Let’s talk financial fitness.
2022 has been a challenging year. We’ve experienced rising food prices, gasoline prices, rent prices and inflation that has eroded purchasing power. While the average person is struggling to make ends meet, the rich seem to be getting richer.
Many are angry at wealthy individuals, but the reasons for their success might surprise some people.
Ask yourself the following questions:
- Are you stuck in the rat race?
- Do you receive a salary or hourly wage?
- Are you thinking about getting a second job to pay the bills?
- Are you working at a job you really don’t like?
- Do you work extra hours to make ends meet?
If you answered “yes” to any of these questions, then you are working for money. In this article we will discuss why this is a mistake and other options available to you.
Caught in The Loop
One of the biggest problems in our society is we are taught to get ONE job, and that ONE job is supposed to pay ALL our bills and satisfy ALL our financial needs. One job is supposed to pay for all the following:
- Car payment
Whatever you want, that one source of income is supposed to provide it for you.
There’s one problem with this scenario: for most people, that one job doesn’t pay enough money. If a person doesn’t make enough money they will do one of the following:
- Find a job that pays more money
- Try get a second job,
- Work more hours at their existing job
Before you know it, you’re living check to check, just paying bills. It’s very easy to fall into this trap. Everything costs money, and the quickest way to get money is to simply get paid for hours worked or services rendered. This is called “earned income” and is the easiest to get. it’s also the least lucrative.
Working for earned income can turn into a vicious cycle:
- When a person gets a job, they now have money to buy things and do things they couldn’t before. They can buy a car, get a house or apartment/home, etc.
- With that job, a limit is placed on how much they can purchase.
- If a person can make more money, they tend to spend more. For example, if a person gets a raise, they will get a bigger house/apartment, newer car, etc.
In order to pay these expenses, a person must have steady income. In some instances, a person will work at jobs they don’t like, just to pay their bills. Or, they will look for better jobs to help them maintain the lifestyle they have become accustomed to.
Before you know it, you’re living check to check, just paying bills. Millions of people live their entire lives working for money, but ask yourself: what if you can’t work?
What if you want to work but can’t? Layoffs, few employment opportunities and other factors can prevent a person from working. In addition, jobs that don’t pay a livable wage are a key factor as well.
It’s critical we get out of this rat race. It’s critical we learn about the other forms of income and get out of this vicious cycle of working for money.
This is when people like Dave Ramsey and Suzy Ormond say “live below your means!” While this is a good suggestion, that only gives one part of the equation. The second (and probably most important) part of the equation is to own assets that can either increase in value or generate revenue for you.
In addition, these generate either portfolio income or passive income.
Passive Income and Portfolio Income
The school system only teaches about earned income, where a person goes to school and becomes an employee working for someone else. There/s nothing wrong with working for others, but most people don’t realize they are other ways to generate income.
The average millionaire has 7 or more income streams while the average person has only one. Not seven jobs, seven sources of income. In other words, their income streams are from passive income and portfolio income:
Passive income is income that requires minimal labor to earn and maintain. Popular sources of passive income include the following:
- Rental property
- Monetized website
- Write books
- Create online courses
- Affiliate marketing
- Vending machines
- Franchise owners
In each of these instances, a person can make money without being actively involved in the day to day operations of the business. This is the key to living comfortably and having money work for you.
Portfolio income is money received from investments, dividends, interest, and capital gains. Examples of portfolio income include the following:
- Mutual funds
- Corporate bonds
Ideally, a person would have both passive and portfolio income investments.
How the Rich Get Richer
The simple answer to how the rich get richer is they own assets.
We have all seen stories like this:
- Jeff Bezos added $13 billion to his net worth in one day—and that’s a record.
- In 2007, at age 23, he became the world’s youngest self-made billionaire. As of October 2021, Zuckerberg’s net worth is $122 billion, making him the 5th-richest person in the world.
- For the first time in modern human history, one person controls a quarter trillion dollars in personal wealth without having to adjust for inflation. That person is Elon Musk. As I type this article, Elon Musk’s net worth is exactly…$250 billion
Many people get angry reading about these large sums of money being made, but they don’t realize where the bulk of the money comes from assets they own.
- Jeff Bezos owns about 79 million shares of Amazon’s stock, worth about $130 billion. The shares give him a 16% stake in the company, making him by far its largest shareholder.
- Zuckerberg currently holds over 400 million shares of Facebook, comprising a market value of around $82.2 billion.
- Elon Musk owns 193.3 million Tesla shares, representing 20.7% of total shares outstanding.
Unless you create a publicly traded company, you probably won’t own 400 millions shares of company stock like Mark Zuckerberg, but you can still create a nice income stream with portfolio income. In other words, if the stock market goes up, the value of your portfolio goes up. Just like Elon Musk.
Change Your Mindset, Change Your Life
Learning how to make your money work for you goes against everything we’re taught. Aside from our 401k, we are told via commercials and various advertising that we deserve the finer things in life, and if you work hard, you can spend money on things that make you feel good.
Unfortunately, many of those ‘feel good” items (cars, clothes, electronics, etc.) have zero value once they are purchased. The key is to purchase items that not only hold their value, but can generate revenue also like those described above.
By investing money into these types of assets, a person can spend more time doing things they like and enjoy, instead of working at jobs they don’t like. Remember: wanting to work and having to work are two different things.
Here’s something else that’s not discussed: many wealthy individuals buy assets that generate passive income or portfolio income first and purchase the lavish items with the passive income generated from those assets.
Unfortunately, this type of information isn’t taught in school, but people need to know what their options are. By simply understanding the concept of making money work for you, a person is one step closer to becoming financially free.
Call To Action
Thanks to rising prices and inflation, the need to learn everything you can about how money works is more important than ever. Now is the time to discover various ways to generate multiple streams of passive income and portfolio income. Get more tips in our books Planting Seeds: The Children’s Guide to Entrepreneurship and Invest For Success: Millionaire Wealth Strategies Not Taught in School. Available on Amazon.
In addition, register for our online course Tired of the 9-5? How To Retire Early With Passive Income. Available on Udemy.