A good candidate for the best-known Robert Kiyosaki Quote is: "The poor work for money; the rich have money work for them." I am going to make the assumption that most readers of this are familiar with his writings, and will ask the following question, what is your ?
What's the going value for the sale of a business? Isn't it often the projected two years' profits of the business being sold? Okay, then. If you were to ask me what my personal net worth is, according to Robert Kiyosaki, I would have to take the net earnings I made last month from the business I have been building recently, and multiply it by twenty four. That simple equation would be my personal net worth, since I currently have no additional passive sources of income to add to this.
That certainly disqualifies a lot of the usual contributors, like for example the equity in my home. Let's say I own a $150,000 home with a $100,000 mortgage, thus giving me presumably $50,000 in value. I have just cut myself out of that $50K. Why in the world would I do that?
Answer: it keeps me honest. This used to be a radical concept, but those with a reading of the housing bubble ought to understand that a $150,000 home today might not be worth $150,000 tomorrow. Why would I include in my current personal value the proceeds of a home I likely have no intention of selling anytime soon? So let's not count it.
By contrast, let's pretend that I have owned my internet business for the past year which is netting me $2000 per month. In this example, the business I am building is structured in such a way that, after one year, half of my sales is generated actively (perhaps through initial enrollments in a service program of some sort), and the other half is earned passively (maybe I had the foresight to develop an auto renewal program for this business.) What does this mean for my net worth?
Clearly there would be exceptions to this rule, but if I were to sell my business, I could not presume that the buyer had yet developed the selling skills that I have developed in building my business, so we cannot use the active income as a factor. The passive income is all the buyer could count on. So, here is my
Monthly Passive Income (50% of Total Monthly Net of $2000) $1000
Times 24 months 24
Total $24,000
Doesn't that make it even more tempting to my $50,000 home equity on top of that? I would triple my net worth with a stroke of a pen! But again, were talking honesty here.
There are a couple of lessons to be learned from this:
1) The $2000 total income, or even the $1000 passive income, is a more profitable and safer investment strategy than what we are typically advised to do. If I were to take my sale proceeds and invest it in a dividend product that guaranteed a 10% annual return which I cashed out, I would earn $2400 that year, or $200 per month. Considering that $1000 was coming to me with no more effort than the dividend product would, I would have been a fool to sell this business.
2) We are woefully ignorant about money. A 10% return is considered pretty aggressive by most investment strategies. If the inflation rate is 7%, leaving us with a 3% growth difference in real purchasing power, the traditional advise of buy, hold, and diversify is going to be insufficient. A 25-year old making $50,000 per year and putting 10% away in a retirement account will have accumulated $377,006.30 today's dollars, giving that person $11,310.19 per year to live on, in today's post inflation dollars, at the age of 65. And this sample person is substantially more diligent in preparing for their retirement than the average American is! Using the 24-month rule and only calculating for passive (investment, in this case) dollars, this person would have a of $22,620.38. Pretty ugly!
I would strongly encourage you to pick up any of Robert Kiyosaki's books and give it a thorough read. Personally, I still have a long way to go in the pursuit of having money work for me, but I will master this! My future, and the future of my family, depends on it.
Busymom has been scouring the net for a viable and ethical way for a novice like her to develop passive income on the web. She now has the resources to enjoy time raising her four children. Learn more- http://busymomseasyincome.com/
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