Investment Workshop 18: Why Everyone Needs Passive Income

It’s no secret that this blog has attracted its fair share of haters. “Oh, you’re so biased!” they moan. “You’re not being fair to homeowners!” they complain. “You must hate housing!” For the record, we don’t hate housing. In TV and radio interviews we try to repeat this as much as possible because it’s a misconception that we hate housing, or we think housing is bad as an investment. In fact, we’ve owned property in the form of REITs before. We DO, however, think your primary residence is USELESS as an investment because it doesn’t give you passive income.

Passive Income Helps You Retire

The whole point of the Personal Finance industry (and, by extension, Personal Finance Blogs like this one) is to teach you how to manage your money so you can stop working. A happy retirement is the end-goal of every Finance Planner out there (or at least, the ethical ones). After all, if we were all guaranteed a well-paying job, never had to worry about job loss or health issues, and were OK with working until we die, then why would you care about your finances?

But that’s not the world we live in. One day we’re all going to leave the workforce one way or another (preferably by choice), and it would be super-duper if when that happened we didn’t have to worry about starving in the street.

So we here at the Millennial Revolution teach people how to do two things: Save their money, and Invest it to give you passive income to retire on.

Because when you’re working, saving does this…

It converts the income stream you get from participating in the workforce into a nice, fat Pile Of Money. And you do that because at some point, you’re going to want to do this…

That’s what investing does. It not only grows your Pile Of Money when you’re still working, but it also turns it into a Passive Income Stream. Savings and Investing are what allow you to retire. If you only do one but not the other, it doesn’t help.

Housing Doesn’t Give You Passive Income

But wait, the haters say, why do I need to learn the complicated stuff about Saving and Investing when I can just buy a house! A house is a FORCED SAVINGS PLAN. And a FORCED RETIREMENT PLAN. Or something.

Sorry to burst your bubble, but nope. Because this is the typical cash flow of a typical indebted homeowner. First you get a job, then a house. But since you can’t afford a house, you have to get a mortgage.

You then work for many many years to pay off that mortgage, converting your debt into a single undiversified asset, your Paid-Off House.

And then…what?

A Paid-Off House doesn’t really change your day-to-day life, other than not having to make a mortgage payment every month. You can’t flip your boss off and quit because you still need your Employment Income to put food on the table, so what was the point?

And yes, you could sell the thing and turn your Paid-Off House into a Pile Of Cash, but even if you do that, you STILL have to figure out how to invest it and turn it into a Passive Income Stream. So even if you manage to play the housing game perfectly, you’ll have to learn the exact skills this blog talks about eventually. The only difference is whether you do it now or whether you do it 25 years from now.

And while real-estate investing (i.e. buying a rental unit and becoming a landlord) is a valid way to generate cashflow in retirement, that doesn’t mean you can jam everything you have into 1 house, rent out the basement and call that a retirement plan. Diversification, as in buying multiple, relatively inexpensive properties in different locations to hedge your bets is important, as well as being aware of how much work it actually takes to be a landlord. Anyone who says it’s easy or thinks property managers will fix everything is a big fat liar.

The way I like to explain it to people is that learning how to Save & Invest is like learning a martial art. Mastering a skill like that takes time, discipline, and lots and lots of practice, but by the time someone has invested the time and the effort into becoming proficient enough to kill someone with their bare hands, they’ve also acquired the discipline and self-control to not use that skill recklessly. People with black-belts tend not to go home and murder their spouse in a drunken rage. The time and discipline required to acquire that skill acts as a built-in self-control mechanism.

Gambling, on the other hand, whether putting all your money on an individual stock, or an individual house doesn’t have this. Even if you’re right, those gains are, statistically, attributable to blind dumb luck. Yet it makes the investor believe they’re a genius when they totally aren’t. That’s why people who come into too much money too fast tend to lose it all. Mike Tyson made $300 Million dollars over his career, yet had to declare bankruptcy years later. Michael Jackson somehow died broke, and he had more money than most 3rd world countries!

If you’re handed money, either from housing gains or a lucky stock pick, without first acquiring the skill and discipline to know what to do with that money, you’ll eventually end up squandering it.

Remember, the point of having money isn’t to own a giant house.

The point of having money is to be able to have enough passive income to live your life with freedom.

Onto the next section!

Go back to the previous section


WORKSHOP TOOLS

How much does it cost to participate in the Investment Workshop? NOTHING. Because that's how we roll. All we ask is that you sign-up using the following affiliate links to keep it free forever:

For Canadians:

1) Questrade

2) Passiv

For Americans:

1) Vanguard

2) Empower



Disclaimer: The views expressed is provided as a general source of information only and should not be considered to be personal investment advice or solicitation to buy or sell securities. Investors considering any investment should consult with their investment advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decisions. The information contained in this blog was obtained from sources believe to be reliable, however, we cannot represent that it is accurate or complete.


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