One of the secrets of the wealthy is that the rich does not work for money. But they let money work for them. And the way to let money work for you is through the power of compounding interest and also through investing in passive income generating assets. In one of Robert Kiyosaki’s book, he mentions that there are four types of assets than can generate passive income for you.
But first, let us define what an asset is.
It is simply means:
“Something that you acquire that puts money into your pocket.”
An example would be investing in rental properties that generate consistent income per month through rental income. Another example would be building a systematized business that which works with or without your supervision yet consistently produces profit.
On the contrary, if something you acquire takes money out of your pocket, then it basically means it is a liability. A lot of people think that a house is an asset, but in reality it is a liability. Your house needs constant maintenance, repairs and staying at home guarantees your use of more electricity, food, cable and the like, thus increasing your monthly bills! Same goes with a car, gadgets, and other luxury “stuffs” that may look nice on the outside, but is basically costing money on the person acquiring it.
(Though these liabilities can be shifted and be made an asset, but that is topic for another blog article)
Your spouse can also be an asset or a liability. It depends if he or she puts money or takes away away from your pocket. So choose your spouse wisely.
Going back to the main topic. There are four types of assets that one must (slowly) acquire to build a substantial passive source of income.
These types of assets are classified as:
- Property or Rental Assets
- Portfolio or Liquid Assets
Read on as we dissect each type of asset.
1. Property or Rental Assets
This one is the most common passive source of income. Acquire properties and rent them out. Each month you are almost guaranteed to receive a predictable source of income.
The only disadvantage is that it takes courage, involves huge amount and due diligence (location, market price, rental rates, etc.).
2. Portfolio or Liquid Assets
This one is the easiest. As long as you have CASH, you can invest in liquid assets. These are (but not limited to) stocks, mutual funds, bonds, cash deposits, insurances with cash value and the like.
With as low as P5,000 (or even P1,000) you can already open a mutual fund account and by doing so, you can be an indirect business partners with Henry Sy (of SM, BDO), John Gokongwei (of Universal Robina, Cebu Pacific), and Tony Tan Caktiong (of Jollibee).
Are basic goods whose value appreciates over time or with the law of supply and demand. Such are gold, other precious stones, oil, painting, wines and even cryptocurrencies can be considered as such.
The thing with these assets is that their value can be very volatile. These assets can be collected by pure hobby or when you already have a surplus of money and you want to diversify your funds.
This is still the best asset you can invest in. Find a demand, create product and solve their problems. Systematize your business so it will operate without you. Finally, duplicate and use leverage to grow and scale your business.
The challenge with this one is that, not all people are equipped with the skill of being an entrepreneur.
We are all hard-wired to become employees through our school system. Thus, if one wants to pursue the path of entrepreneurship, it may be an uphill battle (and not everyone is willing to do that).
However, as technology progresses, starting a business now is less riskier. One of which is starting an online business that can provide a pretty good lifestyle which is often referred as the lifestyle of the NEW rich.
So, there you go!
These are the four different types of assets you can choose from. Better yet, acquire each type and create a sustainable source of passive income. How about you, what type(s) have you acquired already? Hit us a comment and share your experience below.
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