I grew up in a lower middle class home in India. My dad grew up as a foster child without parents so he focused on educating himself in commerce and accounting. After a few jobs, he eventually settled into running a small store selling supplies to procurement agents from small-scale factories. My mom grew up in a family that struggled with poverty, so she grew up with a scarcity mindset and a need to conserve every bit. She showed promise as a scientist but due to a set of unfortunate circumstances had to leave that behind. She made a career as an educationist in a government-aided school (similar to public schools in the US).
We lived in a small rental apartment for all of my years growing up. My sister and I went through school and college with a singular objective. Get a well-paying job and improve the economic situation. My parents didn’t really have the time or knowledge about creating income outside of their primary work. So, I didn’t learn about it either.
I got a scholarship for graduate studies in the US and took the opportunity. Through many career twists and turns, I built a well-paying career in technology. My last job was as the Chief Technology Officer of a market research company. Through the 18 years or so in that career, I was oblivious to the concept of cash flow and passive income. I had adopted the savings oriented thinking of my parents and pushed a lot of my earnings into retirement accounts (401Ks and IRAs). Through the multiple recessions I’ve experienced, I saw my savings grow, then collapse, and then grow and collapse repeatedly. Meanwhile, finding and keeping an executive job itself became an area of stress.
A stray conversation with a friend/colleague during a sales call changed all of that. A year later, I had left my job and started down the path of building generational wealth for my children and grandchildren by working hard to make money and then making my money work hard, really hard. I was fundamentally on a journey to build passive income.
As the name suggests, passive income is money you receive without having to work for it – or at least not work for it in a significant way. Read this article about the types of passive income and the associated benefits from a tax perspective.
During this journey, I learned two important concepts related to passive income: Cash Flow and Residual Income.
This is money you receive on a regular basis from an investment you’ve made. You might suggest that a job/career is an investment and your salary/wages from it are cash flow. Yes, that certainly is a type of cash flow and is probably the most common way that most of us earn money.
An alternative type of cash flow is the income received from an investment, whether it’s in dividend-paying stocks, rental properties, or business profits. Remember, that from a tax perspective, the business profits are passive only if you are not involved in that business. Investing in stocks or funds that gain value is great, but if you aren’t earning dividends from it then you aren’t receiving cash flow today in exchange for a promise of a windfall in the future that may or may not happen. Investing in properties for future appreciation value is very attractive, but if you aren’t making strong rental income from it today, you’re in the same boat as a stock without dividends – basically a gamble. Your money certainly isn’t working hard if you’re using it to place bets, instead of investing it to generate a steady income.
Bringing up the question of making cash flow in the form of salary/wages. The reality is your wages are a trade of time for money. Our goal is to free our time for what we love. So, what you want is to receive money that is not related to the time you invest in earning it.
For instance, let’s say an attorney offers his services to real estate companies for $250 an hour to develop operating agreements for them. He has to work as many billable hours as possible to earn the most income. To earn $100,000, he would have to work 400 hours!
Now based on his extensive experience with real estate companies, he builds a comprehensive operating agreement template and offers it for a flat $100 fee. He spent 15 hours building the template once, while he earns $100 for every sale of the template without having to spend any more time on it. He could sell 1000 of these template copies and earn $100,000 without having spent a single minute over the original 15 hours (worth $3,750 on his hourly rate) . That’s a massive return on a small investment and his profits keep growing with zero time or effort until the template eventually becomes outdated.
This is residual income. Money that you keep earning over an extended period of time for a small investment you made initially (either of time or money). This is an ideal way to make your money work hard for you. Place your money in investments that create cash flow over a long period of time. A combination of passive cash flow with residual income is a powerhouse way to build wealth.
One of the best ways to accomplish this is participating in group investing for large scale commercial projects. A group investment allows you to place money passively into income-generating projects that would not be accessible on your own. The large scale nature of these projects create significant opportunities for continuous cash flow and multiplying the value of your investment. You can create a compounding effect by cycling the money through multiple projects.
If you decide to create your own group investments, your residual income opportunities multiply even further. You earn fees for putting together the projects and then you receive a portion of the residual profits as well.
Cash flow and residual income can supplement your salary or eventually even replace it. If this passive income is sufficient, you might even decide to quit your job and enjoy your time with your family and especially your children. Having time at your disposal is priceless. So cash flow from passive income should be at the top of your objectives if you’re looking to achieve freedom of time. This means making your money work hard through income-generating investments.
The best way to build cash flow and residual income is through group investing in large scale commercial projects. You can create your own group to do this yourself, or you can work with us to build your group and income-generation opportunities, or you can join our group and watch your money work hard.