As you know, passive income is a primary driver for many investors in this industry. Everyone wants that token “mailbox money” coming to them month after month. Whether you want more income to pay for your next car… or your 9-5 job just isn’t cutting it… or you need to pay for your kids’ education… Passive income can be the answer to your problems.
The Times Are Changing
Real Asset investing is simply a vehicle we use to create the lifestyle we want to have. Over the last two years, there has been a large-scale ‘mindset’ revolution. We could talk about the exodus from the workforce, creatively tokened as the “Great Resignation,” but we are not going to focus there.
Ever since the world-altering events that occurred in 2020, many people have come to realize that their traditional 9-5 jobs are in control of them. They rely on their employer corporations for insurance and wages and in return, they have sacrificed their time, energy, and capacity.
People feel chained to a desk and bi-monthly paychecks to afford their necessities and with the rapid rise in inflation and CPI (consumer price index), people are barely scraping by with their traditional jobs. Inflation is far outpacing the annual growth of wages by W2 employees.
Because of this, many people’s mindset has shifted. Instead of the comfortable lifestyle of earned wages and contributing to their 401k for retirement that we were taught in school, many people are realizing that it’s just not going to be enough in the long run.
9 to 5 Until We Die? Is there another way?
So much of our lives are spent at our 9-5 jobs earning ‘active income.’ And the worst part about it all— there are usually no tax advantages to your “active income.” The traditional way of life, or what many people ASSUME is the “better” way and that’s only because they’ve not been shown anything different and were told for 18 years in the school system to do it this way.
Wake up every day, go to your job, contribute to your 401k, and hope by the end of your fifty-year journey in the workforce that you’ve out-saved inflation enough to be able to live off your retirement fund… But what if there was a better way?
What if you could take back control of your time, earn more money, and even get tax advantages without going through the monotonous 9-5 job cycle? Our previous example may have been a ‘smart’ way to live 75 years ago when housing prices were comparable to wages and the value of the US dollar wasn’t seeing a rapid decline but today is different. Heck, today is far different than even a year ago!
The average person will spend 90,000 hours of their lifetime at work. The average person will only earn about 2.5 million dollars in their lifetime (using the median household American income). The average person will only be able to save a small percent of their household income (because you obviously still need to eat while you’re making your way to retirement).
Even if the average Joe could get close to 1 million dollars in their retirement fund, well, I’ve got some bad news…. That’s still probably not going to be enough for you to live off for 20 years in retirement because of inflation and other extenuating circumstances like medical bills, travel, different taxes, and more. Passive income can be the answer to those problems.
However, don’t misunderstand me. There is a right time and right place for each of those things we’ve previously mentioned— 9-5 job, 401k contribution, paying taxes- well, we can talk about taxes later! Intrinsically, there is nothing wrong with planning for your retirement or filling your 9-5 hours with productive work but there is also a way to accomplish such things without the burnout and by taking control of your own time NOW… instead of when you are 65 years old and retire.
Investing for Passive Income
Passive income aligns with an investor’s passive role. With that, you take back your time and STILL GET PAID! How awesome is that?! Depending on the deal, the passive investor is afforded regular distributions as returns on their money and often can use their investment for tax benefits. This is great as early as NOW and can be a source of income for you in the years to come.
Of course, investing always comes with risk so don’t put all your precious eggs into one basket and bank on that being the only vehicle to pay your bills for the next 50 years. It may take multiple deals and it WILL take mindfulness plus the education to know which markets you want to invest in and with whom you want to invest. Begin with your Personal Investment Philosophy (PIP) in mind and this will help guide you to your end goal.
Be mindful that not all deals are created equally. Some deals will focus on passive income but might not be beneficial for equity growth. Others may have passive income with lower rates of return but also include enormous tax benefits. This is by no means an exhaustive list of ways a deal may be structured, but simply a warning that all investors should be clear about their purpose for their investment and to closely examine each pro forma with such in mind.
Your Lifestyle = Your Investment Goals
Your place in life will likely dictate what you need from a deal. Let’s look at the different scenarios and investment options across ages and lifestyles.
If you’re 75 years old and want the freedom to travel with your grandkids and not worry about your insurance payment, you may prefer a deal with monthly distributions?
Or maybe you’re a young professional trying to build a name and brand for yourself and just starting your career- you may want a deal with quarterly distributions but that has good potential for equity growth so that you can pay your new mortgage and increase your net worth?
Or maybe you’re a middle-aged, divorcee with no kids and just sold your business and want to travel- you may be more drawn to a deal with regular distributions to pay for your travel and one that can give you great tax benefits to offset the recent sale of your business? There are truly so many options!
Freedom Through Passive Income
Maybe you caught it, or maybe you didn’t, but the one congruent factor across each of those examples was that everyone was afforded freedom – freedom to take back control of their time and live out THEIR desires.
I love this quote from Passionistas Tips, Tales and Tweetables from Women Pursuing their Dreams:
“It’s supposed to feel too good to be true – until the ‘too good to be’ dissolves and all you’re left with is ‘true.’ Look forward to that moment. Do NOT stop. What awaits is the realization that what inspires you most can actually become your entire life if you design it that way.”
I hope you caught that key phrase- “IF you design it that way.” So powerful!
So, are you free to live your life the way you want it?
