Here is a tiny equation I need to share with you. The equation says that you’re wealthy when your passive income is greater than your expenses.
Wealth = Passive Income > 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 whoever 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 commodity: Your Time! It is stated that 95% of people are in the earned income category. It is not that people in this category need to trade hours for dollars, they just don’t know of a other way of generating income. Think about it for a minute. Is there anyone you know that doesn’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 is an income received on a regular basis with tiny effort required to maintain it. – Income generated this way is mostly generated through business systems and royalties. For example: suppose you own the patent for the 5 gallon bucket. That would mean that every time 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’ve a system that generates income without them. The problem with buying business systems is that they’re very costly 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 for dollars but if you build it right, over time (let say a couple of years or so) you can start subtracting yourself from the equation and generate passive income. I like these structures the ideal 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 any extraordinary musician whoever can start generating royalties from their record sales,
* You don’t need to be a Top selling Author whoever can receive residuals for their work, and so on…
I’ll 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 down line. Network Marketing systems operate on this principle; you help someone generate $100,000 and you’ll make a percentage of that income, paid to you by the company. However, if you help enough people make money then you develop a passive income. It is a win, win principle. Franchises like McDonalds and countless others operate on the same idea. Every time 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 view how the corporation develops a passive income. This is just one example.
Internet Marketing: I actually like this one the ideal because when you build your marketing business on the world-wide-web what are you doing? Your selling products and information. So why not offer your network marketing chance to your prospects as well. I guess what I am trying to say is that if you build a Internet business, you can offer whatever products you need including your network marketing opportunity. But if you just build a network marketing business than that is all you got.
3. Portfolio income – Is when money generates money. Interest, stocks, bonds and dividends are all part of this category. Now I have 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 develop business systems that generate passive income throw their left over passive income into this category. I have also heard that if you don’t have $250,000 that you could lose at any moment and it would not injured 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 here’s the equation again:
Wealth = Passive Income > Expenses
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 greater than our expenses.
How much passive income do you need to be wealthy? The answer to that lies in how much your expenses are. If you only need $3,000 to pay your expenses than you can generate wealth faster than the person whoever needs $15,000 a mo to pay their expense. Remember their are people that make $150,000 a year whoever are broke. Why? Because they use up all their time, to earn the income they need, to purchase 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…
Master the 7 Secrets the Wealthiest Internet Marketers Don’t Want You to Know!
You can sign up on my website to receive the secrets!
I look forward to sharing more with you soon but for now…
Don’t wait for miracles to happen – Be The Miracle!
Bryan Phelps, bryanphelps.net