Here's a little equation I want to share with you. The equation says that you are wealthy when your passive income is greater than your expenses.
What does this mean you might ask. Well let me explain. Income in general can be lumped into three different categories. Earned (active) income, Passive income & Portfolio income
1. Earned (active) income is defined as when you exchange your hours for dollars in the form of a job. A person who works for a salary or even a self employed business owner are both considered part of the Earned income category. The problem with this income category is that you lose your most precious comodity: Your Time! It is said that 95% of people are in this earned income category. It's not that people in this category want to trade hours for dollars, they just don't know of any other way of generating income. Think about it for a minute. Is there anyone you know that dosn't have to trade hours for dollars to make a living? Why is this? I would say that most of us are taught to trade hours for dollars all of our lives. Isn't that what we learn all throughout school. Even college is designed to get us a Job that trades hours for dollars.
2. Passive income (pipeline Income) is an income received on a regular basis with little effort required to maintain it. – Income generated this way is usually generated through business systems and royalties. For example: suppose you own the patent for the 5 gallon bucket. That would mean that everytime someone purchased a 5 gallon bucket from the store, a percentage of that income would go to you. Another example would be purchasing a Business system or a franchise. Lets use McDonalds as an example. There is a system that McDonalds follows and the franchise owner is not spending their own time flipping burgers but yet they have a system that runs without them. The problem with buying business systems is that they're very expensive and the average person won't be able to get involved.
There are other Business structures that when you build them you start generating Passive Income. At first it is in the earned income category because you trading your hours but if you build it right, over time (let say a couple of years or so) you can start subtracting yourslf from the equation and generate passive income. I like these structures the best because it's a level playing field for people to participate. In other words,
You don't need a million dollars buy a franchise system,
You don't need to be some extrodinary musician who can start generating royalties from their record sales,
You don't need to be a Top selling Author who can receive residuals for their work, and so on…
I will focus on two:
Network Marketing: Why network marketing you might ask? Well simply this… If you build a big enough team, you generate residual income on your downline. Network Marketing systems runs on this priciple; you help someone generate $100,000 and you will make a percentage of that income, paid to you by the company. However, if you help enough people make money then you develope a passive income. It's a win, win principle. Franchises like McDonalds and countless others operate on the same idea. Everytime a McDonalds in your area sells a hamburger, they kick back a few pennies to the main corporation. With over 30,000 McDonalds franchises around the world giving "kickbacks" to the corporation , you can see how the corporation developes a passive income. This is just one example.
Internet Marketing: I actually like this one the best because when you build your marketing business on the internet what are you doing? Your selling products and information. So why not offer your network marketing opportunity to your prospects as well. I guess what I'm trying to say is that if you build a Internet business, you can offer whatever products you want including your network marketing opportunity. But if you just build a network marketing business than thats all you got.
3. Portfolio income – Is when money generates money. Interest, stocks, bonds and dividends are all part of this category. Now I've heard business coaches say that this category is the category that you enter with your passive income. In other words, the people that have figured out how to develope business systems that generate passive income throw their left over passive income into this category. I've also heard that if you don't have $250,000 that you could lose at any moment and it wouldn't hurt you, than your really not playing around in this category.
Originally I wrote that your wealthy when your passive income is greater than your expenses. and heres the equation again:
So what does this mean? Well for the short answer this ultimately means that you have TIME. Yes, In my opinion wealth is measured by how much time you can free up.
How do we do this? We can learn to generate passive income that is grater than our expenses.
How much passive income do you need to be wealthy? The answer to that lies in how much your expenes are.If you only need $3,000 to pay your expenses than you can generate wealth faster than the person who needs $15,000 a month to pay their expense. Remember their are people that make $150,000 a year who are broke. Why? Because they use up all their time, to earn the income they need, to pay for their lifestyle.
Wealth is measured by how much free time you have!
So now the question that needs to be asked is this. How does the average person start generating passive income with the internet? I would start by doing this…
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