How to shift your livelihood from active to passive income (Part 2) – Nairametrics

…continued from last week’s article and you can read the first part here

2.The Active-2-Passive Income Conversion System

The only way to move your life from active income to passive income is to build a passive income that overtakes your active income. To do this there are two steps you need to take. The first step is to determine the percentage of your current income that you want to convert to passive income. And the second step is to know the resources you need to build a solid passive income. Below I explain each of them in detail.

i. Determine the Percentage of active Income you want in Passive Income

The ultimate passive income goal is to convert 100% of current active income into passive income. The problem is only a few people can achieve this from the get-go. Thus the goal is to take a certain percentage of your current active income that you can comfortable converting to passive income. And build it up to 100% from there. We usually recommend that a person starts with converting 30% of their active income. And then build that up to 100% if they can. Not everyone can build 100% of their active income in passive income. Thus there are two types of passive income to build. The first is Necessity Passive income. This is passive income that can take care of basic necessities. And constitute 50-70% of your current income or whatever your current expenses are. And the second type of passive income is the Lifestyle Passive income. That is passive income that can sustain your current living standard. And constitute 100% of your current income. To build necessity passive income you need cash reserves of about N1.5m-N3.5m per Year. And to build lifestyle passive income you need cash reserves worth 3.6million -7million each year. The goal here is, to begin with what you can and build that up over time.

ii. Know what You Need to Build Solid Passive Income

You need five things to build a solid passive income. And these five things are all critical for your passive income journey. The first is Motivation. The second is a safe investment pathway. The third is start-up capital. The fourth is Investment vehicles. And the fifth is mentoring.

  • a. Motivation

No one just wakes up and wants to embark on a passive income journey. People build a solid passive income when they have the right motivation to do so. Whether this motivation is achieving total financial freedom. Retiring early. Having peace of mind in retirement. Pursuing passion, or funding a business. You must recognize your motivation and stick with it.

Having a strong motivation will help you stay focused on your dreams and will make it easy for you to prioritize your passive income goal. Remember, only top priority goals get achieved. And you must value your own freedom enough to want to sacrifice for it.

  • b. A Safe Investment Pathway

There are two paths to building a solid passive income. These two pathways involve trading speed for safety and safety for speed. The first pathway is the Risky Investment Pathway. This pathway trade safety for speed. It chooses investment vehicles that produce high returns in a short time but have a high chance of losing your money. It is sometimes called the “Maybe” investments. And is common with average and poor people looking for quick wins. If you are ok with losing some part of your money. And going up and down in life a few times. Then this pathway is for you.

The second pathway is the Safe Investment Pathway. This pathway trades speed for safety. It chooses investments that preserve invested capital and produces high returns over a longer period of time. This pathway is common with the wealthy and those with a wealthy mindset. If you value peace of mind and economic safety. This is the pathway for you. Choosing speed over safety or safety over speed is a decision you must make throughout your investment journey. But the worse time to choose speed over safety is when you are just starting out. It rarely pays off.

  • c. The Startup Capital

Every passive income investing requires start-up capital. That is the amount of money you need to set up a solid asset base. This amount can be big or small depending on the percentage of your active income you want to convert to passive income. Typically a cash reserve of N1.5m-N3.5m is appropriate for creating the necessity passive income. And N3.6million – N7million is appropriate for Lifestyle passive income.

  • d. The Passive Income Investment Vehicle

There are broadly two types of Passive income Investment vehicles. The first is the Hands-off Passive Income Investment vehicle. And the second is the hands-on passive income investment vehicle. The hand-off passive income investment vehicle is any vehicle that once set up can run on autopilot. This means that these investment vehicles do not require ongoing maintenance and investments to thrive. Once set-up, investors simply enjoy ongoing passive income cash-flow without stress.

The hands-on Passive income investment vehicle on the other hand requires ongoing maintenance and investments to thrive. That is you need to occasionally infuse cash into them to keep them going. The key to passive income success is to have both the hands-off and Hand-on Investment vehicles working for you.

  • e. A Passive Income Mentor

When you are trying to achieve a goal for the first time one of the smartest things to do is to get someone who has experience in that area to guide you. So if you are not yet familiar with passive income investing, chances are high that you need some help. This is where your passive income mentor comes in. The role of your mentor is to help you kick start your passive income investments. Keep you focused on your journey. And Guide you until you achieve your passive income goals. With this kind of guidance, you are sure to skip through mistakes. Be protected from adverse market conditions, and achieve your passive income goals with speed.

So these are the five things you need to build a solid passive income.

Now that you know what you need to build solid passive income. Let’s now look at the final component which is the Passive income time wasters.

3.The Passive Income Time Wasters

There are certain activities that waste, delay and postpone your passive income goal. Below are a few of them.

i. Looking for a Magic investment List

The most common request I get from people looking to invest for passive income is this. Grace, send me your investment list. First, I do not send any such list because such a list does not exist. Different people need different lists so why maintain a generic list for everyone. Besides all the investment list you need is out there in the open. The problem is you cannot make sense out of them.

Since 6000 years ago the traditional investment list has pretty much remained the same. They are no exclusive list for anyone. And everyone including Google draws from the same list. The only new investment that has shown up in the market since then is Cryptocurrency which is still struggling to gain mainstream acceptance.

So rather than look for a list look for an effective investment strategy. The secret is to a solid passive income is the creativity of an investment strategy. And the ability of an advisor to develop sound investment strategies. And apply these strategies, to the right investors and at the right time.

ii. Investing under financial pressure

The tendency for most people who have small savings and want quick returns is to look for high-risk investments that can produce quick returns. While this may seem like a quick plan, it never really works. These investors end up losing more money. And it may take some 2 or 3 times losing money to get the message. Investing under pressure is a big time waster

iii. Not having a Freedom plan

The only way to build solid passive income is to have a freedom plan. That is an investment plan that actually leads you to freedom. What most people have is an investment plan that leads you to returns. Especially erratic returns that you cannot depend on. This kind of plan only benefits the investment company and not you. To achieve financial freedom, you must work with a Freedom plan and focus on investing for financial freedom.

iv. Eating investment proceeds while still building a passive income.

A lot of people invest but only a few make meaningful progress. The majority of people go in investment circles. They invest eat the investment proceeds. And repeat the process all over again next year. You can never build solid passive income this way. To build solid passive income you must focus on reinvesting your proceed until you establish your passive income.

v. Postponing the work until the last minute

Building solid passive income takes time, discipline, and commitment. And the only way to build it cheaply is to start on time. Most people leave passive income planning until the last minute. After all else has failed. This is why we still have a large population of broke investors in retirement. If you leave passive income planning until the last minute. Chances are high you would not make it. The smart thing to do is to build your passive income first and then you can pursue other goals.

The truth is the only way to achieve total financial freedom is to transfer your livelihood from active to passive income. And the passive income that can set you free is the economy-protected passive income. To build this kind of passive income you need cash reserves. So if you have cash reserves and want to kick-start your passive journey, send an email to [email protected]

About author

Grace Agada is a recognized leading Financial Expert on Nigerian Soil. She is a Renowned Speaker, Author, and Column Contributor in Punch Newspaper, This Day Newspaper, Vanguard newspaper, Business Day Newspaper, Leadership Newspaper, The Tribune Newspaper, and Online Platforms like Nairametrics, Proshare, and Bellanaija. Grace is the author of “The Multiple Income System, “The Passive Income Investing System”, and “The Wealthy Business Blueprint”. Grace is on a mission to raise the next generation of Wealth Creators who are passionately creating wealth for themselves, their families, and the nation. Grace has been featured on BBC Africa. Business Day TV. Inspiration FM. and inside Naijatv. And has consulted for Numerous Top Organizations, Company Directors, Senior Executives, and Top performing working Professionals.

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