I learned that an asset is one that generates positive cash flow. If it does not generate income, then it is a liability.
For example, a car is liability if it does not generate positive cash flow. If I rent out a car and it earns a monthly rental income, I will need to do a simple calculation to determine whether it is an asset or liability. Basically, I need to subtract the car loan monthly repayment and maintenance costs from monthly rental income. If the result is positive, then it means that the car generates a positive cash flow and thus it is classified as an asset. If the result is negative, then it means that means the car generates a negative cash flow and thus it classified as a liability.
With this new definition of what is an asset, I understand that if I want to build up my wealth, I must investment only in assets that can generate positive cash. But do I just simply invest in any assets that generate me positive cash flow?
For example, if I were to invest in a business that is generating positive cash flow and this business take up all my time, is this consider a good investment?
Since my time would be totally taken up, I would not have the time to think of building other sources of income. Thus, I do not think that this is a good investment.
But what if I were to invest in a business that generates positive cash flow but required minimum involvement on my part? If that is the case, then I will considerably free to pursue the building of other sources of income. My conclusion is that I should be selective towards investing in any positive cash flow assets. But I still have doubts regarding my conclusion.
When I learned from the Rich Dad series that I should be focus on building passive income, my doubts are removed. That means I should be investing in assets that generate positive cash flow as a passive income.
What is considered a passive income? The way I have understood about passive income is that even if I were to do little or nothing for a long time, the cash will still come to me continuously.
For example, if I were to invest in a piece of real estate that generate a positive cash flow by renting it out, then the work that I need to do per month will be like ensuring that my rental income is collected promptly.
Maybe I can even automate this part by debiting the rental income from the lessee's bank account and crediting it into my bank account directly. Then, the only work that I need to do is to ensure that my rental income is credited into my bank account monthly.
The opposite of passive income is active income. Active income means that I have to keep working to ensure that the cash keeps coming in. The moment that I stop working, the cash also stop coming in. A job is an example of an active income. The employer will stop paying me a salary if I stop work.
When I think of the idea that money keeps streaming into my bank account with little or no work, I am really excited! Since the idea is so enticing, I decided that I want to focus my attention on building passive incomes. But what are the possible ways to build passive income? Especially when I do not have much savings at hand?
One way that I can think of is to write a book. The main cost will be time on my part. But if I am able to convince a publisher to publish and sell my book, then I will be able to earn royalty fee based on the number of books that are sold. This is a possible source of passive income to build.
The other way that I can do is to build a network marketing business. It is also know as multi-level marketing business. In this kind of business, the distributor will need to get the license to sell the products from a parent company that is a network marketing company. The fee to be a distributor is usually very affordable.
The distributor then tries to sell the products to potential customers and earn commissions from his sales. Also, he can build a network of distributors under him. If he meets his sales quota and his team of distributors meets their sales quota, he gets paid for commissions from his own sales as well as his team of distributors.
But if he did not meet his sales quota and his team of distributors meets their sales quota, then he will not get any commissions from the sales of his team of distributors. The tricky part to create this stream of passive income is how to choose a network marketing company that is legitimate, stable and big growth potential.
No matter which source of passive income that I am trying to build, I notice one thing in common. Hard work is definitely required to these building the passive incomes.
* DISCLAIMER *
The author only provides the material and information as a layperson's views about an important subject. The materials and information are from sources believed to be reliable and from his own personal experience, but he neither implies nor intends any guarantee of accuracy.
All the materials, information and procedure in this book are only the author's personal opinion. You must consult your own professional advisor and other reputable sources on any matter that concerns you or others.
The author, publishers and distributors are not competent and do not profess to give legal, accounting,medical or any other type of professional advice. The reader must always seek those services from competent professionals who can review your own particular circumstances.
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