Which Is Your Best Income Source?

I was recently at the library when I stumbled upon Sean Toh's 4 Steps to Financial Freedom.

It was a pretty easy to read book and in it, I was reminded of the Rich Dad Poor Dad book that I read when I was in the Army and later on in university....

After reading Rich Dad Poor Dad and his advice to increase my income sources, I embarked on a journey to increase my portfolio and passive income so as to achieve financial freedom

Based on Rich Dad Poor Dad, one can earn an income throught the following methods:

1. Earned income
2. Portfolio income
3. Passive income

Earned Income

This is basically income which you earn using your sweat and toil be it at the desk or in the field growing tomatoes. Earned income is what most people are familiar with and many people stick to this source of income for their entire lives.

In my opinion, earned income is perhaps both Overrated and Underrated at the same time.

There is nothing wrong with focusing on this income source ALONE if you are certain that it will keep increasing and there will not be a day when this income will vanish and disappear.

Unfortunately for most people, earned income is no longer something that is guaranteed especially with the amount of retrenchments, compulsory retirement age and outsourcing that is taking place to countries like India and China.

On the other hand, some rich and well-to-do people get rich just be earned income alone. They get good jobs and get promotions and get paid higher salaries year after year.

I quit my $5K per month job this year and have thus suffered heavily in terms of my earned income. I find that I have less money to pour into my portfolio of stocks to increase my portfolio income which is what we will discuss next.

Portfolio Income

Porfolio income is earned from dividends that comes from one's stock or bond portfolios. Dividends are basically cash that is paid out to shareholders. The amount of dividends serves as a constant stream of income based on the porfolio of one's stocks.

I know of people who are able to earn sufficient portfolio income to retire because they have amassed a large portfolio of stocks that pay healthy dividends each year.

I started out collecting real estate investment trusts (REITs) because of their high dividend yields. Hopefully, this source of income will continue to rise over the years especially if I managed to re-invest whatever dividends I receive.

(I just collected a few hundred dollars in dividends for the month of November but it seems that this money will now be used for a short holiday trip instead of being reinvested...am I being wise?)

Passive Income

This can come from book royalties, renting out of houses, online income, etc. The magic of this income is that it requires little or no effort on your part and that is why it is termed "PASSIVE" income.

With this sort of income, you will be able to continue doing your daily job while earning an additional income that comes in day after day without you needing to working for it.

I started out some blogs to increase my online income as a source of passive income. I have been able to earn quite a steady and decent stream of income using Google's Adsense. Lately, I have been exploring Amazon's Associates Program too. Hopefully, this will start contributing to my passive income for the year 2010.

Conclusion

I am not on track to achieving my goal of $400 per month passive income. I admit that I have failed and that I will have a much higher and steeper slope to climb for year 2010 where I should hit a passive + portfolio income of $600 per month. May God Be With Me.

What are your income sources? Which source of income provides you with the biggest income? Are you focusing only on Earned Income while neglecting your portfolio income and passive income?

Donald Trump and Robert Kiyosaki

In this video, Donald Trump and Robert Kiyosaki speak about the book which they co-authored "Why We Want You To Be Rich"

How The Rich Get Richer By Robert Kiyosaki

Okay, I admit the title of this post is misleading.

Yesterday, I read this article on Yahoo that was written by Robert Kiyosaki on Why the Rich Get Richer.

Somehow, I just cannot seem to find the article now.

Anyway, after digesting it and reflecting on it, I realised that Robert Kiyosaki was sharing something of immense importance.

He recounted the story on how he called up a property agent to enquire about the price of a building once. It cost $2 million dollars! That was way out of his budget. Furthermore, the building was only being rented out to a few tenants and Robert Kiyosaki felt that the rental income was not able to justify the 2 million price tag.

As a result, he did not pursue this property.

Years later, he discovered that someone actually bought the property, tore it down and built a new building. It was sold for $150 million dollars.

He shared that it was then that he discovered how his thoughts had led him to the conclusion that the property was not a good investment. He was limited by his own thoughts and was thus not willing to see why the 2million price tag was justified.

This is related to my previous posting on our desire is to achieve our goals.

Desire is linked to thoughts and if we do not cultivate the correct kind of thoughts in our heads, these will become stumbling blocks in our journey towards our goals.

Retire Young Retire Rich

I dug out this book by Robert Kiyosaki (Author of Rich Dad, Poor Dad) which had been collecting dust on my bookshelf.

I read it 6 or 7 years ago and decided to do some re-reading to see how far I have followed Rich Dad's advice.

Why I first started reading the Rich Dad Poor Dad series is simply because Robert Kiyosaki started out with nothing and achieved financial freedom in nine years when he retired in 1994. He started with nothing and exited with $85,000 to $120,000 a year in income which came solely from investments. He was not rich but he was financially free as his yearly expenditure was only $50,000.

Reading just the introduction of the book Retire Young Retire Rich, I realised how I have not followed what he had been telling me to do. In a sense, I had only remembered one key thing from Rich Dad Poor Dad: Buy Assets.

In the introduction to the book, 2 important points are made about money.

The first important word about money is Cash Flow. The second most important is Leverage.

I realised that I sort of understood the cash flow portion but have somehow neglected the portion on leverage. As Rich Dad says: "Leverage is the reason some people become rich and others do not become rich.....Becuase leverage is power, some use it, some abuse it, and others fear it."

It seems like over the years, I have sort of feared the power of leverage. I have not made use of good debt. Instead, I have gotten myself into bad debt by buying a car and a house - both are liabilities as they are taking money out of my pocket.

Good debt makes you rich, Bad debt makes you poor. That is the power of leverage and it is something which is just head knowledge to me and not something that I have applied in my life.

In this book, Robert Kiyosaki outlines that leverage takes place in your mind, your plan and your actions. He also outlines the three assets that make people rich and allow them to be retire young.

I will be exploring and re-reading this book again in the next few weeks. Do drop by again to see the lessons that I have learnt!


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3 Key Lessons From Rich Dad Poor Dad

A lot of reviews have probably been written about Robert Kiyosaki's Rich Dad Poor Dad book. So I will spare the reader the details of the Rich Dad Poor Dad Book and just focus on the key lessons that I have learnt from Robert Kiyosaki and which I am now trying to apply to my financial life so as to be financially free.

Lesson #1 - Pay Yourself First

The first lesson I learnt from the Rich Dad Poor Dad series is to always pay myself first. That means that investments, regular savings, etc are the top priority in my budget. I pay these things first before I start spending on any luxury items.

Lesson #2 - Acquire Assets

An asset is something that puts money into your pocket. A liability is something that takes money out of your pocket (e.g. your car). Acquire assets.

Lesson #3 - Increase Your Income

Increase your income (both earned and passive income) such that it exceeds your expenses. Do not solely rely on earned income to be rich. Always explore multiple streams of income.

There you have it, a short and simple review of the 3 key lessons I have learnt from the Rich Dad Poor Dad series. Hopefully, this will help you in your financial freedom goal.


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