Residual Income, The Dream Killer or The Dream Creator?

Today, I want to discuss a fundamental concept called residual income. A related concept is passive residual income.

Have you ever asked why and how society funnels money, eventually leaving 15% of families poor, 80% as middle class and 5% of the population as wealthy? Have you ever wondered why the rich get richer? Or why is it that by age 65, 90% of the population is working or dependent, 5% is wealthy and the other 5% deceased?

What is inflation? Well, inflation is used so that the money people stuff under their mattress eventually becomes useless. It is a 3% funnel back into society.

What are taxes? Taxes are a chunk of income used to return a portion of what people earn to pay for government expenses. It is another 35% residual income for society.

What is a credit card? Well, it a 3% service charge funneling your money to credit card companies with each swipe.

What is a mortgage? A mortgage is a 30 year contract to remove the residual income from rent. By the way, financially speaking, the ability to have control over possibly reducing rent may be more valuable than having the mortgage.

What is a grocery store? It is a residual expense to keep you fed, despite the fact that you might be able to handle your own food production.

Now, if that weren't enough, companies became smart and started adding to the list of expenses that you need each month. You have mortgages, rent, electricity, water, gas, telephone, cable, internet, newspaper/magazine/gaming/online subscriptions, property taxes, fitness memberships, health insurance, home insurance, whole life insurance, and car insurance/registration/gasoline.

Some families are very happy because they earn over $200,000 with a combined income. However, this is no match for a simple cable bill, which is paid $120 per month for the entire life of most people. Using the average age newborns live to, which is 80, this becomes $115,200 of payments over one's life. If I factor in compound interest, paying $1440 annually at a 5% interest rate, this becomes $1,468,498. Wow, looks like the $200,000 just went out the window when you decided to own cable throughout your entire life, costing $1,468,498!

The wealthy know that high salaries mean very little. Just look at the lottery winners and athletes that have gone broke after 5 years (there are other reasons of course and this may be a whole blog in itself). It is those who eventually have more residual income flowing in than out that win over the long run. Wealthy people probably didn't purchase cable until they had enough passive income to cover it.

Now, if you have gotten a chance to create a solid passive residual income stream, how would you feel knowing that legislation existed to ensure its stability?

What is really interesting is if we look at how each of the previous decades has brought an additional product or service to market which introduced an additional passive income stream for a new company.

Another interesting concept is looking at what it would take to accumulate $50,000 of passive residual income rather than looking at what it would take to accumulate 1 million dollars which might indirectly be used to bring $50,000 of passive residual income.

Dedicated to Adam Ward.

This post was reposted from http://sizuservices.blogspot.com/2012/12/residual-income-dream-killer-or-dream.html, originally written on December 26th, 2012.

Apprenticeship, The Key to Financial Independence

Do you remember stories of the old days, when people would leave school to follow an apprenticeship program?  If there is someone successful in the world, why not follow them and learn from them?  Is the modern day school system working?

According to www.thisismoney.co.uk, there are many opportunities from insurance, to hair salons to online marketing that can be built without a formal education.

Now, suppose you are on the other side of this equation.  Suppose you have a booming business and have built up 16 years of experience in a particular field.  You know how the system works, you know how to maintain a living.

Why not focus your energy on developing and training the next generation leader?  By hanging out with you and learning from you that leader will develop skill sets beyond the particular trade.  If you take a piece of that individuals earnings in return for the knowledge and skills you have acquired, it is a win win situation.  They obtain the skill sets necessary to succeed in today's society and you obtain a piece of what they call financial independence.

Just like the story of Elijah and Elisha (see www.christian-resources-today.com), when you develop a new leader, their influence will reach much further than you ever could because they will leverage your knowledge base.

Are you leveraging your talents wisely? How so?

This post was reposted from http://finlit.biz/business/apprenticeship-the-key-to-financial-independence/, originally written on February 8th, 2013.

Tony Robbins Says Spend Less Than You Earn and Invest the Difference

Tony Robbins is awesome! He is so exciting to listen to and constantly gives great advice. See below for a video where he talks about the basic formula to financial independence. The formula is very simple. Spend less than you earn and invest the difference.



In this video, he talks about building a money machine.  The approach is amazing because rather than focusing on investment return, he focuses on developing an extra income stream.  This approach is so important because most people say they are scared to invest their money.  Instead of investing, they spend all their money and then wonder why they are broke.  The smart person, spends less than they earn.  They may even make a negative return every year.  However, they still have more than $10,000 in their savings while 43% of Americans don't.  Wow, did they just beat half of Americans without a great return on investment. Check out my earlier post on Mr. Money Mustache!

This post was reposted from http://finlit.biz/retirement-2/tony-robbins-says-spend-less-than-you-earn-and-invest-the-difference/, originally written on January 25th, 2013.

3 Parts to Jim Rohn's 70%-30% Financial Independence Rule

Why is Jim Rohn's 70%-30% Financial Independence Rule so great? Imagine there was a rule simple to follow which would allow you to live a happy and abundant life in the world of finances.  If I had to pick one rule, that you need to follow, this would be it.

I love this rule because I believe there is a deep meaning behind a very simple rule. The basis of this rule is that 30% of your income should be saved in a particular way.  This 30% is broken down into 3 simple parts:

• Pay 10% towards charity
• Pay 10% towards an active income investment
• Pay 10% towards a passive income investment

Charity is so important.  After your basic needs are met and a few luxuries in life are purchased, if you choose to put others first, you will find great benefit in your life.

An active investment may include a part time business venture.  When you devote time to such a venture, your skill sets will stay current and you will begin to develop qualities which will allow you to maintain your earning potential.

A passive investment may include either real estate or owning stocks.  As Robert Kiyosaki points out in kiyosaki-blog.blogspot.com, the key here is to focus on adding assets to your balance sheet.  Over time, you will see profit despite how individual investments are doing.

You may want to check out more information on Jim Rohn's 70%-30% Financial Independence Rule here: sizusfinlit.blogspot.com.'

This post was reposted from http://finlit.biz/retirement-2/3-parts-to-jim-rohns-70-30-financial-independence-rule/, originally written on January 23rd, 2013.

Jim Rohn's 70%-30% Financial Independence Rule

The rule I am about to share with you absolutely works. On the surface, it may not seem obvious, especially if you have not used these principles in your own life.

I love my children. They teach me so much. Yesterday, when they left my car, I saw the big mess they left with all their belongings. I was speaking with my son and I realized that they did not see the mess. As parents, we have to teach them what to look for, how to see things and help them to find things they normally wouldn't notice. As we teach, we learn ourselves about leadership and patience. The natural cycle of life puts us into a leadership position.

It reminded me that as we grow in life, we may be presented with the same story, the same setting, yet have a different interpretation. Things we may have thought were boring as a child, bring so much joy as an adult. Things that we used to find funny, we can't see the humor in anymore.

Sometimes we can be quick to judge, quick to draw a conclusion. Truth has a way of bubbling up to the surface though, so the key is to continue to search, continue to explore. Wise people not only learn from their own experiences, but can also learn from other people's experiences.

EXPENSES

So, the rule, in a nutshell, has 4 parts. The first part states that one should only ever use 70% of their income on expenses. Most people probably think that this is not practical since they are already overextending themselves. However, most people probably can say that they used to be making 70% of what they are making now and they were covering their expenses. If you ever have trouble applying a financial rule, work hard towards increasing your income by becoming more valuable to the market place and when you do, apply the increase to the financial rule. As an example, if you are out of debt and you don't have a retirement account, maintain the same standard of living after your next pay increase and use the raise to fund your retirement account.

CHARITY

The next part of the rule states that you should donate 10% of your income towards charity. Whenever, I consider taking advice, I always ask myself, "What if I am wrong?" So imagine this isn't a good move and you spend 30 years giving to charity and you still end up broke. Well, the positive side is that you did something fulfilling with your life and helped to create a change in your community. From another perspective, changing your perception from one in which you ask, "What do I get from this?" to the alternate, "How can I give more?" allows you to become the type of person who is valuable to the market place, hence increasing your earning potential.

From yet another standpoint, giving and gratitude go hand in hand. By giving you allow yourself to feel gratitude which gives you a certain peace of mind since gratitude and negative thoughts like fear, doubt, worry cannot be felt simultaneously. Finally, by giving to charity, you have the opportunity to affect someone's life and possibly have a direct impact, which may later stimulate the economy.

ACTIVE VENTURE

Ten percent of your income should be used to fund an active venture. Everyone should own a small business. Small businesses give you huge tax advantages (will blog on this later). Small businesses stimulate the economy. This category can also include education and self-improvement. Classes and books may be expensive. It may also include actively loaning out money to a friend as startup funding or supporting a Kickstarter project. This might also include investing in real estate. All of these things can stimulate the local economy.

Most people don't realize they can stimulate the economy just by connecting two people who are looking for each other. They can talk and communicate, creating one more transaction, one more connection. They can speak to each other in the lines at the grocery store, coffee shops, online.

Some people live by the rule of "Eat, drink and be merry for tomorrow we die." I love this philosophy because to me it means that we should enjoy life and be grateful. However, I think that living happily may be completely different than partying as marketed in the media. Everyone has been given a specific set of talents. My hope is that people can use those talents to their full extent. A wasted talent may translate to a village of hungry people or a cousin out of a job.

PASSIVE VENTURE

Ten percent of your income should be used to generate passive income. In this category, you would include investing in global companies and the global economy. Picking big companies, no-load mutual funds, passive index funds, etc to stimulate growth in our country.

This may also include real estate if you have property management and are hands off in decision making.

Dedicated to Cheng Xu.

This post was reposted from http://sizuservices.blogspot.com/2012/10/jim-rohns-70-30-financial-independence.html, originally written on October 14th, 2012.