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?