“Son, you ought to get you some of that mail box money. There’s nothing like it. You just go out to the mail box and get. It’s the only way to go. You’ll never get rich working for the other fella’.”
I can hear those words from my dad like it was yesterday. What my dad used to call “mail box money” is what sophisticated investors today call “passive income.” It’s money you don’t have to work for. You get it whether your work or not. If you work, it’s because you choose to; not because you have to.
You can’t get passive income as an employee. You also can’t get it as a self-employed person. You work hard for that kind of money. You provide a service and you get paid. If you don’t provide the service, you don’t get paid. It’s as simple as that.
No, what you want is the kind of money that comes in like clockwork even if you choose not to work. The kind of money you get as a business owner or an investor. Oh, I guess you could also win the lottery or inherit it. But assuming that’s not going to happen, you’re going to have to do it as a business owner and/or an investor.
Now when I talk about business owners, I’m not talking about self-employed people who happen to be in business for themselves. You know, like doctors, lawyers, accountants, and the like. They’re just trading their services for money. It may be a lot of money, but it’s not passive income. The only way they can get paid is to provide the service.
A true business owner can leave the business for months on end and still get paid because they either have hired capable people to run the business or they have the kind of business that generates income without the business owner having to work for it every day.
And when I talk about investors I’m talking about accumulating enough in investments so that the income from those investments cover your expenses. Stocks, bonds, income-producing real estate or even assets that don’t generate income themselves but appreciate enough in value so they can eventually be put into income-producing investments would qualify.
In fact, the best definition of financial freedom is having enough passive income to equal your expenses. The day that happens is the day you’re financially free. It means you can live where you want to live, go where you want to go, do what you want to do, and do it when you want to do it. Why not? You’re free!
Here’s the good news — you can probably become financially free in a few years if you really want to; certainly less than ten years. And I don’t care what your present circumstances are. You can do it.
So where do you start?
First of all, you must get out of debt. If you’re in debt you’re providing the bank with passive income. And if it’s credit card debt, you’re supporting the bank with passive income at a very high interest rate. I hope they’re sending you a thank you note every once in awhile because you’re working hard for them.
Second, you have to build some assets in investments. Probably, the only way you’re going to be able to do that is by saving more money. And the quickest way to save more money is to cut expenses. When you spend money on something you don’t need — or maybe even want — you’re not only spending those dollars, you’re spending the future value of those dollars.
That’s because if you saved a dollar instead of spending it, that dollar would be worth a lot more to you than a dollar in the future due to the magic of compounding over time. But once you’ve spent it, it’s gone forever.
Third, you should start a business. Even if you’re happily and gainfully employed it’s a good idea to start a business that can give you some passive income in the future. And in the information age, you can do that with very little up front cash.