Tag Archives: passive income

The 3 Areas of Personal Finance and How To Master Them

I want to discuss the three factors that determine where you are financially: Inflow, Outflow and Accumulation. Inflow can be regarded as the personal income your household takes in. Outflow, on the other hand, can be broken down into four areas: Living expenses, taxes, optional expenses and giving. Accumulation can be broken down into saving and investing.

Inflow (income):

When most people think of income they think of a job. But this isn’t always the case. Many people have rental income, stock dividends, royalties, and passive income from businesses. Income earned at a job, however, is the most common source of financial inflow.

Outflow:

Outflow is the consequence of living in a monetary society. Everything costs money. Food, storage, shelter, transportation and even water. Being weary of how you spend money as well as prioritizing the things that are important, is a must for anyone wanting to live according to their values.

What’s the best way to decrease unnecessary spending? Getting a B–U–D–G–E–T. I know what you’re thinking. “It can’t make much difference anyway,” you’re telling yourself. “I only spend money on things I need.” The surprising thing is the most people, as soon as they get on a written budget, are able to eliminate expenses they knew they had.

@AfricanSoulGoddess wrote a very insightful post on this topic titled Best budgeting: Personal finance.

Growth and Accumulation:

This is the final aspect of your finances. In this area you are beginning to experience a little success. This is the area in which the Billionaires and Millionaires of the world were made.

As income flows in, most people spend most of it on outflow (whether necessities, optional spending, taxes or giving). While each of these things are part of any healthy financial plan, contributing to a retirement account or other investment account should be coming right off the top of your paycheck!

Not only is setting up an automatic withdraw helpful, but it could mean the difference between retiring at 55 or 65. Don’t believe me? Do that math. If you’re receiving a 10% return on your money your money is doubling every 7.2 years. That means if you postpone or weaken your contributions by even 7 years you’ll be losing out on almost half of what you could’ve had.

In retrospect, most people will look back and regret not contributing more. So for those who have time on their side, now is the time to start preparing for your future.

What Every Single Rich Person Has – And How To Get It

As the years roll by most people find that they continue to need to pay the mortgage or rent, buy food, and pay insurance. But There is a moment in everyone’s life, whether in college, after a life changes, or in old age, when the money coming in is less than the money that needs to go out.

Rich people don’t have this problem. While they certainly have their own financial problems coming in many different directions and flavors, lack of cashflow isn’t one of them.

However, no matter how much wealth, or how deep their pocket book, rich people all have one thing in common. This similarity runs through the tech titans, the real estate tycoons and the financial gurus. What is this key ingredient? Leverage.

Leverage, is actually a general term. There are many contexts in which leverage can be used and what it can mean. This kind of leverage to which I am referring is in the context of effort and resources – not necessarily debt.

In this context we use googles definition. Leverage is to: “use (something) to maximum advantage.”

You’re probably wondering what leverage has to do with Mark Cuban, Donald Bren, or Bill Gates. Mark Zuckerberg, for example, utilized the leverage of personal engagement to bring attention to his platform, in a way never seen before.

Leverage in the context of the rich is the act of utilizing resources in order to maximize and grow the results. The Rich in every industry have learned to use their effort, along with the effort of others to build great companies. Warren Buffet leveraged his money (in a non-debt way) to turn it into something bigger than he could have every achieved on his own by working a regular job.

So, how can you utilize this strategy of leverage? It starts with finding your “niche” or the thing that you believe you can provide the most value to people than any other. Pick thing one thing and begin building your skills and network in this area. As soon as you see some progress begin to leverage other people’s time, money, resources and connections in a way to build your brand.

Don’t make this one-sided. These should be give and take relationships in which you provide as much value or more to the other person. Often leverage involves borrowing each others skills in a net positive way. Begin learning about your area of interest and learn how best to use the power of leverage…

3 Things Wealthy People Tell Themselves

There are a lot of things that define success. Some value family, others experiences, still others put popularity and fame above everything else. But here in the U.S.(and I’m sure other countries) people emphasize wealth in the tier of importance.

When it comes to making wealth, building wealth and keeping wealth, there are certain activities and habits that set certain people apart from others. One of the biggest habits is internal dialogue. What we tell ourselves, and thus act upon, is the biggest factor that determines where we end up in life.

If you keep telling yourself that your opinion doesn’t matter or that no one will ever listen to you, this will probably come true for you. If, however, you optimistically believe, deep in your heart, that you deserve to be listened to by others, there’s a good chance more people will listen.

In the same way, what you tell yourself about money will probably, for the most part, become a self-fulfilling prophecy. So be careful. Here are three things that I have seen firsthand from a couple millionaires I have had the pleasure of meeting:

  1. You deserve the opportunity to be wealthy (if you put in the work)

Notice I didn’t say you deserve to be wealthy. This isn’t an entitlement mentality. It’s more of a self-worth manifestation. If you truly believe that you are worth it – you will put in the work. If you don’t think that you deserve a shot at becoming wealthy, you are less likely to put the work that goes into making that happen.

2.  Becoming wealthy isn’t luck, it’s a combination of work, smarts, perseverance, and time

One thing that the millionaires I have met, read from, and learned from have all had in common is a true belief in cause and effect. They never thought luck was something to lean on or be expected. While they did get lucky at certain points, they recognized that the luck was more a consequence of years of hard work, and less a result of blind chance.

3.  I don’t have to be like everyone else.

It’s true. Some people think that being like everyone else is just a given. If people sleep in to 10am, eat crappy food, and watch youtube in their free time, that doesn’t mean you have to. The truth is that most people in the U.S. as well as the world, haven’t made the true commitment to excellence in every area of their lives that millionaires have. You can be different.

These three things are just a start. Not only is it in the realm of possibility to become a millionaire, it is becoming easier than ever. Granted, it isn’t going to be easy.

Should I Invest in Small-Cap or Large-Cap Companies?

If you’re a stock investor you’ve probably asked yourself the question before. While there are many different kinds of stocks, that can be broken down into different categories based on a set of seemingly endless criteria, one of the best ways to set them apart is by market capitalization.

Market capitalization is basically what we mean when we multiply the amount of outstanding shares of a company times the price per share. It’s basically the value that the market is placing on the company at any moment in time.

The two biggest companies Apple and Amazon are inching forward towards reaching $1,000,000,000,000 in market capitalization. Meaning if you multiplied the stock price of either company times the amount of shares of that company, you’d end up with a number just shy of $1Trillion.

This has clearly never happened before but is expected as the market experiences inflation and growth.

So which one is best, small-cap stocks or large-cap stocks? Well there are certainly good individual companies in each category. For example even though apple is a large company, it is a solid investment for appreciation even for an already large company.

What happens is that depending on the economic circumstances and if they’re better for large or small companies each of these asset classes will perform accordingly. Thus, you’ll get periods when large-caps outperform small-caps and vice versa. However, generally in our history, small-cap stocks as a whole have outpaced their large-cap counterparts. The reason? Size.

When you think of a tree, whether an oak, maple or redwood, you can think of the different stages in its life. As a little seed and sapling, trees usually experience either rapid growth when they’re little, or they die off.

The reason there’s so many little trees at the bottom of a forest floor is that most of them don’t survive, but the ones that do usually experience rapid growth. The same is true with companies.

When a company is small it’s just trying to pay the bills, grow revenue and establish credibility that will equate to market share. But often these smaller companies can’t outlast the constant bombardment of competition so they die off.

If you look at the small-capitalization indexes they have tended the out-perform the large-cap indexes like the S&P 500 (an index of the 500 largest companies in the U.S.).

If you’re young and can ride the volatility, go with small cap stocks. If you want to mitigate short-term loss and volatility, large-caps are generally better.

Whichever you choose, good luck.

Disclaimer: The information regarding personal finance found in this blog is not a substitute for professional guidance. By following the guidance in this blog you are doing so at your own risk. This blog is simply the option of one person for informational and educational purposes. Please refer to your personal financial advisor in regards to guidance over your specific situation.

Is There a Hole in Your Wallet?

Let’s start with what we know. We know that spending more than you make is not financially sound advice. We know that doing so over long periods of time is not sustainable. But, there is a larger problem that has it’s root in one of the largest problems Americans face. This problem is the lack of self-awareness.

While many Americans are significantly overweight, even more are overweight with their finances. Even if you talk to many employees of banks or financial institutions you’ll find out that most of them struggle with the same everyday issues that we all face.

This problem is rooted in not being aware of what’s going on.

For example menshealth.com published an article detailing a study that found weighing yourself daily can decrease your weight. People who checked their weight daily saw a 2% reduction in total body weight over 6 months. Over longer periods of time the results would be amplified.

Not just in the area of personal fitness, however, is continuous attention beneficial. Examining your finances regularly can be of great importance. Simply looking over your statements briefly each day can change the way you see your financial life.

You might find, once you examine your spending, that there are certain areas that need more attention. For example I wasn’t paying attention to little $5 monthly bill. As soon as I realized what I was getting charged I signed off. While it didn’t save me a lot of money, it’s easy to see how this happens with bigger ticket things.

Bottom line: pay attention to your finances. You may find there’s a hole in your wallet.

Is It Possible to Become a Billionaire?

When most people think of a Billionaire they think of Warren Buffet, Bill Gates, Jeff Bezos, or even Elon Musk. But very few people have heard of Bernard Arnault, Amancio Ortega, or Ma Huateng. These people, not as well known as some of the others, have made their way to the list of top 20 billionaires in recent years.

Bernard Arnault made his money by developing a large company that focuses mostly on luxury items and services. He has a large collection of art and is the richest person in France.

Amancio Ortega built is fortune in fashion. He is the sixth richest person on the globe but likes to keep his personal life private.

Ma Huateng has built his fortune around technology, specifically the internet. He funded Tancent, which is the highest valued company in all of Asia.

Each of these men are relatively unknown by the general U.S. population yet remain powerful, wealthy and esteemed in their area of focus. So the question that comes up is, is it possible to repeat their stories or stories like them?

The answer is yes and no. Each of these people, including the whole Forbes list of billionaires, are remarkably smart, hard working and strategic. Most of them have not only worked hard to get where they are, they have also “sacrificed” basic things that a lot of us feel are regular parts of a typical life like regular free social interaction and time with friends.

For example Elon Must was showering at the YMCA and sleeping in the office at one point.

For for all the self-made billionaires there were times where they were working their butt off. But pretty much everyone has worked their butt off right? True, but these men and women were purposeful about what they worked on, and were smart about being efficient, strategic and passion driven.

So, if it wasn’t necessarily working hard that made these self-made billionaires rich, but a set of internal actions, habits and principles, what does that mean for us? Well first that it’s completely possible, but not likely to reach their level of success in a different area of focus.

Secondly each of these people had some degree of luck, but even with the luck, it’s no surprise that any one of them is where they are today. While each of them had luck they also planted the seeds of success and let the work, perseverance, time and their brains help grow it.

One of the main similarities between all these people is 1) their commitment to improvement, 2) their involvement in business or customer satisfaction, and 3) their intelligent decision making multiplied over many times. If you sprinkle a lot of hard work on the seed you can see how it grew into a large tree. All of these things together equal focus. Being focused on achieving their goals and having a great time doing it seems like a big similarity here too.

So if you’re wondering if there’s a certain industry posed to do the best the answer is probably internet technology or AI or something along those lines. But that’s not the right question to ask. You have to find the one thing that makes you intrigued, and draws you in day after day. If you have a big difficulty even thinking about it each day that’s probably not a good sign.

Bill Gates was into computers. Jeff Bezos was into customer satisfaction and was intrigued and excited for the internet. Elon Must is into science yet balances that intrigue with his drive to make something tangible for the future. It’s not so much the industry you’re in, but the culture you have and surround yourself in of discipline, hard work, passion, improvement, learning, integrity and ultimately intense focus.

Get Rid of Your Money

Most Americans don’t have very much in savings. Those that do try to protect the amount they have, whether that’s $1,000 or $100,000. But I have a challenge to everyone who thinks stashing money will make you more secure. What if you got rid of your money, what would you do?

If you had $3,246 in the bank one day and $25.47 in the bank the next you’d probably go into panic mode. Your instincts would start kicking in. You’d figure out how to cut spending, eliminate waste from your life, and earn more income to make the difference. In other words, you’d wake up.

What happens when we have chunks of money sitting in the bank is that we convince ourselves that we’re making it, or that we’re safe. This is dangerous.

Instead, realize that the little money you have in the bank, be it $45 or $45,000 still makes you broke. I know to a lot of people $45,000 is a lot of money, but if you want to change the way you think about money, it starts here. Instead of thinking of what you could buy with $45,000, think of what you’d like to buy.

As soon as you realize that the $36,000 car, $5,000 vacation, and the 25 year retirement are on your list, $45,000 doesn’t seem like very much does it?

I personally have a little over $6K in the bank. Currently I’m gearing up for another year of college. With 2.5 to 3 years left I’m beginning to realize that it’s going to be difficult to get through college with no debt, even with lower costs than most, on just $6K. It’s time to up my game.

I’m going to have to start stashing away for college next year, both by working over the summer, taking odd jobs, and even working during the semester. Having perspective on that $6,000 helps me realize that it’s really not a lot of money – that reaching my goals will require a change in mindset.

For everyone who’s out of college and not saving for something that’s just around the corner, consider getting rid of your money. Now I don’t mean you should go and buy a newer car or travel to Europe. But it’s possible that some day you can do those things if you do what I’m going to suggest you do with the money: invest it.

Investing the money you have other than an emergency fund is a great move. Make sure you have enough money for 3 to 6 months of expenses and everything over that needs to get out of there. Put it into retirement accounts, buy real estate, pick an investment that you feel comfortable with and are ready to pull the trigger on. (just make sure to do your research)

So next time you get a $3,000 bonus, inheritance or gift, consider getting rid of it by paying off debts, securing an emergency fund, and finally putting everything else out the door into the world of investing.

Disclaimer: The information regarding personal finance found in this blog is not a substitute for professional guidance. By following the guidance in this blog you are doing so at your own risk. This blog is simply the option of one person for informational and educational purposes. Please refer to your personal financial advisor in regards to guidance over your specific situation.

How Can Active Income Be Better Than Passive Income?

I could pretend like this was easy – like I could share the secret sauce of creating passive income for life. But it’s not that easy. No reputable story I’ve heard, book I’ve read, or person I’ve talked to, has guaranteed 100% passive income at very little or zero personal sacrifice. That’s because it doesn’t exist.

When looking at income you can categorize it into three main groups: Income you work for (earned income), income that comes to you without work on a regular basis (Also called passive or residual), and income that you receive when you sell an asset (stock or real estate) for more than you bought for it (capital appreciation).

There are a lot of videos, books and even seminars, that claim to help you create passive income. I’m here to show you why they’re all wrong.

I don’t want passive income. At least not in the way most of the gurus are talking about. Recently I’ve been reading Tim Farriss’ book “The 4-Hour Workweek”. While I’ve been able to glean some useful information out of it like how to simplify certain tasks and create automation I disagree with the premise of the book: the less work the better.

The whole idea of slimming and cutting your time down into 4 hours of work each week is actually appalling to me. While I certainly don’t want to be working 80 hour weeks like he talks about avoiding, I also have seen the benefits of working hard with true purpose.

Whenever I get done with work there is a feeling of built confidence and endurance. Even on challenging days you feel like you’ve overcome worthwhile obstacles. In my option without some sort of work life becomes meaningless.

From Christmas 2017 till March 2018 I had practically all the time in the world to think about this question. I was in Zambia with my family, spending time with them before I headed back to the U.S. in March.

The thing was most of my family was busy during the day, which left me plenty of time to think – including about this question. I thought, how can generate enough money so that I don’t have to work. I strategized this for a while. I finally realized I didn’t want to eliminate work altogether. I simply wanted to make it optional.

To be fair Tim Farriss is actually probably right about a great deal in the book – that there are ways to relatively easily create more time in your life – whether through automation or elimination. However the whole way the book is presented is how to reduce work or almost like work is bad. He tapped into the feeling that many people feel: they don’t like work.

I have a simpler and (I believe) better solution. This choice is difficult to find yet it’s what some of the most successful people in the world have chosen. People like Bill Gates, Jeff Bezos, Elon Musk and many of the ultra rich followed this path. Why not pick a kind of work that you enjoy? Why not experiment and explore the options till you find something that excites you and makes you enjoy “work”?