Passive Income

"Go to school, work hard, get good grades and you will have a great job when you grow up!" I heard these words almost every school morning as I prepared for school in a song that brings back interesting childhood memories. Every parent encouraged, begged, bribed and sometimes used excessive force to get this objective achieved. They wouldn't give consideration to your artistic talents or entrepreneurial aspirations - just go to school and get good grades!!! If you want to make your parents really happy, get an invitation letter to one of the ten prestigious National High Schools at that time - and in all thy getting, get into University (not a college or polytechnic)!

I know our parents meant well and they honestly felt that this was the best gift they could ever give us. What they did not quite see was that this was a pathway to one form of income - earned income. The education we obtained did not go a step further to enlighten us on passive income and portfolio income. You probably got a great job, but you are trapped in the rat race system - an over reliance on your paycheck to make ends meet. The cycle is vicious: get the paycheck, pay bills, run out of cash 7 days to the next paycheck, borrow, get the paycheck, pay bills, run out of cash….

Our school system did not have financial freedom in its curriculum. How can I go to work because I love what I am doing and not because my bills keep me awake? How can I quit this job to do what I love without my child's school fees figure or the landlord's face haunting me in my dreams? An elderly friend of mine explained to me a concept that can set you free to be what you what to be. She used the passive income concept as an example.

Passive income is an income received on a regular basis, with little effort required to maintain it. A great example is rental income - whether on commercial or residential property. The landlords receive a steady income possibly on a monthly or quarterly basis. There is some effort needed to maintain the property in good shape, but you don't need to sit outside the shop or house everyday for your tenants pay up. As long as the premise remains occupied, (and your tenants do not default!) you are assured of a steady income.

But how can this give me financial freedom? The first time I heard of this passive income concept and tried to link it to gaining financial freedom, I thought I would have to collect rent in millions. I was dead wrong! My friend explained that if your monthly expenses (bills, fuel, food, clothing, entertainment etc) amount to KSh. 20,000 ($232), it means you are probably financing this from your paycheck (earned income). If you build a resource to provide passive income, say put up two apartments each with a rental income of KSh. 10,000 ($116), your total passive income will be sufficient to cover your expenses. Every morning you go to work, you are free from the pressures of having to earn your living and start living your life! 

You don't need to earn millions to be financially free; you just need to build your passive income to cover your monthly expenses. Your earned income becomes a surplus. It is that simple! Of course there is a lot of work that goes into building such resources and that is why you need to put your investment plan in place. If you want to wake up every morning going to work because you love the job and not the paycheck, you need to start building up your passive income. Set financial freedom as your goal and take action to achieve it from today!

What's Your Money Attitude?

Last night we had an exciting two hour session playing the Cashflow 101 board game by Robert Kiyosaki. It was the first time for most of the players to play this game designed to sharpen our financial intelligence. This game is a fun tool to learn a rather complicated subject in a safe setup.

What fascinated me is how the game brought out each player’s character and attitude towards financial transactions and money in general. The designers of the game say that the attitude displayed in the game is a reflection of one's attitude toward actual money. Here are some of the characters I observed:

There are those that bought all the deals that were drawn. They gambled on every opportunity. It felt like, as long as they had the money, and they could afford the deal drawn, they took it up. It did not matter what the returns were, they just bought it! They were gambling their money if you ask me. I bet if you asked them why they made each of the purchases, they would not have a solid answer. Peer pressure can contribute to such a money attitude - everyone seems to be investing except you. You feel the pressure to invest in anything that comes your way just to be "in the investors' club".

We also had Big Dogs in the house! This lot went for the Big Deals - it did not matter whether they had the money or not. They are not afraid of running into bankruptcy. They are focused on getting out of the rat race as fast as they can. In their mind, if you go for the big deals, they have higher returns. They can easily forget to create a balance to begin somewhere and end up drowning in debt. In life, you need to cut your coat according to your cloth. Just because it takes long to get there, doesn't mean you will not arrive.

The what-if set of players were skeptical towards every opportunity drawn. They worried too much about what would happen or not happen.  They hardly invested in anything one hour into the game! As an investor you must be willing to take risks. They probably hardly invest in anything in real life especially after hearing horror stories of how people (real or imagined) have been conned of their hard earned earnings. They need to learn what questions to ask so that they can make informed decisions.

Then there were those who welcomed cooperation in taking up a deal. The person drawing the card was not selfish and sought for willing investors to get into the deal with them. In the consortium that formed thereafter, some pooled their money based on the decision of the others and did not bother to look at the details of the deal. Ignorance is not a defense - we must seek to understand the deal we want to invest in and not just rely on the person selling it to us. We also have to be creative and open minded - don't just pass a good deal because you are short of resources. It may take extra effort to form the consortium, but if the bigger picture has potential for all to win, then you are better off putting the effort.

There were many more attitudes displayed in the game. The fundamental question however is, what is your attitude toward money? Does your attitude empower you or impede you?

 

Financial Freedom or Bondage?

Freedom is the power or right to act, speak or think as one wants. It is a state of not being imprisoned or enslaved. Financial freedom could be defined as being in a state where money is your servant not your master. Some sources define financial freedom as having sufficient personal wealth to live, without having to work actively for basic necessities. It is a state where one's assets generate more income than their expenses.

Financial freedom is much more than having huge amounts of money in a bank account. It’s the freedom to be who you really are and do what you really want in life. Just because you have a lot money does not mean you have financial freedom. Money does not guarantee your sense of financial freedom. This can be a lot more confusing - if our needs or expenses can be met by money, why doesn't having colossal amounts of money give us financial freedom? It may help to understand financial freedom by studying financial bondage. What is bondage?

Bondage is the state of being a slave. A slave is a person who is the legal property of another and is forced to obey them.  A slave is forced to work excessively hard. Being in financial bondage is being in a state where money (or the need of it) owns you - it forces you to obey its beck and call. As a slave of money you have no choice but to work excessively hard to earn it. Since it is never enough, you have to keep the money-generating engine running. The result - Frustration!

Let's look at some indicators of financial bondage:

Fear

The thought of losing your most prized possessions, does that make us afraid? You own a successful, fast growing business in a certain country and war breaks out. All you salvage is the clothes on your back. Does that make you afraid? Maybe in monetary terms, you are content with living a modest life - roof over your head, decent meal and clothes to keep you warm. A tsunami hits your town and you lose everything. Does the thought of loss make you afraid?

Insecurity

Is your sense of freedom based on a person? Maybe a spouse or your endowed parents? What if your spouse loses his job or your parents decide to donate their wealth to charity? Where does that leave your? Maybe your sense of freedom is in the assets you possess. What if there is an economic crash that devalues them significantly, do you still feel free?

Insomnia

Even the rich suffer from lack of sleep! When you have little to lose you probably sleep better than he that has much to lose. Do you worry about your ability to keep generating money? Does the pressure or need to make more money grip you? It is worse when the loss of sleep is because you are looking at how far back you are at meeting your company's sales targets and what that means to your job security - and the thoughts keep running through your mind till daybreak. And when you sleep, the nightmares are worse!

Anxiety

I know I get this sometimes - you look at the financial obligations and they overwhelm you. Bills to be paid, school fees, the holiday you promised the kids, the lawsuit…. Others allow the anxiety to have a physical toll on them - the psychological torture affects their health.

 Disillusionment

Thinking that a bigger house will bring you joy and lasting fulfillment only to realize that your mortgage obligation just grew bigger and that means you have to work harder. Maybe an expensive holiday on a cruise in the pacific will do the trick. You go on the cruise, but on return the bills need to be paid. Well maybe a bigger car will do - you realize that you cannot afford the insurance premiums for a comprehensive cover, so you go for a third party cover. You are now fervently praying that you do not cause an accident!

I invite you to take with me a journey. We are all at different phases in life, our interests differ, but I am almost certain all of us desire the freedom to live a fulfilled life. We all desire a lasting and true sense of freedom. Walk with me in this journey of discovering financial freedom. I would like to hear from you what Financial Freedom means to you. How did you achieve it? How are you working at achieving it?

Pass the Mantle

The deception that you ought to remain at the helm of an institution indefinitely breeds a deep sense of insecurity. Leaders who fall into this deception fill their time with activities geared toward preserving status quo at the expense of growing the institutions they lead. Every effort and strategy is directed to destroying any force that threatens their position.

We live in an ever changing world. Emerging technology quickens the pace of this change, turning state-of-the-art technology obsolete just when it is about to settle as the winning trend. Our greatest challenge in passing on the leadership mantle to the next generation is that we find it hard to embrace their thinking patterns. They are different from us and we are stuck in the good ol' days. What we need to appreciate is that our old methods were fit for the old environment. Change is necessary for the institution’s sustenance.

Nurturing Talent

Most performance monitoring systems focus on looking at the "Areas for Improvement". They articulately point out weaknesses of the individual and strengths are mentioned in passing. The system advocates the idea that the reviewee needs to get better at their weakness areas to go higher up the ladder.

An interesting analogy of the Animal School is told. The students in the school were the Hare, the Duck and the Eagle. The main classes were Running class, Swimming class and Flying class. The Hare was so good at running, but did quite poorly in the Swimming and Flying classes. The Duck swam effortlessly, but made pathetic grades in the Running and Flying classes. The Eagle, decided not to bother with the running and swimming classes, choosing to focus on the Flying class. His area of strength.

The Hare was forced to take extra remedial classes in swimming and flying. The Duck had to take longer hours on the race track trying to improve his running speed. The result as you would imagine is that the Hare turned to be an average runner and the Duck an average swimmer. They dropped the ball in their respective areas of strength. The rebellious Eagle excelled so well in flying that the Hare & Duck's grades could not reach anywhere close to those of the Eagle in the Flying class.

We must nurture the next generation's strengths instead of their weaknesses. At best, if you work so hard at your natural area of weaknesses, you can only be average. If we nurture their strengths, they excel with less effort.

Different Ideas?

There is nothing that kills morale like a boss that tells you, "Son, that's how we have done this for the last 15 years! We cannot change things here just because you came from college yesterday!" The moment your organisation stagnates by clinging to old ways of doing things, that's the beginning of its death. Henry Ford would attest to this from his experience in sticking to the Model T vehicle and shutting his eyes to the competitor's innovations.

A leader should grow young leaders by considering their ideas. They may be raw and needing a bit of refinement, but you will be surprised how a seemingly odd thought can save you time and resources. Bring that young chap to the decision table. Ask them for their opinion and mull over their ideas. Challenge their views to encourage them to think without undermining them. Go ahead, take the risk to adopt their views. This will give them confidence to actively participate.

Job Rotation

A leader needs to get the big picture in order to remain effective. You identify a promising executive excelling in the Finance Department, having had a short stint with the Marketing team. Consider giving them a chance to spend some time in the factory floor to appreciate the Production department's challenges. Let them work with the Human Capital team to get a feel of the people issues they need to be cognizant of. Have them do some deliveries with the Supply Chain department, possibly even drive the trucks!

There is no better leader than one that understands a bit of how everything works. They do not have to be good at all of it, but they need to understand it. A leader has to provide guidance and formulate strategy for the whole organisation. Rotating jobs in different departments gives the upcoming leader the advantage of seeing how a decision in one section will affect the rest of the departments.  They will make wiser decisions when they take over from you.

Unfamiliar Grounds Challenge

A leader remains one regardless of the situation they are handling. Leadership is universal – a fish will swim in any pond, as long as there is water and so should a leader! Leadership is about influence. It is a strategic rather than a tactical skill. Should you be considering putting someone in a leadership position, you need to test the transferability of their leadership skills.

The End-year company party is coming up – put him in charge of the organizing team. Observe how he brings the team together. How does he come up with a budget? Has he earned the respect of those he leads? Check his attitude towards taking up a seemingly menial assignment. There is no assignment too small for a great leader. You will learn their true leadership ability in unfamiliar grounds.

Let Go!

Veteran leaders are the greatest barrier to change in leadership. You have to muster the courage to LET GO your position. Having done all to grow leaders in the next generation, you need to know the point where you must pass the mantle to them.

Empowering a new generation of leaders opens the door for change - and most likely it will be radical change! Our greatest fear is change. Can you overcome that fear and let go? It is vain to groom a leader and never give them the chance to lead. It is worse when the groomed leader gets impatient and moves to your competitor having all the leadership skills they need to beat you in the market. Let go!

The mark of a great leader is in his ability to groom the one that will take over from them. A leader’s greatness is not in their reluctance to let others lead. Are you a Great Leader?