PASSIVE INCOME - THE ROAD TO FINANCIAL INDEPENDENCE Robin Flint Passiveincometogether.com 1/1/2016
Table of Contents WHAT WE KNOW ABOUT ACTIVE INCOME... 2 Passive income... 2 INFLATION... 3 Inflation manipulation... 3 Understanding inflation is important... 4 BANKS... 4 EXPENSES... 5 Passive expenses... 5 Active expenses... 5 So why am I talking about expenses?... 5 Ok, I get what you mean, we spend our money, what s the deal?... 6 FINANCIAL INDEPENDENCE... 6 The different levels of financial independence... 6 INVESTING... 7 Do you want to become financially independent?... 8 GOALS/DREAMS... 8 If anything s possible, what would your life look like?... 9 WHAT TO DO?... 9 1 P a g e
WHAT WE KNOW ABOUT ACTIVE INCOME Hello, my name is Robin and about 7 years ago I first heard the words passive income and it took me a while to grasp the concept of it. Passive income is the opposite of active income, the income off everyone around me at the time. All off a sudden I saw a new world, basically everyone I knew was a slave to active income - including me. 100% off my income was active and I was a slave in the hamster wheel of life. I was working in a factory, made OK money, more than most off my friends but it was still a job and the income was active. Active income means that you get paid based on what you can produce, per hour, week or month, you can also get paid commissions on sales if you re a sales person but you still have to put some amount of time, effort, energy or value every time you want to get paid. Active income is also what most small business owners work for, let s say that you run a small construction company or private lawyer firm and you are working, running it and maybe you have some employees. Are your income really active then? You might have a good business going and make a lot of money but you still have to be there and run it, be the boss, fill in for sick people etc. Your income is still active because you have to put in time, energy and effort to keep your business running, if you would go away from your business for a year, there wouldn t be a business to go back to. This is how most people see the world, you have to work hard to make a living. When you re a child your parents and all the grown-ups around you tell you that if you want a good life you need to go to school, do your homework and study for the tests so you can get good grades and then when you grow up you can get a good job. My mom even told me that if you don t do well in school you re going to end up as a garbage man. The system programs us to be workers, the schools teach us that there is only one right answer and if you question that you are classed as stupid. The system teaches us to work for money and so we do, at least most of us do. Been there done that! Passive Income So how about passive income, what is that? Well, passive income can come in many forms, the most common one is from having money in a savings account. If you put a 1000 in a savings account you will at this moment (2015) get about 1% interest or so, which means if you keep your 1000 there for the full year you will make 10 from the deal (minus taxes). That money is passive income. Why? Because, if you ask yourself how much you had to be active, put in time, energy or work to get those 10 you would find out pretty quickly that it was close to zero. So you made 10 without any real effort at all. Awesome! The problem with this is that you don t really get excited about getting 10 or 1 % interest on your money so most people rather go out and spend the money instead. In fact if you include inflation to the equation it really makes sense to spend the money today rather than keep it in a bank account with 1% interest. The reason for that is if keep your money in the bank at 1% interest and the inflation is 2% in reality that means that you can buy 1% less goods and services after one year, even though the amount of money in your account grew. 2 P a g e
INFLATION So what is inflation then? Most people think that inflation means that the prices of goods and services goes up every year but in fact it really means that the money supply is expanding, so this year there are more money in the system than there were last year and if you create more money that means that all the money that already existed will be worth less in real purchasing power. Inflation is not really that the prices are going up but more that the value of the money goes down. Think of it this way, there are two farmers, one grows apples and one grows oranges, they harvest exactly the same amount of apples and oranges each year and that the value of oranges and apples are the same and therefore we could trade one orange for one apple. One year the apple farmer decides to expand his business and now grows 50% more apples and so the amount of apples on the market now outnumber the oranges bye 50%. Now the fair trade price for apples and oranges would be 2 oranges for 3 apples since there are 50% more apples on the market than oranges. The price might not go all the way to 2 oranges for 3 apples but since there are a lot more apples out there the price of them will have to go down for people to want to buy. There has been inflation in the amount off apples and so they lose value in terms of oranges. Inflation Manipulation Then we have another aspect of it all, the institutions that measure inflation cheat and have been manipulating the inflation for decades, with different methods. For example when the prices of new cars were rising too fast they figured that then people will instead buy used cars so then they just changed new cars to used cars to calculate the CPI(Customer Price Index), and so by magic there was deflation instead of inflation in the price of cars. Another example is with computers, if you bought a computer one year ago for 400 and you buy a new computer for the same price today, the new computer would be better in probably all aspects because of technical development. Now when you calculate this into the CPI they will value that you bought a better product for the same price so they will cut the real price bye 25% (or the specific percentage that they calculate that the new computer is better than the old one) to 300 which means that there have been a 25% deflation in computers. Another way that they manipulate the CPI is that for example if the price of beef tenderloin goes up rapidly they figure that then people will stop buying it and maybe eat pork tenderloin instead and so the cost of your tenderloin dinner goes down, and so does the CPI. Everywhere I ve been in the world I meet people who talk about prices going up and in some countries people really have to struggle just to get food on the table and a roof over the head for their family because salaries don t keep up with the inflation. Inflation is a way for the central banks to tax the people without them knowing about it, think about it, when they create the new money they get to use it first at the current value but ones the money hits the market the total amount of money grows and the value of it goes down. For a lot of countries inflation is actually the only way out of their debt. In the world we live in debtors are winners and savers are losers. If the value of your money goes down it means that you lose purchasing power if you save your money. The same goes for debt, if you have a 100,000 loan on your house for example, after 15 years at 2% inflation the 100,000 real value at that point would be less than 70,000 so even if you didn t pay any off on your loan the real value of the money that is the loan would go down. The exact same thing would happen if you had 100,000 in your savings account (let s say you spend your 1% interest every year) then after 15 years at 2% inflation you would be able to buy less than 70% of the goods and services than you could for the same amount 15 years earlier. Why this is important to 3 P a g e
governments is because they are the biggest debtors, and don t have any plans to pay the debt back, it s much more easy to just inflate it away at a controlled rate. Understanding Why Inflation is Important Inflation is very important to understand because this really means that if you are slow with your money you lose, and if you keep your money in the bank for a year you can t buy the same amount of stuff as when you put them there. A lot of people don t understand this, I ve heard some friends of mine say yeah but I don t lose anything, I still have the same amount of money yes, but you can t buy the same amount of stuff. Well it depends a bit, some things goes down in price, I ve had people say to me yeah, price goes up huh!? When was the last time you bought a flat screen TV, I don t know how you guys feel but for me I might change my TV like, I don t know every 5-10 years. I eat food, drink water, drive my car, live in my home, go to the movies and use electricity every day/week/month. Who cares about a TV, computer or whatever that you change every 2-10 years or so? What really matters are the things that you use every day or week, if those things goes up its getting harder and harder to live. A lot of people today struggle to just make a living, prices goes up but salaries don t keep up with the pace no matter what the CPI says that the inflation is. If you don t believe me about the manipulation examples that I gave before, how different governments manipulate the CPI, you can just go to the webpage of whoever calculates the CPI in your country and check out how they calculate it, every country have some differences but they all cheat in some way. The whole meaning here is not to argue whether the inflation rate is measured in the wrong way or not, I just wanted you to have a little deeper understanding of it. The most important thing is that you understand that inflation eats the purchasing power of your money and therefore savers are losers. BANKS Before we dive into the good stuff I just wanted to give some thoughts out to you guys who think in your head right now that ok, I might lose some money on inflation if I keep them in the bank but they are still safe there, inside my bank account, at least I won t lose all the money like I could in some risky investment, right? Well I m sorry to tell you this but you should not be so sure about that. Most people think that the banks job is to keep your money safe, and that was true a long time ago. When money was first created 4000 years ago it was because the barter trading system that was used before was not practical, let s say you had a cow and wanted some apples then you would have to find someone who had apples that also wanted a cow, then the next problem came, if you only wanted one or two apples it would not be fair trade for a cow. So after some time people figured out that you can start to use gold nuggets as a medium of exchange instead so then you can get a certain weight of gold for your cow and go buy your apple with some of the gold. At some time after people started to use the gold as a medium of exchange they realized that it wasn t safe to walk around with gold in your pockets, pickpockets became common. One day a guy started a business that contained a safety vault and a couple of guards outside, and so the first bank was started. At the bank people could deposit their gold and keep it safe (at a small fee of course). So why do I tell you this? Well, that s really the reason that we still today have in our head today that the banks job is to keep our money safe. How does it look today then? Well, basically all the money today is digital. There is nothing in the vaults anymore and the banks job and policy is not to keep your money safe, but instead to make as much money as they can at whatever way and risk possible, and 4 P a g e
when they mess up enough to basically be on the edge of bankruptcy the governments back them up with bailouts saying they are too big to fail. Most banks real money reserves are so small that just a small failure in the real estate market, the bond market or the derivatives market and the bank is toast. Now to the part that gets really scary. Many governments in the western world have now agreed to another concept, bail in. This basically means that the next time our banks have been extra reckless and made some really big and bad bets on the derivatives market the bank have the right to use the money in their customers bank accounts to save their own ass. So let me ask you this, are your money really safe in your bank account? Do you really trust your bank? My answer to those questions are, hell no. Does that mean that I don t want anything to do with the banks and don t use banks myself? Of course not, but I m careful. I don t keep a lot of money in the bank, and I pay attention to how the world economy and the Swedish (yes I m Swedish) economy is going. EXPENSES We all know about expenses, right!? The fun part, where we get to spend all of our hard earned money. Most people don t even think about this but when it comes to expenses we have one active kind and one passive kind, but sometimes they are kind of mixed together. Passive Expenses A passive expense is an expense that you have to pay just to maintain a living, things like rent, food/water, transportation, electricity and toilet paper. Things that doesn t really add any extra value to your lifestyle. Active Expenses This is the fun part where you spend money on things like vacation trips with your family, a new flat screen TV, a night out with some friends or maybe some hobby like golf or fishing. Then we have the mix expenses, like you could live in an older smaller apartment just to have a roof over your head but maybe you want to increase your standard a little, a newer apartment in a nicer neighborhood maybe will cost you 200 extra per month but you feel it s well worth the price. Maybe you need a car to get to work and you get a BMW instead of a Kia or sometimes instead of cooking dinner at home you go out to a restaurant and eat. These are all extra active expenses that you add to your passive ones and make your life more comfortable. So Why am I Talking About Expenses? Because most people that I talk to about economics, they say things like yeah I m pretty good at economics, we save about 500 a month, so then I say great, for how long have you been doing that?, about 3 years, Ahh cool, so now you have about 18000 in the bank? As it turns out almost everyone have far less than what they should have in the bank if they really had saved the amount that they think they do. Most people see the money in the bank account growing and when the amount is big enough they get a new car or vacation. So in fact most people save little to nothing for the future. 5 P a g e
Ok, so what s the Deal? Well, the deal is that if I m going to be able to teach you how to become financially independent we need to figure some things out first. How much is your expenses every month? How much money do you have to invest/save every month? Can we grow the investment amount somehow (for example by cutting expenses or increasing income)? The bigger percentage amount of your incomes that you can use to invest, the quicker you will be able to achieve financial independence. FINANCIAL INDEPENDENCE So what is financial independence? Most people think that financial independence is some crazy amount of money that you have in your bank account that would never in a million years run dry. When people think about other people that are financially independent they think about guys like Donald Trump, Bill Gates or even a CEO for a bank. What we think about financial independence is that you have or make so much money that you can t really spend it all under normal circumstances. The correct way to measure financial independence is with time, if you were to stop working today, how long time would it take before you d have to lower your living standards, most people would start to have problems within 30 days when the monthly bills are due. Almost everyone will be there in 90 days. How about Bill Gates, since he has built a great business and a system that can work without him he would probably have more money after a couple of years even if he didn t work. Microsoft have a lot of smart people working for them and they would most likely develop new products and grow the business even if Bill and his family took a vacation for one year and didn t bring their phones, Bill has an asset (Microsoft) that produces his income. How about some person with a really high paying job, like a CEO of a bank. The person might make millions of Euros from the job, but what happens if they stop working? Yes that s right, the millions in income stops flowing in at some point down the road, and they will have to lower their living standards, since the person earning millions probably has a bit higher expenses than the average person. The key to financial independence is to create a system that provides you with passive income, as many different sources of passive income as possible. When you only have one income and that income is active, you are very dependent on your own health, on your employer and the markets demand for whatever service or products that you produce. When you have a lot of smaller sources of passive income you are not so vulnerable if something would happen to some of them. For example. If you have 2000 after tax salary compared to 10 sources of passive income that brings in 200 each, If you lose your job or for some reason can t work for a while you probably have a big problem that needs to be solved right away because if you don t, you might lose your home, your car and maybe even start to have problems with having a meal for the day at some point down the road. If you on the other hand lose one, two or even three of your passive incomes it wouldn t be a big problem, sure you d maybe have to skip that fancy Saturday dinner but you would still be able to pay your bills and buy your food. You would have time to focus on fixing whatever went wrong with your income sources. The Different Levels of Financial Independence This is why knowing your expenses is important, to achieve the first level of financial independence you need to first know how much your passive expenses are, that s the first goal, to get 6 P a g e
financial security. When you have passive incomes that are big enough to cover your basic living costs then you can feel secure, in the event of a job loss you can still take care of your family and have time to find a new job and get back on track. On the next step we re going to add active expenses and this step is basically to have enough passive income that it covers all your expenses including the lifestyle cash, the money that you spend to enjoy life. This is a nice level to be at because here you can really enjoy life the same way that you are doing today but with the option of quitting your job, maybe you want to start working half time or maybe use the extra money for a lifestyle increase. You can choose for yourself and if something would happen to your job or whatever, you d have the same income anyway. Awesome! The next level is the one that I want to help you all achieve, financial independence, basically everyone can reach this level. To this level we will add development and investment money, this means that we cover the whole active income that we started off with when we started investing and building our passive incomes. This means that we can continue to grow our passive incomes every year and that way increase our living standards year after year. After this we actually have some higher levels on the ladder. The levels of Economic freedom and ultimate freedom, the levels that start with Ferraris and mansions and goes on to luxury Yachts, private islands and private jets. This will take some totally different levels of engagement and skills. The thing is that I m pretty confident that I can teach almost anyone (that really wants to) how to achieve the first three levels of financial independence, me and my partner even developed a course that will explain how to start creating passive income at the lowest risk possible. We will show many different ways and examples of how to make passive income and I will even tell you about mistakes that I ve made. We will explain how to avoid those same mistakes and that will save you a lot of money and energy. I will explain how a normal factory worker achieved financial independence in less than 6 years, and believe me, I made a lot of mistakes and you will benefit from letting me tell you my story and experiences. If you also want to get more security and financial independence in your life, hear us out. The amount of income needed for all the different levels is very different from family to family, but the rules are the same and the system is the same as well. INVESTING Most people think about investing as buying something at a certain price and then selling it at a higher price. That s a risky game to play because you don t have any control of what the future price of something will be. The only thing you can do is an analysis of the market and then pray that you were right. That s how I started investing a long time ago, and that is how most people invest their money. Maybe you buy some stocks in some company that you like and then pray that the price of the stock will go up. Some people even do this with borrowed money, they think that real estate prices always goes up so they borrow money from the bank and buy a condo or a house and then wait for prices to go up a bit and then sell it one or two years later (known as flipping), what happens if the market turns and all of a sudden goes down instead? Doesn t it sound more secure to have investments that you can control a bit better? The way that we will teach you to invest your time and your money, you don t have to worry about if the market is going up, down or sideways. When you know that your returns will come no matter how the market is going I promise you that a lot of worries will go away. We know that the world of investing is scary to most people, no one wants to lose money and most of us are very scared of losing. We will help you get over those fears and help you get started with baby steps in the beginning. Sometimes you 7 P a g e
can start making passive income with tools that you already have and we will explain how. With the right base knowledge you will feel more confident in your financial decisions and your courage will grow. Just to be clear, there are no such thing as a risk free investment but with just a little different way of thinking you can lower the risks a lot. Also, this is not about giving instructions of exactly what to do but more about showing a way to have some control instead of no control. Do You Want to Become Financially Independent? If your answer to that question is yes, then you need to learn how to create passive incomes. The key to financial independence is not in the flipping business, it s not in buying low and selling high, it s not in some get rich quick scheme, it s not in some hot stock tips and it s not in winning the lottery. While there are people who maybe short term get rich from all those things, the odds of them happening are close to ZERO and even if you re one of the lucky small percentage, chances are that you would lose it all again because the lack of financial education. A steady stream of income every month might seem boring at first if you compare to seeing your tech-stock skyrocketing in value but if you try to think realistic I think you can see that it s not very often you get into a stock at the perfect time and more so to do it on a consistent basis. Think about it, which way sounds more safe, more controlled and more consistent? Does it sound like something for you and your family? If I told you that I m sure I can teach basically anyone how to grow passive incomes big enough to live on, would you listen? GOALS/DREAMS Think about this for a moment, would it be valuable for you to have an extra 200 a month? How about 500 or 1000? Would you feel some doors opening in life? How about the amount of your full family income? Would you do something different today if you knew you could choose to go to your job or not? Some people love their job and maybe would still work even if they had the possibility to quit and still have the same amount of money every month but there is always a chance that for some reason a job is lost. In that case it might be comforting if you still have the same amount of money flowing to your account every month anyway. Some people maybe think it s OK with the job situation but wouldn t mind having Fridays off, and maybe also some nice sports car to cruise around in, maybe some more choices in life, the freedom to choose what to do, when to do it and with whom, maybe some extra time with the kids? Have you ever looked in some travel magazine or car magazine and when you saw that really nice car you instantly felt that (this is my car), you can visualize yourself putting your ass in those Italian leather seats hearing the engines sound and feeling the rapid acceleration when you push the accelerator to the floor. Then in the next second you tell yourself that what you just let yourself think about will never happen. We deny ourselves things that we really want because of the situation we are in today doesn t allow it, but what about in 5 or 10 years? If you can have 2000 extra per month in say 5 years, maybe you want to keep everything the same with the job and house situation but maybe you can drive a really nice car to work every day, or why not spend those extra money on a really special family vacation every year. If you had 24000 to spend on a vacation I bet it would be awesome! 8 P a g e
If anything is Possible then what would your Life Look Like? The answer to this question is very, very important because that s going to be your reason for doing something about your future. If your reason is strong then you will stick to your plan. If your dream is to finally tell your boss to fuck off and start sailing the world that s what you will need to think about every time things get tuff. When we feel a bit low on energy humans tend to spend more money or something else (maybe health, if we reward ourselves with sweets) to make ourselves feel better. An old colleague of mine said a very funny and true thing to me ones at work, people say that you spend more money when you have time off from work then when you re working but that s just bullshit, when I stay home for some weeks I feel happy and start to appreciate the smaller things like reading a book, or having a walk in the forest, after just one day at this place (at work) I need a new laptop!. I think a lot of us maybe eat that chocolate bar, buy that new handbag or drink that bottle of wine because we have low energy and feel we need to reward ourselves to feel a little bit better for the moment. What I want to say here is that you will need a reason to keep on growing your passive incomes because at some point down the road you might feel low on energy and it would feel better to spend the money right at that moment instead. We all need a reason to do things, we eat because we re hungry, sleep because we are tired and go to work because we need money for the month. Your reason is what will keep you from quitting because your reason is too valuable to quit from. WHAT TO DO? Now that you have some new basic knowledge you might think let s go out and get some passive income and start the journey towards your new goal. That s what I would have thought. The thing is that that s what I did, I went out and spent a lot of money on different things and investments, and I also lost a lot of money because I didn t know what I was doing. I had one of the most important things, courage, I wasn t afraid to take action or to lose money. The other important thing that I didn t have, is education, I didn t know what I was doing. If you are going to buy a new house, do you think that a valid point is to be sure that the people building the house have the knowledge and experience of how to build one correctly? That sounds like a good idea, doesn t it? If you are going to have surgery, do you think that the person doing the surgery should have a proper education before you let them cut you open? Ehm, yes! So before you go out and invest your money, should you get some real education from someone who has done what you are about to do? Maybe it would be a good idea to get some inside info, tips and warnings of the kind of mistakes I made so you don t have to do the same mistakes. This is not rocket science, anyone can learn and apply and depending on dedication become financially independent in everything from 2-10 years. I m not talking about some crazy unbelievable things here, it s not about making millions, buying your own island and private Jet. That s possible to, but the first step is to just get to the stage where you have all your passive expenses covered. One thing I know about you now is that you already know a lot more than the average person about investing just by reading this short E-book. 9 P a g e
stay tuned in at www.passiveincometogether.com/blog 10 P a g e