Ultimately, your financial future depends on your ability to create passive streams of investment income. The simplest example is the interest that a bank will pay you on a cash deposit. These small sums, usually in the single digits, depending on where we are in the financial cycle, can seem small. With a $ 1000 deposit at 5%, waiting a whole year to earn $ 50 is nothing to party with. However, a bank is very safe. There is not something completely safe, if you give your money to someone, there will always be some kind of risk, however, a bank is a very safe place to put your money and get it back at the end of the term is not going to be a problem unless let there be a great calamity of some kind.
Depositing $ 2 million in a bank at 5% is a little more useful. The yield would be around $ 100,000 and this amount is passive and usable. After taxes, his lifestyle would be quite comfortable. Of course, the problem for most people is getting that $ 2 million in the first place.
Financial independence is about freedom from work without the corresponding drop in lifestyle. Anyone can leave society and live on welfare, for example, but their lifestyle would be pretty scary, and that’s why we work a job, to maintain at least a comfortable lifestyle.
There are three known ways to develop a passive cash income stream. The following 3 ways will outperform banks and financial instruments, but require work to set up.
The most laborious thing, and I would say that in my opinion it is the most risky, is to become a landowner. Buying and renting properties can be lucrative if enough properties are bought and rented. You would have large loans totaling millions of dollars for all the properties purchased and these properties would slowly increase in value over time, giving you equity to buy more properties. This is a mom and dad question that has been trending recently, but there are many victims along this path and you would need a robust nervous system to handle stress.
The second well-traveled path is investing for capital gains. Again, it is very practical. The idea of investing for capital gains is to buy objects with existing intrinsic value. What I mean by this is that the item you intend to purchase for immediate resale should be priced in such a way that the cost after all expenses in the transaction is less than the actual final value of that item. By buying and selling investment objects in this way, one can capitalize capital very effectively. For example, if you had $ 100, you could start with a bicycle. He resells that bike for $ 140 and has made a 40% profit. If the transaction took just one week, this translates to a $ 1.23 million compound annual return, if you can maintain that 40% per week. It gets a little more complicated, because as you get more capital to invest, you need to find higher levels of investment objects, such as luxury boats or diamonds or land or property. But many have invested in this way for capital gains quite successfully.
The third way is to develop a small business that is made up of systems. These systems represent a unit of value that is scalable or, in other words, reproducible. If, for example, you have a system that runs on its own, where one hour of work consistently generates 50 cents per day for a long time, you can replicate that unit of leveraged value to create more than 50 cents per hour. If you put in 1000 hours of work over a 6-month period, then of course the passive return would be $ 500 per day. The Internet is particularly well structured for this type of systematized income. A good example is in the link below.