Most of America was raised in a household where the road to wealth and success was paved with the ideology of going to school, getting good grades, graduating and getting a good job. If you were raised differently, it’s my guess you were raised in a wealthy household and probably already have a good grasp on how to create wealth. Feel free to read on anyway. You never know what you don’t know you don’t know.
As well, most of us have grown up knowing a person described as wealthy as having a lot of money in the bank, or a high net worth. Regardless of how much money you have, unless that money is working for you, it has an expiration date. Besides, saving a lot of money is an antiquated way of creating wealth of which very few are ever capable of doing. There is another way to create wealth.
Most people with a lot of money are able to put their money to work for them, therefore, it doesn’t expire. The reason, however, why so few are able to create wealth in this way is they strive to make and save a lot of money before putting it to work. Making and saving, for example, one million dollars is hard work and it takes a considerable amount of discipline.
Create WealthWhat if you modified your definition of wealth from “having a lot of money in the bank” to “having enough money to pay your expenses every month whether you go to work or not?” Wouldn’t that definition of wealth give you the same time freedom the traditional definition of being wealthy would? I mean that really is essentially why we all strive to create wealth anyway, isn’t it? Being wealthy will allow us the time to do what we please, when we please, and with whom we please.
Imagine your monthly expenses amount to ten thousand dollars a month. What would allow you to manage those expenses more easily, one million dollars in the bank or ten thousand dollars showing up in your mailbox on the first of the month every month for the rest of your life? Which one would allow you to manage your expenses the longest? Which one sounds easier to create? $1,000,000 in the bank or $10,000 a month in passive income?
You know your situation better than I do, but $10,000 a month of passive income not only sounds more achievable, it will allow me to manage my expenses forever… meaning my lifetime, my children’s lifetime and my children’s children’s lifetime. The $1,000,000 has an expiration date, the passive income does not.
So, if it’s easier and will last forever, why don’t more people set out to create wealth in this way?
Earlier, I pointed out how most people think they have to save a lot of money before they can put their money to work for them. Not true, at all. There are plenty of passive income vehicles available, even in today’s economy, of which you could invest $10,000 to produce $200 a month in passive income. The issue is most people won’t do it because tying up $10,000 in exchange for $200 a month doesn’t sound like a real life-changer. For most, there’s no appeal to $200 a month. Most people would rather use that $10,000 for a family vacation, a new wardrobe, a new 3D T.V., jet skis… whatever it may be, but whatever it is, those “things” have more appeal than creating wealth with a paltry $200 a month.
Here’s where most people miss the point, and it can be a devastating oversight. Most people confuse $200 in cash with $200 of monthly passive income. I agree, $200 in cash has little value today. $200 of monthly passive income, however, has tremendous value and will make the difference in you creating wealth, or not. Here’s what I mean… As I’m writing this article, the financial institution ING is advertising a 1.1% return for their money market account. How much money would you need to put into that ING account to generate $200 of monthly passive income?
Creating wealth one step at a timeAn ING money market account balance of $218,181 would have to be maintained to generate $200 of monthly passive income. So, $200 in cash is worth $200 in cash, but $200 of monthly passive income in today’s market is worth $218,181 sitting in the bank.
Sticking with our above example, one could invest $10.000 twice a year and achieve their financial freedom of $10,000 of monthly passive income in 25 years. If one were to deposit that same $10,000 a month into a money market account instead twice a year, it would take twice as long (50 years) to save $1,000,000. That example alone demonstrates it takes twice as long to create wealth per our traditional definition of what it means to be wealthy, or does it? What the example doesn’t demonstrate is that that money market account would have to have a balance of $9,230,769 to generate $10,000 of monthly passive income, so… although it would take 50 years to create wealth and become a “millionaire” the traditional way, it would take 461 years for that method to equate to our new definition. 25 years vs. 461 years? You choose the fastest path to creating wealth.
In order to keep the example simple, I didn’t factor in fluctuating interest rates, taxes or inflation, but the results are relative, meaning the same difference would essentially apply regardless of those economic factors.
The point I’m trying to make is that people will put off building their passive income streams (the easier, faster and smarter way of creating wealth) because $200 of monthly passive income isn’t enough of an incentive to get started. There’s no appeal in such a small monthly amount. Hopefully, you now understand how significant that “small” amount is to creating wealth.
A great deal of the credit of my own successful “Do Over” and creating wealth belongs to my new understanding of money and how it works. Don’t wait to save a bunch of money to start creating wealth, create wealth by investing what you have right now. The road to wealth is shorter and easier through building passive income, and the sooner you get started, the sooner you’ll get there.
