Passive Income

Profile #1 – Jenny:

Jenny is 50 years old. She lives in a modest two-bedroom home on two acres outside of town. She spends her days tending to her garden and taking care of a few pygmy goats and some egg-laying hens. In her previous career, she is retired and worked as an international tax consultant for a Big 4 Accounting Firm.

Both Jenny’s home and car are paid for. She has no debt and lives modestly with few expenses – her only indulgence being a semi-annual trip to Europe with her girlfriends. She volunteers twice a month at a women’s shelter, where she also donates generously.

Jenny draws the income from three streams of passive investments, which have reliably and consistently provided her with income to meet her current expenses while appreciating over time to provide long-term returns.

Each passive investment typically has lockup periods ranging from 5 to 7 years. Jenny staggers so that she can spread out the cash distributions from these investments as they stagger to ensure consistent cash flow and returns. She quickly reinvests these funds into new passive investment opportunities to keep the gravy train moving.

Profile #2 – Jack:

Jack is 40. He’s an orthopedic surgeon who makes $500k a year. Jack lives in a big house in an exclusive neighborhood with his wife and three daughters. He rarely sees his family except when they take their annual vacation to Maui. Jack’s monthly expenses include a mortgage, three car payments, private school tuition for his girls, student loan payments, and various other household expenses.

Jack works 70 hours a week, but it feels like he works 24-7 because he’s always on-call to answer patient phone calls. Jack sets aside 5% of his income towards his 401k – his only investment and only future retirement source. If Jack can no longer work for any reason, his reserves for covering his family expenses will only last eight months.

Who is financially independent?

In modern society, we are programmed to equate wealth with possessions. The person with the big house, the fancy cars, the country club memberships are wealthy, right? Not exactly.

People like Jack in our example above may have a lot of toys, but they lack the one thing that people like Jane have – independence. Of the two investor profiles above, it’s Jane who is financially independent, not Jack. Why?

When you have enough outside income (i.e., passive income) to cover your expenses, then you’re financially free. It means you don’t have to work for someone else if you don’t want to. A person in Jane’s position can be just as financially independent and just as happy as a jet-setting billionaire. Both spend their days doing whatever they want. Jack, on the other hand, is a slave to his work.

Every day, you’re bombarded with spam in your email and text messages by so-called experts offering you the secrets to financial independence through what they call stay-at-home income or passive income. Just pay for their course or sign up for their next webinar to unlock the keys to giving “The Man” the bird.

The problem with all these offers is the only person making money is the guy filming himself on his iPhone offering his help. Don’t be fooled by these so-called experts. They have no secrets. They’re making a killing selling others a pipe dream. That IS their business. Is that really how you want to become financially independent? By hustling other people like you just got hustled? Sounds like a side hustle pyramid scheme.

Here’s the cold reality:  True passive income is not get rich quick.

Generating enough passive income to overtake your expenses doesn’t happen overnight. That crap they push on the Internet is not true passive income. It’s scalable income.

It’s scalable because if you sell a digital book or webinar, it can be scaled without any additional capital or resources on your part. Unlike a physical book where you have to mobilize additional capital to print additional books, digital books don’t require additional physical resources and are easily scalable.

Becoming a YouTube star, a social media influencer, selling digital books, course are guides are all examples of scalable income. Some people make a killing from these activities, but the reality is millions try but fail every year to achieve the same success.

True passive income is different, and it’s not easy to generate. Still, most true passive income sources have been proven, and the promoters of true passive income opportunities have a proven track record of success.

True passive income investments have intrinsic value. They have value separate from what the crowds are willing to pay for them. The commercial real estate produces rents. A business that manufactures and sells shoes generates cash flow. Take away what the public is willing to pay for these assets, and you still have something of value.

Shortening the Timeframe to Financial Freedom…

You don’t want to wait until you’re 70 to enjoy life finally. So how can you retire at 50 like Jane? How do you shorten the timeframe for achieving financial independence?

One way, obviously, is to increase your passive income streams. To increase your passive income streams, saving money will be key. The more you save and set aside for investing, the bigger your passive income stream becomes, which can then be reinvested to compound wealth.

The Trick That Everyone Ignores…

You can achieve financial independence quicker by increasing your income, but you’ll achieve financial independence just as quickly if you reduce your expenses. Reducing your expenses by every $1 achieves the same result as increasing passive income by $1.

By reducing expenses, you are literally moving the goalposts. You are moving them closer so that you can achieve your dreams sooner.

Jane was able to achieve financial independence by the age of 50 because she cut out her expenses. She doesn’t live in a cash-sucking mansion. She lives modestly. She reduced her expenses so that her passive income could meet her expenses sooner.

By doing the same, you can achieve financial independence in a much shorter time span.

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About the author

Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.

Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.