I've written about this countless times but I'm a big fan of passive investing in the markets. By doing less, I actually gain a lot more in returns. That's all great and wonderful but currently it's not ideal for me. What I really want to do is turn that passive investing into passive income.
So even in their golden years, they have to budget carefully.
Passive Investing != Passive Income
What's the deal with passive investing and what is passive income? Passive investing, or active investing, is just taking a pile of money and putting into some 'investment vehicle.' The hope is that this vehicle will appreciate in value in the future so when you sell it, you'll get your original investment back PLUS more money! It's considered a good investment that, after adjusting for inflation, your 'investment' made a lot of more money for you that just hiding it under your mattress.
...you didn't actively trade your time, expertise, or sweat...
This is what my parents have done. They worked hard, saved, and invested in some funds so when they retired they would be able to take out their savings and their investment earnings to live on. It's worked out for them but over time that money will dwindle. So even in their golden years, they have to budget carefully.
Getting to this point in their lives is sort of a win, but that decrease in their nest egg month to month is not a great thing. What would be best is having some passive income that doesn't draw down your nest egg and gives you enough money to live on.
What's passive income
Passive income is nothing more than generating a monthly or quarterly income from doing nothing. By that I mean, you didn't actively trade your time, expertise, or sweat into 'earning' that money. It's income that's generated from some asset or intellectual property you own or have created.
For example, owning rental property can be a passive income producer. It's only passive income once you collected the rent, paid expenses, and have positive cash flow left over. You can then take that money to live on if it's enough.
The larger the army, the more power I had.
There are lots of other ways to create passive income and I won't go into them here right now, but passive income is not necessarily like passive investing. It's a slightly different view of looking at home to make money work for you.
Sun Tzu and the Art of Money
Many years ago I thought about writing book on how to investing and make money using the military strategies of Sun Tzu. I always looked at each dollar bill that I have as a soldier in my money army. The larger the army, the more power I had. With that power I would reclaim my time and do the things I want to do, which is travel and explore. After all, why do we all want to become rich? It's not so we have a stack of money to rub all over our naked bodies, but rather to reclaim something more valuable in our lives. Time.
It's time with our loved ones, our hobbies, our gardens, or whatever is important to you that we trade for earning money. So many of us can't wait to retire so we can pursue our hobbies. Usually we drop dead after of few years of retirement never really achieving what we wanted to do. We just worked till death. Is that really what you want? Probably not.
That is what you should strive for.
Sun Tzu often wrote about the 'pinnacle of excellence' and where a General winning a battle without firing a shot is considered excellence. His reputation, army strength, the will of the people, etc, gave him such overwhelming power that the enemy capitulated without even going to war. My thought is that is what you want your investments to do. Build up enough wealth so that you don't need to go to work. Build enough money early so you can live on it a truly pursue your hobbies.
That is the pinnacle of personal excellence. That is what you should strive for.
How to achieve personal financial excellence
I've been struggling on how to do this over the years and I finally figured it out. It dawned on me as I started to repost many of my old trading/investing posts here. I realized that I'm doing well passively investing in my IRA and 401k but I never really thought about generating passive income!
I still plan on writing the book.
Maybe I should revisit a few ideas I've had to transform some of those investments into passive income opportunities so that not only do I continue to build wealth but I'll start generating passive income. I will ponder this over the coming weeks and months and I'll be blogging about that again.
PS: I still plan on writing the book.