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Category #5 - Passive Investments/Income Producing Assets
Unlike the previous two categories where the hours worked-income earned ratio can vary wildly. This category seeks to completely minimize the hours worked side of the ratio. The entire goal of this category is to provide an option to invest your money in an investment that produces enough dividends that it can effectively fund or partially fund your lifestyle without requiring your active involvement in the investment themselves. You may argue that this is also the goal of some variations of the approaches discussed in the previous “Business” category (building your business to a point that it operates without your involvement). You’d be correct. It’s pretty obvious that the borders between the different categories can become blurred with different specific cases.
However, when I describe this category, I think more-so about buy-and-hold investment strategies. Whereas the other categories typically concern with the production of value and income from a consumer service or product; this is the category that your excess margin of earnings should be funneled into so as to compound and create more possibilities for passive income. Excuse the buzzword.
The two most popular strategies that are often discussed in financial independence circles are:
Long-term Passive Index Fund/Equities Investing with dividend payouts or simply living off of a consistent withdrawal rate.
Buy-and-Hold Rental Real Estate Investing
Well, there it is. The five areas/categories of income production that can be leveraged toward the cumulative goal of increasing the income earned component of the cash flow equation.
You can choose one, two, or all of them. In different ways, the strategies within each category share common characteristics and can also be argued to belong to a different category from the one that they’re listed under.
Different strategies can work in tandem for the benefit of each which provides an ideal heuristic when weighing possible actions to perform such as:
These are just a few examples of how success in one strategy can drive success in another. Going forward, I hope to have more in-depth posts describing my own experience in these individual categories that I can share in a helpful manner so that you can replicate any success that I have or avoid any failure that I encounter.
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