How The Passive Incomes of The Financially Free and The Rich Compare?

The Passive Incomes of The Rich Are Many Times Their Lifestyle Costs

Based on financial means and status, people can be classified into active income dependent, those who have earned financial freedom and the rich. If we observe carefully we can discern that the passive income streams of these three categories vastly differ. This short post, a slide literally, examines how the residual incomes of the three compare and provides insights and links to profound concepts like what is passive income, what is financial freedom and how to become rich. You will find tight correlation between ideas discussed here and those found in Robert Kiyosaki’s most popular and classic work, “Rich Dad Poor Dad”.

How the Incomes Compare

How the Annual Incomes of the Three Categories of Citizens Compare
Passive Incomes	Active Income Dependent ($)	Financially Free          ($)	The Rich          ($)
Interest	100	24,000	4,000
Dividends	-	58,000	10,00,000
Royalty	-	3,500	-
Rent	6,600	-	2,00,000
Sum of streams of passive income	6,700	85,500	12,04,000
Active, Occupational Income	48,000	18,000	6,00,000
Total Income	54,700	1,03,500	18,04,000
Present Lifestyle Expenses	54,000	78,000	3,00,000
Surplus	700	25,500	15,04,000
Investment for generation of passive incomes in future	-	23,000	14,00,000
Surplus Income lying in savings account in bank yielding low interest	700	2,500	1,04,000

Following conclusions can be drawn from a study of the above table:

1. Active, Occupational Income: The active income of the  wage earners (not financially free yet) is almost the main and only source of income. For the financially free individuals the active income constitutes a small portion of the total income. The richest individuals inspite of their riches often have large active incomes; they are not lazy.
2. Passive Income: Passive Income of the regular wage earner is miniscule. The financially free enjoy significant passive income, that slightly exceeds their present lifestyle expenses. The rich have huge passive income streams that far exceed their lifestyle expenses.
3. Surplus and Investment of Surplus: Common folks have small and insignificant surpluses that can be invested. The financially free fave modest investible surplus for generation of future passive incomes. The rich have and invest significant sums every year to further augment already existing high levels of residual incomes.

How to Become Rich

Becoming rich is a process involving various steps.

It is advantageous to start early. When young and strong it is better to work hard as well as smart and earn copious sums of active income, keep lifestyle costs low, avoid splurging, save and make prudent investments. These investments generate passive incomes. Once the passive incomes exceed lifestyle costs, it means one has attained financial freedom. Financial freedom is the first and major steppingstone on the path to real wealth and riches.

Suggested Further Reading:

• Passive Incomes Empowers Pursuit of One's Dreams and Passions
• How To Generate Passive Income?
• Passive Incomes of Financially Free and Not Free Compare?
• Low Lifestyle Costs and High Passive Income Lead to Financial Freedom
• How to Attain Financial Freedom?
• How Will My Lifestyle Affect My Children?

Conclusion

There are three classes of public, namely the wage earner, the ones who have attained financial freedom and the rich showing vast differences in their passive income streams and investible surpluses. Keeping lifestyle costs low, investing to generate residual incomes leads to financial freedom and eventually to significant riches.

What will give me more profit after 5years? Investment in properties or in stock market or in mutual funds?

Your question has two major elements and the second major element another three sub options, as follows:

1. Investment Timeframe - Five years
2. Investment Options:

• Property
• Stock Market
• Mutual Funds

All value investors, including myself, do not consider property as an sensible investment option for the simple reasons, it is:

• Illiquid
• Return on investment by way of rent is unjustifiably low
• Capital Appreciation benefit is available as in shares and mutual funds but the quantum is more dependent on luck.

The investment options left are only stock markets and mutual funds, but before I address them let me take-up the investment period element.

An investment horizon of five years is very short. twenty years is minimum and about fifty years is ideal. Only when you invest for such long time, the law of ‘Miracle of Compounding’ will have the opportunity to work for you and make you really rich and wealthy.

Coming back to investment options of stock markets and mutual funds, both are good. Direct stock market investing requires special knowledge which you can acquire from the book, Intelligent Investor - The Investors' Bible and you may also kindly visit my blog,Value Investing.

As far as mutual funds are concerned, they are the best choice for those who do not wish to or do not have the time required to study stock market investment. One of the problems with mutual funds is that they charge a heavy fund management fee. There is yet another version of the mutual fund called an ‘index fund’ or ‘exchange traded fund’ which mirror popular stock market indices like the S&P BSE Sensex or NIFTY 50, where the charges are low and very reasonable.