Financial Freedom is a term that really came into existence when authors Robert Kiyosaki and Sharon Lechter published their best-seller Rich Dad Poor Dad back in 1997. However, that same term, which implies the importance of being financially literate, has been used by thousands of articles, gurus, coaches, and videos on the internet as a vehicle to promote the idea of making money without actually doing much.
Financial freedom does not mean that you stop working. While passive investing requires less work than active investing, you still need to spend your free time researching new investments or starting your next income opportunity. Because of this, there are plenty of activities you can work on between investments that can help you increase your wealth.
Financial Freedom Still Involves Work
As an investor, your goal is to become financially independent, so you get to choose how you spend your time. Wealthy individuals spend a lot of time going to seminars, visiting real estate meetups, and networking with other affluent investors. The difference is that they do not have to work for money anymore; they get to pursue their passion projects instead.
After each investment, many passive investors spend time researching their next investment. They may spend time expanding their company or serving as an angel investor. Depending on how passive income is earned, they may want to spend their free time writing books, creating online courses, or providing some kind of value to others in some way.
Build Your Passive Income First!
In general, passive investing involves a buy-and-hold strategy. You purchase or invest in an asset with the expectation that you will hold it over the long run before you sell it. Index investing is one of the most popular examples of this investment style.
Because you do not have to spend time buying and selling your investments, you can use your time for other productive activities. Whether your goal is to retire early or develop intergenerational wealth, there are other techniques you can use. The following ideas can help you create new sources of passive income when you are in between different investments.
1. Create a Book or Online Course
Investors learn a lot about their career field, hobbies, and investment choices over the years. It is most likely that those experiences have granted them key insights that other people want to learn as well. All of that information can be packaged into an online course or book.
Remember Rober Kiyosaki and Sharon Lechter? This is exactly what they did. With Rich Dad Poor Dad they continue to make money over the years and their work has helped them become thought leaders in their field. Eventually, those activities lead to speaking events or new opportunities as well. At the very least, these books and courses will help you bring in a consistent revenue stream.
2. Invest In Rental Property
While renting an apartment building or home requires a bit of work, it can bring in a significant amount of revenue as well. Other than renting a unit to tenants, you can also buy a property to rent. For Instance, while the average host made just $924 per month in 2019, this figure is mostly based on people who are only renting out a spare room on the side. If you are renting out your second home or multiple units, your earnings can quickly increase.
Once you sell your real estate property, you will be able to realize any gains your investment has made over the years. While your tenants were paying your mortgage and expenses, your unit increased in value. After you sell the property, you can put those funds into your other investments.
Unless you hire a property management team or work with a property investment firm, managing a rental unit will take time and effort. If you want an easier option, you can try Real Estate Syndication, in which several investors combine their skills, resources, and capital to purchase and manage a property they otherwise couldn’t afford.
Syndications are usually structured either as a limited liability company or a limited partnership. In these cases, the sponsor is called either the managing member of the general partner. The investors are limited partners or simply members.
Since we have ample experience with real estate syndication, we prepared a FREE eBook that properly explains how it works. You can download your copy here.
3. Try Peer-to-Peer Lending
During your free time, you can also focus on building your way to financial freedom through peer-to-peer lending. This lending style is when individuals make loans to borrowers through a third-party institution. Basically, you get to take on the role of the bank. This means that you get to earn interest from loan payments just like a bank does.
Like bank loans, peer-to-peer loans also involve risk. If the borrower does not repay the loan, you will lose your investment. You can reduce this risk by lending to multiple people and diversifying your portfolio. According to Investopedia, P2P lending is also known as “social lending” or “crowdlending.” It has only existed since 2005, but the crowd of competitors already includes Prosper, Lending Club, Peerform, Upstart, and StreetShares.
4. Do Your Best To Become a Better Investor
If you want to have financial freedom, you have to do your due diligence. As you wait for your next investment to appear, you can also become better at making passive investments and wealth building. To start with, you should determine your motivation. Are you interested in capital preservation, financial security, or building your net worth? Do you need a steady income stream or appreciation? What is your risk tolerance?
You also need to become talented at screening deals. To find the right fund or company, you have to figure out your investment window, risk tolerance, and need for cash flow. You will need to consider the company’s experience, industry knowledge, and geographic market. In addition, you should look at the potential return on the investment, management fees, private placement memorandums (PPMs), and exit strategies. A defined exit strategy is important because you need to have a way to withdraw your initial investment and profits.
Remember that every investment has risks. Because of that, you should clearly understand the market, industry, legal, management, and company risks involved in your investment.
Once you decide to invest, you need to be fully committed. Most passive and private investments are for the long run. If you plan on withdrawing your money within five to seven years, you should choose a different investment type.
You should also be prepared to walk away from a prospective investment. Many investments sound good initially, but the financial statements do not make sense. If you want to continue wealth building, you have to do your research and be ready to move on when an investment turns out to be a lemon.
I have Financial Freedom. Now what?
What if you truly are a passive investor and have no other investments left to make? In that case, you can start enjoying an entirely different style of living. As a passive investor, you can spend your days relaxing on a Caribbean beach or hiking the Camino in Spain. Passive investing allows you to take control of your time and your future.
While most people imagine wealthy investors driving a Ferrari and sipping margaritas on a private yacht, this is generally not the case. Once you are done building your wealth, you will quickly realize that upgrading your vehicle from a Lexus to a Ferrari will not make you any happier. Instead, savvy investors spend their money on financial goals that make their families happier. They focus on activities like traveling and taking time off instead of just buying a more expensive car or a fourth house.
Once you make so much money that you never have to work again, you will also realize that vacations are only fun for part of your time. You have to have something interesting to do. Even world-famous investors like Warren Buffett spend most of their time learning and exploring new topics. Each day, Buffett spends five to six hours reading five newspapers and hundreds of pages of corporate reports. Bill Gates is said to read an average of 50 books per year!
Like Buffett and Gates, some investors decide that they love running a business and keep working, but they do work on their own terms. Other people pursue passion projects like starting a charity, writing a book, or learning a language. The magic of being a passive investor is that you get to determine how your time is spent. Rather than waste your day in an office, you can devote your time to activities that bring you happiness instead.
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