At some point, you get to a point in your life where your perspectives change and where you can sit back and think about what is really important. Sometimes your life circumstances change or maybe the path or plan you thought you were on get taken off track. For years I thought I was doing pretty well. But sometimes feeling like you are doing pretty well, can lull you asleep and keep you from really growing as a person or in the development path that you really should be on.
I’ve had a pretty good career and in sales I would say I’ve done better than average. I was able to get into a sales job early in my career where I could excel in the business and add a lot of value to my clients and reap some sense of monetary success and put my family in a pretty good place financially. Life was pretty good, and I was happy. I felt like I was really on top of my personal finances and growing my passive income and most years my yearly income kept growing. In sales, some years are up and some are down, but I was getting to a place where my income vastly exceeded my expenses each month and I was able to save $10,000 or more each month without compromising much with a fairly large family budget. Life was comfortable and I was putting my savings to work in many different investments.
But then my train derailed. The 2020 pandemic hit and although my income did just fine, my personal life became a mess. I was put in a situation that I never wanted and was forced to deal with serious life changes. I became isolated and alone and everything in my life changed. Life was easy before this, and after this event everything became harder.
I like to lift weights and we all know that to build muscle, you have to give that muscle a lot of resistance. I sure wish I could build muscle better, but this lesson is the same with personal development. When things are easy, we don’t grow. When life gets tough, that is when we really need to test our mettle and see who we really are. I often think that maybe I should have made things harder when life was so easy, or better yet, challenged myself to accomplish something that would not be easy so I would have grown more personally in these easier years. In a round about way, I’m trying to say that the last couple of years have made me rethink what is really important.
There are 3 kinds of income – Earned Income, Investment Income, and Passive Income.
#1: Earned Income
This is the primary source of income. For most people in the world, this would include salaries, or the profits earned from their business. The problem with salaries is that they can be difficult to increase. The growth of salary happens at almost a fixed rate. Also, if a person wants to increase their salary income, they often have to work more hours. As people get older, the possibility of increasing the number of hours reduces. This is because the level of their physical fitness decreases. This also means that their responsibilities towards their family and society take up more of their time. Hence, it has been observed that salaried income reaches a plateau when the person is in their middle ages. Post a certain age, salary increments only cover the rate of inflation.
Also, it needs to be noted that salaried income is one of the most highly taxed sources of income in the world. In most developed nations, salaried income is taxed at almost 50%! This means that once a person crosses a certain income threshold, their motivation to earn income also reduces because of the high rate of taxation.
#2: Investment Income
This is the income that is generated by selling investments that were made earlier. In simpler words, this represents an increase in the value of the investment or capital gain as it is known in common terms. For instance, if a person buys shares and sells at a higher price or if they buy a house and sell it for a profit, the difference is called a capital gain. This income has no relation to the number of hours worked. Also, this income is not received periodically. It keeps on accruing over a period of time and is paid out when the investor decides to liquidate it. Also, this type of income is more tax efficient as compared to earned income. This is true only if the investments have been held for a long period of time. Most countries in the world separate long term capital gains from short term capital gains and tax them at a lesser rate.
#3: Passive Income
Passive income is another important source of income. It shares the characteristics of earned income and investment income. Just like earned income, it is paid for every period of time. However, the quantum of income does not depend upon the number of hours invested. Rather, it depends upon the capital invested. This is where passive income is similar to investment income. Typical examples of passive income are rent, interest, and dividends, which are paid by shares and debentures. The taxes on this type of income are also less as compared to the earned income. Some incomes like dividends are totally tax-free in the hands of the investor. For other incomes like rent, there are tools such as depreciation, which can be used to lower the income and, therefore, the tax payable.
In my book, Six Figures After College, I talk about the different ways to make money and the successes that I had early to make over $100k per year in a fast period of time after college. For years I tried to excel at my sales career and grow my business to keep earning more income. I did strive to set my income aside and make good investments to grow my passive income. I think I was fairly successful at that. Check out my book here! Sign up for our business plan overview here!
But as I alluded to earlier in this article, my life has changed, and my priorities have changed, and I’ve realized that I’ve worked too long and hard and made the majority of my income from Earned income. I want my Passive income to be the largest part of my income now as I’m tired of having to sell my time for money. I want my efforts to be put into a business where my passive income grows month after month and eventually takes over my Earned income and makes it so I can decide where I put my time and if I want to make Earned income or not – so the Earned income is optional when I actually want to earn it and not that I have to earn it. I wish I would have come to this realization much earlier in my life. I started making passive income in my late 20s and early 30s and because my Earned income was always in a good place, I thought that was good enough. I did not realize what I was costing myself by putting the majority of my efforts into Earned income. The Opportunity Cost was high! There is a lot that we miss out on everyday when we have to work 8 to 10 hours a day.
Passive income is real freedom. Imagine what you could do or be or where you could go if you had a consistent stream of passive income every month that covered your expenses and then some. Imagine the good that you could do with the extra time you’d have. The possibilities are endless, and this would be real freedom. If making money and slaving for Earned income everyday was not something that you had to worry about, then you could have the life you always dreamed of and make a big difference in the world. There would be no more fighting or worrying about money and you could spend your time on the things that really matter most – family and serving others.
You don’t have to inherit a huge some of money and you don’t have to create an internet super business, but you do have to have a dream and work hard to obtain it. There are hundreds of people I know that are free from Earned income and live the life we’ve always wanted. If you are ready to get started on your path to accomplish this also, then join me for a 25-minute call to learn about our plan for success.
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