How to Shift your livelihood from Active to Passive Income

Monday, March 08, 2021 / 12:10PM / GraceAgada / Header Image Credit: Forbes

Oneof the greatest things you can do in life is to transfer your source oflivelihood from active to passive income. Active income is any income thatrequires ongoing work to thrive. And Passive income is income that can thrivewithout work. These two sources of income are the two main ways people earnmoney in the world. However, active income is stronger than passive incomebecause all wealth is created through active income, while passive income is saferthan active income because all wealth is preserved through passive income.

Nevertheless,not all passive income is created the same and neither can all thrive in aneconomy. To clarify, there are two kinds of Passive income. The first is the economyimpacted passive income and the second is the economy protected passiveincome. Economy impacted passive income is passive income that goes up anddown with the economy. This type of passive income requires ongoing maintenanceand investments to thrive. And this is the worse type of passive income todepend on. If you want financial peace of mind you must depend on the secondtype of passive income. The second type of passive income is the economyprotected passive income. This is passive income that can thrive in anyeconomy. They are safe, stable, and predictable and can relieve you of thepressure to keep working for money. The economy protected passive income isthus the only type of passive income you should fully depend on. When you reachthe stage in your life where you have this kind of passive income. You are saidto have achieved total financial freedom.

Unfortunately,only a few people know how to get to this point or even create this kind ofpassive income that sets them free. Most people are just investing and hopingthat they will build solid passive income someday. Yet hope is not a goodinvestment strategy and these people never really achieve their goal. I knowthis because research shows that Out of 100 people that invest only 1 personwill become wealthy. 4 will become financially free. 15 will have some savingsput aside. And a whopping 80 people will be dependent on other people, onpension, or flat out broke in retirement. The one big question to ask yourselfis where will you be at the end of your career and how do you propel your lifefrom an active income to a passive income?

The answer is simple, and it is threefold.

Thefirst thing you need to do is know your Passive income profile. Second, youneed to know how to move your life from active to Passive income. And third youneed to know the passive income time wasters.

The Five Stages to a Solid Passive Income

The First Stage - The Regular Income EarnerStage

Allpassive income is created from active income. Thus, you need active income tocreate passive income. The more active income you have the more passive incomeyou can create. That is Big Active income equals Big Passive income, while smallactive income equals small passive income and so on. This means that a solidpassive income is created by first focusing on building a strong active income.Spending time on investing when you should be spending time on increasing youractive income is the key to delaying your financial freedom. Your investments passiveincome will only kick in when you have large amounts of active income.

The Second Stage - The Saver Stage.

TheSaver stage is the stage where you save a big part of your income consistentlyeach month without fail. Saving is critical for investing and is the seed forbuilding solid passive income. According to W Clement Stone, if you cannotsave, the seed of greatness is not in you.

Thankfully everyone can save but most people choose not to save. They chose tosacrifice savings for other items in their lives. And call it a savingsproblem. No one has a savings problem. People have priority problems. And ifyou must build a solid passive income you must make passive income investing apriority for you.

The Third Stage - The Income Loss EmergencyProtection Stage

Protectingyourself from the possibility of a sudden income loss is one of the things youmust do if you want to build solid passive income. Thus, Emergency protectionthat secures your income for 12-24months is ideal to always maintain financialstability. Without this kind of emergency protection, there will be investmentdisruptions. Financial distractions and in most cases a complete abortion ofyour passive income journey. Emergency protection is thus critical if you mustbuild solid passive income. When you achieve emergency protection the next step

Foryou is building a solid cash reserve.

The Fourth Stage -The Cash Reserve Builder Stage.

Thecash reserve builder stage is the stage where you build extra cash reservesbeyond your emergency finds that is dedicated for investing. And free fromfinancial distractions. Having this kind of cash reserves is important as ithelps you engage in short term and long-term passive income investing withoutstress. You can put away money for a long period of time if it offers the rightbenefits. And still move on with your life. A typical cash reserves forbuilding solid passive income should be at least N1.8million-N4.5million per year.This amount can be bigger or smaller depending on the passive income goal you wantto achieve. The Cash Reserve builder stage is thus what truly qualifies you asready to build a solid passive income.

The Fifth Stage - The Passive IncomeInvesting Phase

The passive income investing phase is the phase where investing takes place.This is the phase where you build the asset base that funds your solid passiveincome. It comprises setting clear passive income goals. Choosing the right assetbase. And setting up your passive income investment vehicle. There are twostages involved in the passive income investing process. The first stage is theinvesting stage. This is where you fund the asset base that produces yourpassive income. And the second phase is the Cash-flow phase. This is where youearn passive income from your asset base. Thus, building a solid passive incomerequire years of investing

beforeYears of earning.

Whereveryou are in your investing journey you can begin to take the steps that leads toa solid passive income. The key is to recognize where you are and take the nextstep that moves you forward.

Previous Articles by Grace Agada

1. How to Make Your Life Work as Planned This Year?

2. Three Skills toCultivate to attain Financial Independence

3. How to Move From One Income To Many

4. How to Invest for Wealth and Financial Success

5. Building Solid Income Security from Uncertain Income

6. Thoughts on How to Build Solid Wealth