Too Much Month At The

End Of Your Money?

Part 4

written byHenry Biegacz
posted on

I want to dispel a myth right from the start.

You cannot get rich by saving your money! You will never become a millionaire that way.


The only guarantee I can give you is that you will lose money that way.

I know since childhood you’ve always been told to save your money for a “rainy day”.

That’s horrible advice and I’ll show you why right here.

In 2016, inflation was 2.1%. That means that at the end of 2016 you would need $10,210 to buy whatever you would have bought at the beginning of 2016 for $10,000!

The average interest rate that banks and savings institutions were paying out in 2016, was 0.05% (1/2 of 1%).

Had you deposited $10,000 in a savings account at the beginning of 2016, you would have had a total of $10,050 on December 31, 2016. Your purchasing power and value dropped by $160 ($210-50=$160).

If you kept that up for a lifetime, the hole you would be digging would just keep getting deeper.

Okay, so after you set up a budget, got out of debt, set up an emergency cash fund, what should you do for long term financial growth?

You need to create passive income.

Passive vs. Active Income

“To get rich, you must be able to make money while you sleep” Warren Buffet

Here’s another myth you’ve probably also heard since childhood “The way to make money is to get a job and work hard at it so you’ll earn pay raises and promotions”.

It’s not bad advice per se; you just won’t ever get rich that way.

Every ultra-wealthy person did not get that way through their day job. They became ultra-rich through creating passive income.

Although most of them had regular jobs, they were eventually able to leave those jobs and live very well off their passive income.

To someone who has only ever had a regular job, this thought can be very intimidating. They’ll be thinking that they don’t even know where to start with passive income.

Active Income

Active income is typically income you “work for”. It’s the income that comes from your job.

When you’re engaged in your active income, you’re trading hours for dollars. Since the number of hours you can work in a day is limited, your active income is also limited.

Like most people, the active income you earn will go toward your every day expenses and, depending on your budget; something left over will go toward savings or investment.

That will become the source of your passive income.

Passive Income

Passive income is money you earn that you don’t “work for”. It’s usually money that comes from investments.

For example, money earned on a savings account is passive income in the sense that you didn’t physically work for it.

Passive income can also be from dividends on stocks you own, rents from tenants or income from someone else’s business where you are an investor.

The common denominator is you didn’t “work” for the money and you earn it even while you sleep.

Compound Interest

Compound interest has been called “the eighth wonder of the world”.

Essentially compound interest is interest you earn on previously earned interest.

In our earlier example of the savings account: At .05% interest on $10,000, you will have earned interest of $50. Your balance would now be $10,050.

At the same rate of interest, your earnings for the next year would be $50.25. The extra 25 cents represents the interest earned on the $50 you earned the previous year.

The numbers in the previous example are small, nut don’t be fooled. Compound interest is very powerful over the long term.

What if your rate of earnings was 8% (and that’s very possible even today) instead of .05%?

If you saved only $5 per day for fifty years, you would have a total of $91,250. If you invested that money instead in a blue chip stock at an 8% average annual return and re-invested all the dividends, at the end of fifty years you would have a balance of $1,032,786. That’s all due to compounding.

Incidentally, blue chip stocks have averaged a 10% annual return over the last one hundred years!

I hope that example got your attention. You only invested $5 per day which you can do by skipping your daily visit to Starbucks and drinking the free coffee at work.

Creating Your Passive Income

Total Money Magnetism

There are numerous forms of passive income that you can pursue. They include:

• Investing in stocks, bonds or other commodities like gold or silver.

• Investing in real estate.

• Creating your own internet based business.

I will go into each of these in greater detail in the future.

But first, I’d like to let you know about the pitfalls of passive income that you should avoid like the plague.

1. Expectations set too high

Creating a passive income will take work, time and effort.

You will be starting small, at least until you get your feet wet. You won’t be investing big money because you’ll want to limit your risk.

Don’t expect to make gobs of money in a short time.

Building a passive income stream will require plenty of thought, planning and patience.

This is a long term venture. Your earnings will compound over time through work and re-investment of your profits. Be patient. You will get there if you just follow the proven formula.

Start small with your passive income investing. Don’t risk everything on a quick roll of the dice.

“Make haste slowly” applies in this case. Learn as you go and build your knowledge base.

2. Giving up too soon

Your initial returns from your passive income ventures will be small. Expect that.

In the beginning you’ll be putting in a good bit of time and will only receive mall returns.

Do not become discouraged. The large returns will build up over time.

If things aren’t as great as you initially expected, just keep following the right steps and you’ll find great success.

3. Avoid the “shiny object” syndrome

When choosing a model for your passive income creation, you’ve got many choices.

It’s far too easy to become distracted and lose focus. Don’t be charmed by the latest income fad and divert from your original plan.

What will happen is that you’ll start on numerous projects and will complete none of them.

Instead, create your goal, focus only on it and keep moving forward with your original plan.

Do not become the “jack of all trades, master of none”.

4. Don’t become a perfectionist

It’s not important to be perfect. Internationally famous marketer Dan Kennedy said “Good enough is good enough”.

The key to your success will be to take massive action. Get started with your plan. You will build unstoppable momentum.

If something you’ve done earlier is glaringly wrong, just go back and fix it now. But, don’t wait to start; you might never start.

I’ve heard many highly successful people say that when they first started, they made huge blunders upon blunders. But, they never stopped to be perfect and they became hugely successful just the same.

5. Treat your profits as capital to re-invest-rather than an opportunity to spend

When dealing with passive income, remember, the power of compounding. Money makes more money. Let your money work for you.

Re-investing even small profits in the beginning will yield large returns further down the road.

If you splurge and blow all your profits, you will never leave the starting blocks and your chance for huge compounding returns will be lost.

Don’t let that happen to you.

You get truly wealthy by re-investing your profits.

6. Holding on to a dead investment

Sometimes things simply don’t work out exactly how we would have liked.

In spite of careful research, planning and execution, we might fail. Thomas Edison failed hundreds of times before finally succeeding.

You have tried everything you could think of to make your venture successful and it still didn’t happen.

Just know that these things do happen. It’s not the end of the world. Just move on from that bad experience, learn from it and find a new passive income vehicle.

There are many vehicles to create passive income and each of them have all worked for someone.

Go out and find the one that will work for you.

While the information I’ve provided here is invaluable, it’s only an outline of the process.

To get more in depth step by step information on how to rid yourself of money worries, click the link below for more information