UNDERSTANDING YOUR FINANCIAL INDEPENDENCE STATUS!!!
UNDERSTANDING YOUR FINANCIAL INDEPENDENCE STATUS!!!
Financial independence is one of today's buzz words of personal finance management and you have probably used or come across it over and over. But does financial independence really mean anything to you? Well, if it's not just a catch-phrase but a financial status that you truly desire
to attain, you should be interested in how to optimise your earning potentials. You will not only be desirous of achieving a healthy level of income, you will also be keen on the sustainability of your income flow, for a lifetime. You will be excited at any possibility of income you can earn without the rat-race schedule of getting off your bed and house at cock-crow and struggling to beat the traffic for a job that keeps you tensed most times and only permits you to get home late at night. You may indeed be looking for legacy income opportunities that ensure that even when you are no more, the loved ones that survive you can continue to earn from your effort. Indeed, income comes in various shapes. Getting to understand the diverse forms of income and their implications may help you take steps that will position you for a healthy income stream. That's why you need to be familiar with the following income concepts:
Multiple Streams of Income
This is not in any way a complicated concept, but it's one that not many have mastered in the practical terms of putting it to work. It is also an income concept that holds the key to a stable and rapidly growing inflow of income. Multiple streams refers to the idea of creating diverse, concurrent sources of income for one individual. Having multiple streams of income means being able to earn from different sources, such that any disruption or slack in one source may not seriously affect you. Unlike a situation where one is dependent on, say, just the pay cheque which ceases in the case of a job loss - a frequent occurrence these days - multiple streams says that, in addition to the pay cheque, there could be other incomes in the form of interest from bank deposit and bond holdings, dividend and capital appreciation from stocks, some profit from a business investment, rental income from a property (could be just a shop), some royalty from a book, etc. One's income begins to really firm up when it gets diversified in this way, especially when each source is able to generate worthwhile income.
If it was so easy to create multiple streams of income, everybody would have them. For many reasons, it's not. For one, it takes a deliberate effort. That effort is derived, in itself, from an understanding of the value of diversified income and the risk and limitations of a single income source. Putting effective income yielding sources into operation takes careful assessment, committed investment, significant effort to build them into income-yielding channels and the ability to deal with any conflict potentials successfully. When you get it done right, however, you certainly move yourself to another level where you income stream can make a lot of positive impact on your life. For you to truly command a stout income flow, you need not just sizeable and growing income but one that has a diversified base.
Passive Income
Easily integrated into the drive for multiple income stream is the quest for passive income. Passive income is income that you are not actively involved in generating. Better put, it derives from a one-time or earlier effort, which means that subsequent income streams from it do not require the persistent, active commitment of time and/or effort from you. Some bit of attention may not be out of place from time to time, but the results are more on autopilot. Passive income is best achieved from sources like property investments (rental income) and intellectual property (royalties from books, patents, licence agreements, etc). It's different from active income which requires your active effort. A lawyer in practice earns active income. If he has to be off his practice for six months, say, due to ill-health, income from the practice is likely to suffer grossly. A doctor's practice, where patients are interested in his personal expertise and style, will even be more vulnerable. He has to be actively present for the business to sustain its income profile. A shop-owner needs to open and run it every day, attending to customers. An employee must go to work to keep receiving a pay cheque. These all generate active income which can only be sustained by continuous active personal involvement. The day you cannot, the income source will dwindle and may eventually cease. Not so, for any source of income that is passive. Take property rental income, for instance. Unlike a lawyer's practice, doctor's clinic, worker's employment or a shop, once built, the property may not need any attention, for years. The royalties from a book are of the same nature - once written, it flows without additional work, until you want to revise it. Generally therefore, passive income does not actively task your current resources. You release a home video, you can earn from it for a lifetime, especially if it's a classic, but the work was done only once. That's a great way to earn! The tool for passive income-building is leverage: of money, time, people and technology. This is a different subject, but you need to learn to engage leverage to develop these sources of income.
Portfolio Income
This another great way to boost your income stream and achieve diversification. Portfolio income refers to income from portfolio investments - securities and other investments that form your investment portfolio. They are not classified as passive partly because a portfolio may be actively managed. If your portfolio management style is passive (aka 'buy-and-hold), your portfolio income becomes largely passive. Portfolio income includes dividends and capital appreciation from stock investments, interest from deposits and bond holdings, distributions from a mutual fund investment, income from a REIT, etc.
Portfolio income, while considered active, is usually not too tasking to generate, if you can find the resources to make good investments. Yet a lot of wealth has been created by those who have learnt to shoot for it. Most good portfolio investments will continue to yield income virtually endlessly.
Residual Income
Income that is residual is usually passive too, so this is effectively part of passive income. Residual income comes strictly from a one-off activity but may flow indefinitely or a series of times from that singular activity. Take a referral commission. The structure may be such that you not only get a commission for referring a customer, but will also be entitled to further commission on any purchases he makes over his lifetime. That is also the thrust of most multi-level (network) marketing compensation systems. You introduce people who become your "downlines" and you earn commissions from their product purchases and those of other people they introduce, from that point forward. An insurance agent may be entitled to a commission, from the same sale, each time the policyholder renews. While residual income is not about commissions, you can see that commissions easily come in residual form: you do a job once and get compensated many times over. These are income types that add a lot of value.
Legacy Income
You may often hear of legacy income in today's discussions as interest focuses too on a steady income flow that not only accrues to you on residual basis through life, but also continues to flow to your survivors even when you die. Legacy income would seem to be the ultimate, because it not only sustains you while alive, it also sustains your dependants when you are gone. Your employment income ceases the moment you die, besides the fact the it is difficult to sustain at old age (the employer won't need you). Your business income may be there when you are gone, but that's only if there is somebody knowledgeable and committed enough to keep it running as you did. That needs active work. Portfolio income will continue at death, but if the portfolio was actively managed by you, that immediately becomes impossible. Legacy income, in its best form, is most available from network marketing arrangements. The reason is simple: when you build a network, each member of the team (the downlines) does his own business which they will continue, in spite of you. You however automatically get your commissions from whatever business activity (purchases) they generate. That happens to your survivors, too, in most MLM schemes.
Team work is working Smart!
Putting It Together
These important income concepts have a meaning for your financial health if you make effort to apply them. Firstly, the imperative of seeking to diversify income sources (multiple streams) is basic. Possible options have been highlighted, but only you will know what works for you and what you can efficiently manage. Generating much of that multiple stream from passive sources is one powerful way of ensuring that you can easily handle it all. Put some income activities into autopilot and continue to cream them over and over, at most with minimal intervention. Activities that can generate residual income should also attract your interest. Refer a customer, for example, and get multiple income flows for that one-off action. If you have a family, should you ignore opportunities for legacy earnings?
Your job won't keep them when you are gone, but an income stream, from a legacy source, can guarantee their continued well-being. So, don't just seek income - go for an income strategy that expands your income in value and sources and for a lifetime and beyond. That is a rock-solid way of building your income base.
Tayovictor.
Financial independence is one of today's buzz words of personal finance management and you have probably used or come across it over and over. But does financial independence really mean anything to you? Well, if it's not just a catch-phrase but a financial status that you truly desire
to attain, you should be interested in how to optimise your earning potentials. You will not only be desirous of achieving a healthy level of income, you will also be keen on the sustainability of your income flow, for a lifetime. You will be excited at any possibility of income you can earn without the rat-race schedule of getting off your bed and house at cock-crow and struggling to beat the traffic for a job that keeps you tensed most times and only permits you to get home late at night. You may indeed be looking for legacy income opportunities that ensure that even when you are no more, the loved ones that survive you can continue to earn from your effort. Indeed, income comes in various shapes. Getting to understand the diverse forms of income and their implications may help you take steps that will position you for a healthy income stream. That's why you need to be familiar with the following income concepts:
Multiple Streams of Income
This is not in any way a complicated concept, but it's one that not many have mastered in the practical terms of putting it to work. It is also an income concept that holds the key to a stable and rapidly growing inflow of income. Multiple streams refers to the idea of creating diverse, concurrent sources of income for one individual. Having multiple streams of income means being able to earn from different sources, such that any disruption or slack in one source may not seriously affect you. Unlike a situation where one is dependent on, say, just the pay cheque which ceases in the case of a job loss - a frequent occurrence these days - multiple streams says that, in addition to the pay cheque, there could be other incomes in the form of interest from bank deposit and bond holdings, dividend and capital appreciation from stocks, some profit from a business investment, rental income from a property (could be just a shop), some royalty from a book, etc. One's income begins to really firm up when it gets diversified in this way, especially when each source is able to generate worthwhile income.
If it was so easy to create multiple streams of income, everybody would have them. For many reasons, it's not. For one, it takes a deliberate effort. That effort is derived, in itself, from an understanding of the value of diversified income and the risk and limitations of a single income source. Putting effective income yielding sources into operation takes careful assessment, committed investment, significant effort to build them into income-yielding channels and the ability to deal with any conflict potentials successfully. When you get it done right, however, you certainly move yourself to another level where you income stream can make a lot of positive impact on your life. For you to truly command a stout income flow, you need not just sizeable and growing income but one that has a diversified base.
Passive Income
Easily integrated into the drive for multiple income stream is the quest for passive income. Passive income is income that you are not actively involved in generating. Better put, it derives from a one-time or earlier effort, which means that subsequent income streams from it do not require the persistent, active commitment of time and/or effort from you. Some bit of attention may not be out of place from time to time, but the results are more on autopilot. Passive income is best achieved from sources like property investments (rental income) and intellectual property (royalties from books, patents, licence agreements, etc). It's different from active income which requires your active effort. A lawyer in practice earns active income. If he has to be off his practice for six months, say, due to ill-health, income from the practice is likely to suffer grossly. A doctor's practice, where patients are interested in his personal expertise and style, will even be more vulnerable. He has to be actively present for the business to sustain its income profile. A shop-owner needs to open and run it every day, attending to customers. An employee must go to work to keep receiving a pay cheque. These all generate active income which can only be sustained by continuous active personal involvement. The day you cannot, the income source will dwindle and may eventually cease. Not so, for any source of income that is passive. Take property rental income, for instance. Unlike a lawyer's practice, doctor's clinic, worker's employment or a shop, once built, the property may not need any attention, for years. The royalties from a book are of the same nature - once written, it flows without additional work, until you want to revise it. Generally therefore, passive income does not actively task your current resources. You release a home video, you can earn from it for a lifetime, especially if it's a classic, but the work was done only once. That's a great way to earn! The tool for passive income-building is leverage: of money, time, people and technology. This is a different subject, but you need to learn to engage leverage to develop these sources of income.
Portfolio Income
This another great way to boost your income stream and achieve diversification. Portfolio income refers to income from portfolio investments - securities and other investments that form your investment portfolio. They are not classified as passive partly because a portfolio may be actively managed. If your portfolio management style is passive (aka 'buy-and-hold), your portfolio income becomes largely passive. Portfolio income includes dividends and capital appreciation from stock investments, interest from deposits and bond holdings, distributions from a mutual fund investment, income from a REIT, etc.
Portfolio income, while considered active, is usually not too tasking to generate, if you can find the resources to make good investments. Yet a lot of wealth has been created by those who have learnt to shoot for it. Most good portfolio investments will continue to yield income virtually endlessly.
Residual Income
Income that is residual is usually passive too, so this is effectively part of passive income. Residual income comes strictly from a one-off activity but may flow indefinitely or a series of times from that singular activity. Take a referral commission. The structure may be such that you not only get a commission for referring a customer, but will also be entitled to further commission on any purchases he makes over his lifetime. That is also the thrust of most multi-level (network) marketing compensation systems. You introduce people who become your "downlines" and you earn commissions from their product purchases and those of other people they introduce, from that point forward. An insurance agent may be entitled to a commission, from the same sale, each time the policyholder renews. While residual income is not about commissions, you can see that commissions easily come in residual form: you do a job once and get compensated many times over. These are income types that add a lot of value.
Legacy Income
You may often hear of legacy income in today's discussions as interest focuses too on a steady income flow that not only accrues to you on residual basis through life, but also continues to flow to your survivors even when you die. Legacy income would seem to be the ultimate, because it not only sustains you while alive, it also sustains your dependants when you are gone. Your employment income ceases the moment you die, besides the fact the it is difficult to sustain at old age (the employer won't need you). Your business income may be there when you are gone, but that's only if there is somebody knowledgeable and committed enough to keep it running as you did. That needs active work. Portfolio income will continue at death, but if the portfolio was actively managed by you, that immediately becomes impossible. Legacy income, in its best form, is most available from network marketing arrangements. The reason is simple: when you build a network, each member of the team (the downlines) does his own business which they will continue, in spite of you. You however automatically get your commissions from whatever business activity (purchases) they generate. That happens to your survivors, too, in most MLM schemes.
Team work is working Smart!
Putting It Together
These important income concepts have a meaning for your financial health if you make effort to apply them. Firstly, the imperative of seeking to diversify income sources (multiple streams) is basic. Possible options have been highlighted, but only you will know what works for you and what you can efficiently manage. Generating much of that multiple stream from passive sources is one powerful way of ensuring that you can easily handle it all. Put some income activities into autopilot and continue to cream them over and over, at most with minimal intervention. Activities that can generate residual income should also attract your interest. Refer a customer, for example, and get multiple income flows for that one-off action. If you have a family, should you ignore opportunities for legacy earnings?
Your job won't keep them when you are gone, but an income stream, from a legacy source, can guarantee their continued well-being. So, don't just seek income - go for an income strategy that expands your income in value and sources and for a lifetime and beyond. That is a rock-solid way of building your income base.
Tayovictor.
Comments
Post a Comment
Thank you for your audience, we appreciate your comment(s).