop, the additional sources of income that he/she has build would continue to provide cash in tough times. Building such an asset class would require lot of learning & personal growth. This growth & prudent financial acumen can also lead to potential “active income” at any later point in time since companies would line up to hire such a person who has achieved “success” in financial terms.

Some people choose to focus on building one such asset class or one form of passive income. Be it stocks, real estate or e-commerce or something else. They would rather focus on one to become the best in that single source to build a fort around them. This is commendable indeed. There is no fault in such a sound strategy. Warren Buffet built his fortune with stocks, while Donald Trump built through Real Estate & Jeff Bezos through e-commerce. They all excelled in one single source and built it up from mole-hills to mountains. However, this strategy while definitely applicable to everyone, is highly impractical for most people. If it were so, then everyone would have done so already. Hence, the alternate approach would be to diversify your revenue streams. While each stream might have a limited upside, by putting your eggs in different baskets, you are also providing a safety net for yourself in a worst case scenario.

If you thought this article is all about making money, then you are mistaken. I am using money as an example or motivator to educate people about something more fundamental. It is about your mindset. What mindset do you have about yourself? Do you have a winners mindset or a losers mindset? A winner’s mindset can also be considered a growth mindset. In order to start doing something new, you have to get into the right mindset. You have to humble yourself to say that your knowledge is limited & you would like to learn more about what you want to become successful in. You have to dedicate your time, energy & effort into learning and growing yourself first. There would be lots of challenges and resistances on your path when you try to grow. Only people who can sustain through those challenges can eventually say that they achieved something. This sense of achievement can lead to a sense of accomplishment & joy which nobody can take away from yourself. There is no limit to how much an individual can grow.

How do you grow yourself? Here are 5 simple steps.

1. Books/Blogs/Audios/Videos - Reading, reading & more reading. Even if you hate reading & are the slowest reader in the world, try to read 1 page of any book a day. Lot of people enjoy reading books & they offer means of relaxation, entertainment, knowledge, etc. for them. For people who enjoy reading it is an easier transition to start reading books on personal finance, business, investments, etc. But, even for people who are not avid readers, the value that books offer at the end of the day to grow your knowledge is well worth the effort they put into reading it. Audios & videos can be a good substitute for reading & can offer great value to the listener/viewer as well.
2. People - Associate yourself with people who are willing to put their time into teaching & mentoring you in the area that you want to grow. The authors of your favorite books, blogs, videos can also be considered your mentors even though you may not have ever met them in person. But, finding good mentors is extremely important. It would provide you with a powerful guide who has achieved in life what you are aiming for, who would have walked the pathway you want to travel & hence guide you on every step to avoid all the pitfalls you might encounter on your journey. A good mentor is someone who is selfless & has transitioned themselves from a mentee to mentor.
3. Classes - Take online classes, seminars, college courses in the field you are interested in. This would offer a better way to network with people who are learning & growing in the same field as you are. 
4. Practice - Start implementing the steps learned through 1, 2 & 3. Only practice makes perfect. There is no substitute for practice. The best artists, sportspersons, actors, singers, dancers, lawyers, doctors, engineers, bankers became where they are only through hours of practice. 
5. Teach - Last, but the most important of all, you need to start educating others about what you learnt to grow yourself. This is fundamental to any growth when one transforms oneself from a mentee to a mentor. If you look around yourself in your home or your workplace, you can see that when you were young or inexperienced, you had other adults in your life to guide you (parents, grandparents, relatives, teachers, manager, mentor, etc.). As you grow older, you would naturally . But, you should not expect that growth will happen if you just sit around & wait for some time like how a baby grows physically when it eats food. If you sit around & do not learn how to impart the same education you got to future generation, then you are doing disservice to both yourself & the next generation.

Doing these 5 simple steps would get you started on a new journey of growth in any domain that you choose to. Why not try this to improve your financial knowledge? Improve your overall wealth & dependence on a single active source of income bringing a lifetime of happiness along with your growth. It is tough for anyone to change direction in their career, family, life to pick-up something new to learn & grow into. But when the going gets tough, only the tough get going. Irrespective of where the markets are, irrespective of your journey or background, if you are intentional about growing your financial standing & knowledge, then only good things would come out of it in the long run. If you lose money, you can always recover. But, if you lose time, you lose that forever. Whether you are in your 20s, 30, 40s, 50s or 60s, it is never too late to start your financial education. Better to be late than never.

Kindly leave your comments below. Would love to hear back from you & if you have other book suggestions for others, kindly add them in comments section.