Every now and then I will write about a topic that I am extremely passionate about. That’s not to say that the other posts are filled with garbage. They are not.
But sometimes passion just oozes out of every possible channel. Such is the topic of building income producing assets for me.
Why? Because income producing assets have given me financial freedom, more flexibility and freedom in life. The income producing assets I have built and acquired will also continue to generate passive income for me for a long time to come.
Although I am not relying on my income producing assets to generate retirement income for me, I know that they will. Perhaps a charity, my children and grand children will benefit from them someday.
Income producing assets are tangible or intangible rights to something that can generate money for you. Cash accumulated over time that is deposited in a fixed deposit account in a bank generates interest income, therefore the pile of cash is an income producing asset. The same pile of cash, if kept under the pillow at home, is NOT an income producing asset.
A stock portfolio that generates dividend income, rental properties, royalties from patents and copyrights, websites, blogs and forums, email lists, customer databases and income from a business are also all examples of income producing assets.
It is important to note that ownership of these assets is what entitles you to the cash flow generated by each. When you are an employee working for your boss, your paycheck is not generated from income producing assets. You don’t own anything. You don’t get paid when you stop working.
The last point segways nicely into why successful corporate professionals find income producing assets so attractive. When someone first starts receiving a paycheck working out of college or high school, it is likely that they have not gotten paid that kind of “relatively serious” money before. The focus of the individual is usually on working hard, getting promoted and growing that paycheck amount.
Reality strikes them a few years down the road as mid-career crisis settles in. Sure, the paycheck has grown, but so has the pressure, hours and responsibilities. Many successful corporate professionals don’t even get to take the time off they are entitled to.
Many start feeling stuck in a rut, the rat race as we know it. The paycheck is good, but is it good enough to compensate for the added changes in lifestyle that the individual had not planned for and absolutely hates? Definitely not in many cases.
There are several other factors in the mix that can apply such as boredom, periodic self-reflection (the voice inside giving guilt), wanting more out of life, desire for more freedom and flexibility, desire to pursue their true passion and interest, etc.
What you start seeing in later years is a shift in focus, a shift from growing that paycheck to a focus on creating more balance in life. They want to work less and play more, perhaps take that trip they have long postponed, spend more time with the family at home or reestablish that social life outside of only folks from the office.
Truth is, many people don’t realize what they signed up for when they first start working. After one reaches a certain point in wealth accumulation, it no longer is about money at that point for many. It is about freedom, flexibility and getting more out of life. Not to mention that in the USA, as well as any other jurisdiction where income is taxed progressively, the more you make the more you donate to Uncle Sam.
Sure, the net effect is still a positive increase in cash flow to you, but is the incremental increase proportionate to the cost (or opportunity cost) that you have traded off for it? It’s a personal question and only YOU can answer that.
The point is, when you start making “good money” working for someone, you start to crave more time off, an easier life, a better balance, which perhaps many times leads to the desire of working for yourself in a discipline that YOU enjoy. That is why many successful corporate professionals start a side business in their spare time.
The Four Obvious Benefits of Income Producing Assets
Create balance – Successful corporate professionals use income from alternative resources to supplement their income from employment. This allows them to work less, take more unpaid time off and enjoy life a bit more during their younger and healthier years.
Alternative Lifestyle – Many have quit their full time jobs all together because the income from side businesses grows to the point of replacing income from employment. Even if it doesn’t grow to that point, many people don’t realize the costs associated with staying employed.
Quitting the day job has its financial benefits, and if analyzed in depth, one quickly realizes that they really don’t need to be making as much money as they think they need to be making to live the life they want.
Early retirement – Establishing multiple streams of income on the side is a great way to early retirement. Many professionals, especially my generation today, don’t really look forward to slaving away for 40 years to enjoy an average retirement at best. They are looking to expedite “quality” retirement or retire multiple times during their lifetime.
Safety blanket – Many professionals enjoy what they do. They love their jobs. No I am not joking. There is a fair share who really enjoy their jobs, are very good at what they do and make very good money doing so. They too are interested in accumulating income producing assets, although for different reasons.
We know how big of a joke the phrase “job security” has become. Or perhaps they’d like to improve the quality of retirement down the road. Side gigs can also be a great way to legally reduce taxes. If nothing else, having the option to exit the rat race at any point in time has a lot of positive to be said for it.
Accumulating income producing assets over time contribute to the fact that the rich get richer. The added benefit or beauty of assets that generate income is that the more you accumulate, the more they exponentially grow.
It makes perfect sense. Income from one asset can be invested in acquiring another, and so forth. The compounding effect resulting from parlaying or leveraging one asset to produce or acquire another is amazingly refreshing. Yes I do get excited about this kind of stuff.
Here is a quick example to demonstrate my point. You buy an undervalued rental property, you leverage the positive cash flow from rent, its equity and appreciation few years down the road to acquire another. You pay off one completely and use the positive cash flow from rental income of both properties to invest in a third one.
You pay the second one off over time, and now you have positive cash flow from three properties to invest in your fourth. You will have the fourth paid off before you even blink your eye. The cycle can continue as long as you want. You can read my discussion on passive real estate investing here.
As always, I try to speak directly from first-hand experience. Over the years, I have managed to build and accumulate several assets that generate income for me. Some require more work than others, while some are almost entirely on auto pilot. They did require time, effort and resources up front to establish, so I don’t want you to think they can be generated overnight.
I first started investing in rental real estate. I bought one, then another, then another, sold a few, and then continued some more. I started an ecommerce venture that I grew and sold two years later for over four times annual profits or EBITDA.
I invested in a small business in the town I live in and benefit from monthly profit sharing. I have started and grown a portfolio of websites that are ranked highly on search engines and generate a solid stream of cash for me monthly.
I now help others do the same thing, and earn income in the process as well. I can write another few pages on how all this has changed my life, how much I have benefited and how it has changed the way I view making money and living life all together.
I have also been able to help family and friends, and give back more to society through contributions to meaningful causes as a result of my experience building multiple streams of income.
Building income producing assets is a fun and rewarding process, especially for someone with clear priorities and an end-goal in mind. These assets become a vehicle to achieve their objectives or end-goals.
Income producing assets can be used to supplement your income from employment, or as your full time income if you want to quit your job. They can provide for a very nice safety blanket, financial freedom and peace of mind, and bring more flexibility and freedom in your lifestyle.
With the way Social Security programs are going globally, income producing assets can help replace reliance on social programs. Although I haven’t talked about the potential windfall resulting from the sale of an asset, because your income producing assets generate cash, they are valuable and can be sold for a multiple of the income they generate. I will discuss buying and selling an income producing asset later at some point.
Readers: Do you have any income producing assets? Do you plan on building them over time? What do you plan on doing? What are your objectives for them? Or, do you not care for them . . . why or why not?