In a recent video, I showed my wife’s reaction to when we were finally told that we had completed on the purchase of our £3 million house. It was a big day for us and the first time we have bought a house to live in, rather than as an investment. I always advise never to buy a property to live in with your active income, but rather to invest it into cash-flowing assets. Fortunately, we were able to buy the property with the passive income from our investments, so it is a luxury we can afford. Buy investments with your active income, buy luxuries with your passive income.
People often get confused between active income and passive income. It can be difficult to know how to allocate money and build your own wealth without the correct education and guidance. This is why many people who work hard remain poor and find it hard to escape their situations. It takes a combination of hard work and the correct information to attain financial freedom. In this article, we will take a look at active income, passive income and how to spend your money to achieve your goals.
Active income is the money you make from your job or from your own business (if you actively work in it). It is the money that comes from trading your time. Very few people become rich solely trading their time for money. In order to do that you need to leverage other people’s time or purchase assets that produce cash-flow. At the beginning of your career you will need to use your active income for necessities, e.g. food, rent, bills, etc. However, invest whatever is left into cash-flowing assets; into your business; or invest in yourself in the form of training, books and seminars that will increase your income.
Overtime as your cash-flow from passive sources grows, you will be able to start to buy your necessities with that income as well. At this point, all your active income can be used to buy more passive income. This will allow you to continue to build wealth and grow your income from passive sources.
Passive income is money that comes in without you having to trade your time for it. This could be from cash-flowing investments or a business you own but hire other people to run. Of course most things are not totally passive and you will need to check up on your assets from time to time, but they shouldn’t be a full-time job. Having this source of income allows you to build wealth by having your money make money.
You can use this passive income to buy luxuries such as holidays, cars and, if you choose, houses to live in yourself. You can also reinvest some of your passive income into income producing assets to create additional flows of passive cash.
Property is a great asset to invest in because it has a strong track record of capital appreciation and cash-flow. I teach people how to get into property starting with little or no money. If you are ready to learn how to create your own stream of passive income, why not join me at the next Property Investors Crash Course? Tickets are here and they are free!