The passive income crossover point and wealth preservation

in #life3 years ago

The concept of a passive income crossover point is borrowed from this blog. After a certain point your passive income meets or surpasses your living expenses after taxes. Another very valuable concept I understand is that it is important that an investor take care to allocate their wealth in such a way that they do not have to worry about outliving their investments.

What is the function of assets?

When people are young, healthy, at the top of their game, active income is where it's at. Active income is maintained by continuously adding value to people, organizations, projects, etc. If we are speaking of Steem the active income is unlocked by adding value to the Steem platform either by generating content which viewers value, or by writing code which increases the utility value of the platform, or by curating content which provides a sorting functionality which increases the utility value of the platform by saving content consumers time.

Simple ways to add value are to find ways which save people time, save people money, or which add valuable information which is useful. If Emily knows something relevant for Doug which Doug does not know and shares that with Doug, then it is Emily who added something of value to Doug's activities. So even posts on Steemit about "here is the latest update" or "I just discovered" can have great value. The point being that active income is a result of adding value and even just being entertaining to people, making people laugh, adds value. Simplified down to it's most succinct express, to add value be useful to others.

Assets are that which you own which is useful, valuable, etc. An asset can be a useful resource, a useful person, but the keyword to understand what an asset is, it's "useful". Anything useful or valuable to others can become a "productive asset" which means it can generate income. For example precious metals are assets because people find them valuable and are likely to keep finding them valuable. Gems are also assets which people find valuable and will likely keep finding valuable. Productive assets different from regular assets in that these productive assets can be rented or are able to be leveraged in some way to generate income. Real estate, a farm, a profitable company, these add value to society while simultaneously paying out income to their owners.

Assets vs liabilities

Wealth can be measured by making a chart which on one side contains all assets owned by a particular individual. On the other side of the chart are all the liabilities owned by the particular individual. This is a basic cost benefit approach, but it can allow a person to find out how wealthy they are not in dollar terms but in "real wealth". On side A would be all that an individual owns which can be used to generate income or which can appreciate in value over time with development, while on side B is all the costs, the debts, the liabilities. Any individual can then use the basic formula of dividing total liabilities by total assets to receive the "debt ratio". This is useful information for an individual to know because by knowing and tracking their real wealth they can learn how to improve and grow their wealth.

Assets include that which individuals are born with and that which people can acquire. Anything an individual is born with still counts as it can be leveraged to generate income but this is active income. Additionally just being born gifted is not enough as it takes constant development and self improvement to generate active income indefinitely. Passive income is what individuals generate as well or in addition to active income in most cases until they retire. So for instance a person working whether blogging on Steemit or for a salary is actually generating active income by improving themselves and applying themselves. Their assets could include their knowledge, their inner drive, their relationships and or ability to work with others, there are many different ways but in general if an individual has to do something to get something in return then it's an active investment on their part.

If an individual adds value to themselves over time then it makes it easier for the individual to generate active income a lot of the time. Pursuing and gaining knowledge, building relationships and teams, staying healthy, all contribute to improving the individual and add value to self. This adding value to self is the process by which an individual can develop their capability of adding value to others. It is well known that eventually health fades do to aging, the memory may not be as sharp, the eye sight may become dull, the physical fitness begins to fade, but this is why it is critical for an individual to understand the importance of passive income. If there comes a time where an individual may have to be less active or where things fade due to aging then passive income may be the only remaining source.

Measurement

Measurement is a key concept for obtaining and maintaining wealth. Evaluating stocks requires a deep understanding of financial ratios. Evaluating anything requires measuring. Financial ratios are a way to evaluate the financial health of something, whether it be an individual, a company, or anything. Examples of ratios include P/E ratio, and when these ratios are combined to form a model then an investor can screen opportunities with precision. Assets which have good ratios often appreciate over time, but admittedly this requires discipline. The easiest way is to contact a qualified financial advisor after doing your own research and screening your opportunities to compare what you can accomplish on your own to what advice you can receive from they who are qualified to give it.

Wealth preservation

The key concept behind all of these topics is wealth preservation. We are born with wealth and we can leverage that wealth while we are alive to generate more wealth. Many people try to generate as much wealth for themselves during their lifetimes as they can. Wealth has a natural tendency to dissipate over time unless steps are taken to preserve that wealth across time. Material possessions do not last, and knowledge which is useful in 2018 may not be useful in 2048. Wealth preservation is about finding ways to store and distribute wealth generated so that it can be passed down to future generations. This could be as simple as parents leaving a home to their children or as complex as Gates setting up a foundation to cure diseases.

  • Figure out where your crossover point is. It is different for everybody. One formula to help determine if you've met it is to
  • Figure out which activities can allow you to add value to yourself and figure out which activities are liabilities. Avoid activities which can negatively impact your wealth.
  • The formula introduced by Doug Massey age*net worth/yearly expenses. If your score is over 1000 according to this formula then you're set for life. Of course this is just a formula but it provides a math based means of determining when you've got enough to live free.

References

  1. http://www.thediv-net.com/
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Yes, passive income and wealth preservation is the key.
Although, it is hard, when we are living from one bubble to another.
Yes true (from that blog) dividends are more stable than stock prices.
I'm waiting on some crash, huge correction, to get me some good dividends paying blue chip. :-)

For those who are somewhat financially educated, passive income is the pinnacle to free ourselves from the mundane 9-5 job. However, all passive income requires tons and tons of active work and risk initially. Many people often just look in awe at Jeff Bezos, Warren Buffet, or Bill Gates without really thinking about the sacrifices they made. Whether we should accumulate capital and give up our current consumption really depends on the type of lifestyle we choose and the goals we have in our lives.

True wealth is health, happiness, and time.

Not all people use their time wisely at the same level. We even wasted our time often. We spend a lot of unnecessary work that will not take us forward, or we are told that we do not have much time in a day when we are dragged from one bad habit to another and we feel sorry for ourselves. You can learn a lot about a person by looking at how a person is using their time. We can do a data analysis about these people again. Like we did in the rest of the world. Everything consists of simple statements. It is as if those who analyze these well wish for the future. @dana-edwards

Nice piece. Tony Robbins wrote a fabulous book called Money: Master the Game that goes into these topics in great detail. It's a huge book that is the result of his access to many of the top money managers in the world, including Ray Dalio, John Bogle, Carl Icahn, Kyle Bass and many more. He distilled their investment wisdom into a book that is fantastic but also very long (656 pages). He wrote another book called Unshakeable this is about a third of the size of the first book and therefore more easily digestible.

What we also have to factor in, at least as Americans, is that Social Security is a Ponzi scheme that will not continue in its current form for too much longer because the money simply won't be there to fund it. So for people who are at least 10-15 years away from retiring, our retirement plans should not count on Social Security. We also have to consider that our life expectancy is increasing and that we may need to set aside a substantial amount of money to cover medical expenses.

I highly recommend the books that Robbins wrote. I've read dozens of books about investing and they are among the very best.

Thank you for this information about active and passive income @dana-edwards, I hope I really add some value to Steemit platform, I wish you a nice day.

Most passive income ideas will either generate poor returns or consume lots of your time (not very passive!). So the question is…what really works?

Passive income is all about momentum. Compound interest is all about momentum. You can get the most passive income if you have a lot of something to rent or a well made contract. Mining contracts for example allow you to buy passive income.

I understand thx dear edwards

I'm deleting my comments.
Being down voted by Content censoring whales sucks
and hurts minnows who only earn 0.01 per post/comment anyhow
This whale BS will kill STEEM imho

@dana-edwards Only safe way to create a passive income is by investing funds in trusted sectors. Only safe and guaranteed way to create a passive income is to not be greedy and realize that you can only make a small fragment of your initial investment.

Those who look to make millions overnight, putting in zero effort, end up scammed. And I do not feel pitty for them.

What we have achieved in the wealth that Steemit did was owned by it? Can we spend it independently?

If you are considering many vibrant individuals, you already deed after that than a financial advisor. You may even have dealings subsequent to several. If you mood every portion of confident that your financial plot will meet your unexpected term and long term goals, congratulations! Sometimes, however, you may atmosphere unsure roughly your object. This can happen along with shout from the rooftops conditions or intimates situations fiddle gone. Like past medical advice, it may be a comfortable idea to mean a second instruction from time to time. @dana-edwards

I agree fully with this part of "Steemit, a person who is trying to write or work a blog for a salary, gets a real income by improving himself". thank you for this valuable sharing.

Remember that assets to a bank are liabilities to its customers, therefore retail assets for a bank are consumer loans and relation cards. The deed of them is to generate allowance for the bank. There is a long-standing liveliness that personal ad lending is more profitable than retail lending, but it is more volatile and typically shorter-term. Consumer lending typically has a unapproachable margin.

Human. So we are lacking. We have borrowed living. Human. Community. Country. To the Earth. Universe. An entity that owes you a living. This debt comes to her from her body. Life calls to her. For a world that is livelier, more righteous, less persecution, exploitation, lie, hypocrisy. The roots of morality are in life. You say you have a life that suits you, life. People are looking for a life that suits their self in thousands of years of world adventure.. @dana-edwards

Yes true (from that blog) dividends are more stable than stock prices.
I'm waiting on some crash, huge correction, to get me some good dividends paying blue chip. :-) update and resteemed.

As said by Doug Massey, a "scalable business" is not passive income at all. In order to scale a business, you have to work to make it bigger.

great post about passive income. thanks for sharing ♥ following you ♥ keep it up

Passive income is the goal of a lot of people I guess whether they are young or old. Definitely that a lot of young people don't have anything to build off of so they tend to be more active earners since they need to build something to compound off of. Sometimes a lot of active earning can lead to a hopefully passive life :).

I have never thought so deep what passive and active income is, thanks to your post I know this now, thank you for knowledge I got @dana-edwards.

that's a great post about passive income.

You made a great point about creating content that adds value to people's lives. Thanks.

Thanks for sharing.I like your writing very much.I am 23 years old.I asked me what I am doing for my future when reading your post.I'll think about it a bit and start to do something.Again Thank you :)

Timeless advice that has built the fortunes through the ages.

We can also take advantage of AMCs and I will tell you a little bit.
An asset management company (AMC) is a company that invests its clients' pooled funds into securities that match declared financial objectives. Asset management companies provide investors with more diversification and investing options than they would have by themselves. AMCs manage mutual funds, hedge funds and pension plans, and these companies earn income by charging service fees or commissions to their clients.Typically, AMCs are considered buy-side firms. This simply refers to the fact that they help their clients invest money or buy securities. They decide what to buy based on in-house research and data analytics, but they also take public recommendations from sell-side firms.

Passive income is quite possibly one of the most important and central ways that the rich get richer. It’s how you detach your ability to earn from the time that you do have in a day. If you’ve ever heard the term, making money while you sleep, no truer words have been spoken. With passive income, you do make money while you sleep. You also make money while you’re awake. It’s automatic and simply keeps coming in.

It's how people support themselves in retirement as well and it is how people survive the slow season.

interesting approach. I agree with the fact that the most important investment is investing in yourself. that is, to learn something new, to acquire knowledge in order that they could be used to enrich themselves. excellent article bro

A topic close to my heart... I like the simple equation at the end - tbh I didn't need the definitional reminders of what assets and liabities are.

You might be interested (you might not be, you write like someone that's financially sorted already) in J.L Fisker's Early Retirement Extreme - in which he presents a very sophisticated analysis of different types of asset (financial/ physical (health)/ saleable skills/ social networks - and the importance of investing in each.

It's a great read.... Fincancial wealth is but one form of capital that we can draw down on in our 'twilight' (or in my case early afternoon), years

Yes, for passive income you must always improve yourself and try to become your best version. Working on such things like discipline can really help to achieve passive income, because you are less affected by bad habits and you find it easier to stay dedicated towards achieving goals. Focusing on activities that bring you wealth is a good idea! :)

Thanks for the tips and recommendations. This is difficult to understand )) But thanks to such articles , I try )) Good night ))

I just wanna say if you dont know share it. What does it do ? Everything about to know yourself.

In Russia people think only active income is a sign of a person's abilities and skills, if a man has passive income, he is considered to be lazy and not available to do something great. What a wrong theory!
If a person could organize passive income that cvers his needs, he is much wise and cleverer than the 1st man who works like a bee.
If there is a choice for an employer whom to give a job - to a lazy man or to an active one, the right variant is - to the lazy one, because only he will be able to do everythhing faster to be free in the shortest period of time, and he will create the best and easiest way to do it because he doesn't like to work)
I doubt that passive income has something connected with laziness (though maybe) but that it's closely connected to wisdom and a hgh level of intelligence - no doubt!
Delegation is a great passive income on Steemit)

It's about more time and freedom or about keeping busy?

what exactly?