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In part 2 of ‘Rich You’, we will focus on two types of income and looking at another way of thinking about making money. (Legally of course).
I would like to start by saying that most of the guidelines I will use have been inspired by Robert Kiyosaki. Though the times have changed and the world is doing business using different strategies, these truths have stood the test of time.
We all want to graduate and get a high-paying job, with lovely benefits and a cool boss. Sure, this can happen but as an employee, you are working for compensated labour and you and I be taxed dearly. In each country the tax laws vary, yet for employees in every country, rest assured that the people in this quadrant will be taxed dearly. Employees cannot rely on the money they have saved from their paychecks for retirement because the cost of living goes up, times change, and according to statistics, an employee needs to save at least 15 percent of his/her gross income per month for the next 40 years to retire comfortably! Who has time to do that?
That is where passive and portfolio income come in. There is nothing wrong being an employee; it is fun to work for an organisation and have an amazing career. However, if you want to become wealthy, unless you are being paid P1 million to make an appearnace at Fashion Lounge, then you must consider getting a few passive income streams. To have passive income, you have to invest (time or money)in the beginning and then you will be paid for it for the rest of your life (Arnfried Klein-Werner). A person earning passive or portfolio income (income from investments including dividends, interest, royalties and capital gains) will pass the person who works for earned income only, because they work less, earn more and pay less taxes. Passive and portfolio income are derived from assets.
So, ladies, if you want to become rich you must learn how to build, buy or create assets. The great news is you can use your spare time, while keeping your job! For example, if you work a 9-5 and become a small business owner through a network marketing affiliate programme, selling products, initially you will have to invest time and money. However, when people join your network they will help put more money in your pocket by selling products of which you will get a percentage. So it is really an investment. It takes a while, like 3 years to make a real profit from this type, but it will give you invaluable business lessons and knowledge that will help you if you decide to be a full time business owner. Good examples of such companies are Amway, Network 21 and GNLD. The wonderful thing is we have the WORLD WIDE WEB as a powerful form of leverage on autopilot, working for you even when you sleep!
Real-estate is also a great form of investment and you can start small but dream big. Starting with two rental units and expanding over the years is a steady, great way to build your wealth portfolio. Real-estate investments also give you a monthly cash flow and the government will give you tax breaks if you are providing rental homes for a large number of people because you are helping the state to provide housing for people. In fact, if your financial record clearly states that over many years you have been able to invest wisely, you are usually granted loans at low interest rates and you can fulfill your bigger projects, into the millions.
I am going to give you two scenarios. You tell me who is going to be richer.
Nina and Nala are both smart ladies and they both decide they want to retire comfortably and live abundant lives. These two ladies are both high income earners and they are fairly good at what they do. Nina decides she wants to save money so that she can at least retire with P3.5 million, so she pays instalments of P5000 a month for 15 years, and earns interest at 14.8 percent before tax. Nala on the other hand, decides that she will borrow P1 million from the bank at 10 percent interest, and invest it in real estate to receive a 25 percent return on that borrowed million. After some years she will have paid back the bank and get a source of passive income and keep increasing rent by 10 percent per annum on each of her rental units. Eventually Nala will have more than P200 000 in passive income monthly. Long-term, who benefits more?
There is nothing wrong with saving money. In fact, I am for it completely. However, I would rather save money for the purpose of rainy days or invest in stock as an option for extra money, but not as a retirement plan. I would rather develop passive income to live off in future and have my savings as extra benefits. Everybody has their own method of becoming wealthy. And not everyone will use the same policies, but I think that investing in long-term profit making assets is the way to go, given that you make wise decisions and are financially educated and are not afraid to take risks that bring a large return.
“Talk is cheap. The greatest expense in life is the money you do not make”. Rich Dad
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