One of the greatest things you can do in life is to transfer your source of livelihood from active to passive income. Active income is any income that requires ongoing work to thrive. And Passive income is income that can thrive without work.
These two sources of income are the two main ways people earn money in the world. However, active income is stronger than passive income because all wealth is created through active income. And passive income is safer than active income because all wealth is preserved through passive income. Passive income is also the only kind of income that can thrive in all economies.
But not all passive income is created the same and not all passive income is immune to the economic effect. There are two kinds of Passive income. The first is the economy impacted passive income and the second is the economy protected passive income. Economy impacted passive income is passive income that goes up and down with the economy. This type of passive income requires ongoing maintenance and investments to thrive. And there is the worse type of passive income to depend on. If you want financial freedom and peace of mind you must depend on the second type of passive income. The second type of passive income is the economy-protected passive income. This is passive income that can thrive in any economy. There are safe, stable, and predictable and can relieve you of the pressure to keep working for money. The economy-protected passive income is thus the most dependable type of passive income to rely on. When you reach the stage in your life where you have this kind of passive income. You are said to have achieved total financial freedom.
Unfortunately, only a few people know how to get to this point or even create this kind of passive income. Most people are just investing and hoping that they will create this kind of passive income at some point in their life. Yet hope is not a good investment strategy and these people never really achieve their goal. I know this because research shows that Out of 100 people that invest only 1 person will become wealthy. 4 will become financially free. 15 will have some savings put aside. And a whopping 80 people will be dependent on other people, on pension, or flat out broke in retirement. The one big question to ask yourself is where will you be at the end of your career. And how do you propel your life from an active income to a passive income?
The answer is simple and it is threef1old.
First, you need to know your Passive income profile. Second, you need to know how to move your life from active to Passive income. And third is you need to know the passive income time wasters. Let’s look at each of these components in detail.
1.Your Passive Income Profile
Not everyone can build a solid passive income that is work free and economy protected. Neither is everyone at the stage where they can begin this journey. Yet every day I receive tones of email from people who have no business pursuing passive income. So today, I will outline for you the different stages in the Passive income process. And what qualifies to build solid passive income.
The Six Stages to building Solid Passive Income
There are six stages to building a Solid passive income. Each stage is arranged in the order of occurrence. That is the stage above must be accomplished before the stage below it. And there are no skipping stages if you want to build solid passive income. The first stage is the regular income earner stage. The second stage is the big portion Saver Stage. The third stage is the Emergency Protection stage. The fourth stage is the Cash Reserve Builder stage. The Fifth Stage is the Passive income Investing stage. And the sixth stage is the Double income Earner stage.
i. The Regular Income earner Stage
All passive income is created from active income. Thus you need active income to create passive income. The more active income you have the more passive income you can create. That is Big Active income equals Big Passive income. And Small active income equals small passive income and so on. This means that a solid passive income is created by first focusing on building a strong active income. Investing only comes into the picture when you have enough active income to invest. Spending time on investing at the stage. When you should be focusing on earning and saving more is the key to postponing your freedom. Your investments will always need large amounts of active income to thrive.
So if you are a low-income earner, your focus should be to first become a high-income earner. And then to save a big part of your income. If you are a high-income earner, your focus would also be to save more. You must save more before you invest more. This is because earning a high income does not automatically qualify you for building a solid passive income. High Income does not translate to passive income. It is high income plus high savings that build passive income. Thus the more money you make and save the faster you will achieve your Passive income goals.
ii. The Saver Stage
The Saver stage is the stage where you save a big part of your income consistently each month without fail. Saving is critical for investing as it is your passive income goal. According to W Clement Stone, if you cannot save, the seed of greatness is not in you.
Thankfully everyone can save but most people choose not to save. They chose to sacrifice savings for other items in their lives. And call it a savings problem. No one has a savings problem. People have priority problems. And if you must build a solid passive income you must make it a priority for you.
There is virtually no one that I know who has not purchased an item that required some form of savings to achieve. So everyone is a saver. But most people only save for things that are important to them. And When you make building solid passive income important to you. You will figure out a way to save.
iii. The Emergency Protection stage
The Emergency protection stage is the stage where you protect yourself from the one emergency that can disrupt your living standard. This emergency is the sudden income loss emergency. The loss of income can disrupt your passive income journey and your life so you need to protect yourself from it. This is so that you can maintain focus throughout your passive income journey. There are two kinds of emergency protection you can have. The first is the living standard emergency protection. And the second is Lifestyle emergency protection. Living standard emergency protection protects covers your basic needs for at least 12-24months. And lifestyle emergency protection sustains your current Lifestyle for 12-24months. Whichever kind of protection you seek to pursue. The key is to know that protecting yourself from emergencies is critical for long-term investing success.
Without emergency protection, there will be investment disruptions. Financial distractions and in most cases a complete abortion of your passive income goals. Emergency protection is thus critical if you want to build solid passive income. When you achieve emergency protection the next step for you is building a solid cash reserve.
iv. The Cash Reserve Builder Stage.
The cash reserve builder stage is the stage where you build extra cash reserves for investing. That is cash reserves that are dedicated for investment purposes and free from everyday distractions. Having a solid cash reserve is important as it helps you engage in long-term investments without stress. You are able to put away your money for the long term. In exchange for a greater reward. This is the only way to build a solid passive income that takes about 5-15 years to complete.
If you do not yet have this kind of cash reserves, the key is to focus on building one first. And to target building cash reserves that are at least N1.5million-N3.5million every year. This amount can be bigger or smaller depending on the passive income goal you are trying to achieve. The Cash Reserve builder stage is thus what qualifies you as ready to build a solid passive income. This is the differentiator between those who are ready to fund their lives from a passive income and those who are just booting.
v. The Passive Income Investing Phase
The passive income investing phase is the phase where investing takes place. This is the phase where you build the asset base that funds your solid passive income. It comprises setting clear passive income goals. Choosing the right asset base. And setting up your passive income investment vehicle. There are two stages involved in the process. The first stage is the investing stage. This is where you fund the asset base that produces your passive income. And the second phase is the Cash-flow phase. This is where you earn passive income. Thus building a solid passive income involves years of investing before earning. This is the only way to create the kind of financial security that 95 percent of your friends, relatives, and neighbors will never have.
vi. The Double Income Earner Stage.
One source of income can begin a passive income journey but it is hard to sustain it throughout its lifetime. Thus you need to add a second source of income to your main income as you go along. To make this addition you need high-income side hustles and earning opportunities. That gives you massive income leverage. The fastest way to earn this kind of income is through high ticket Sales side hustle. And we have created a system to help you earn this kind of income. Our system gives you the opportunity to supplement your main income by helping other people take the steps that you have taken. However, our system is only open to our clients. This is because we believe that a person must use, test, and trust a product or company before they recommend them to their important relationships.
But whether you use our high-income system or not, the key is to recognize that you need side hustles to achieve your passive income goals.
So these are the six stages to a solid passive income.
Now, that you know the different stages of passive income building and where you belong. Let’s look at how you can move your life from active income to passive income.
Grace Agada is The Senior Financial Happiness Director @ Create Solid Wealth. She is an Author, and Column Contributor in Six National Newspaper. She is a contributor at BellaNaija, Nairametrics and Proshare and she is on a mission to help working-class professionals and CEOs become more financially successful. To learn more about Grace and how she can help you send an email to [email protected]