How to build Wealth part 4 - Passive and active incomes/side hustles

Hello LeoFinance. Today we are going to look at How we can start to build wealth. This is the second post of the series that will be uploaded every Thursday for the next 2 more weeks. The goal is to help provide some information on how to start building your own personal wealth from start to finish (click on links to read from step 1). There's nothing exciting about what we'll talk about, in fact, it's all very boring and the hardest skill required is the discipline to resist putting your money into rubbish defi magic bean projects, forex scams and other stuff where you are sold a hope.

Authored by @silverstackeruk

In this series, we will look at how anyone can start to put a plan together, set goals and achieve your goals. We're going to set the main goal to be retirement but your goals can be everything you like. These posts will not be long to keep the information bite-size and easy to digest.

1- Get Prepared - link 2- Emergency fund - link 3- Safe long term investing - link 4- Passive are active incomes/side hustles 5- Diversification 6- Retirement

4- Passive are active incomes/side hustles

I added this as step 4 because after you are debt-free, have an emergency fund and are already investing in low-risk investments such as an index fund tracker, you will be able to start and focus on side hustles where profits can be filtered into more investment are passive incomes. You can have side hustles (active incomes) from any stage, infact the earlier the better as this could help you pay off debt and save your emergency fund faster. The reason we dont look at passive incomes until this stage is simply because it takes alot of money to make money from nothing. Investing $500 into a passive investment that produces 5% per year would only pay you out $0.48 per week. You'd be better to use that $500 to invest into yourself with the hope you'll earn alot more back.

Creating a side hustle and investing in the right passive income can make a really big difference to your wealth. I would say it will be almost impossible to become a millionaire if you're depending solely on your 9-5 wage to get there. You could always find the next big 1000x token and have $1000 invested but chances of that are slim but you can greatly increase your odds by using your time and skills.

By creating a side hustle for yourself, you are able to earn more money to invest . You could continue to save weekly from your pay check into something safe and use your side hustle money for something a little more risky. Nothing to crazy but maybe time to dip into single stocks, cryptos and maybe even a little defi farming.

a- Blogging Being here on HIVE, we are all aware that we can produce content to earn HIVE crypto. By the time i had found STEEM in early 2017, i had no debt and a 5 figure stack of silver bullion so i was bullish from the get go. I dont think i need to explain much here. We all know, you produce good content, you interact with the community and you stay consistent and you'll do well on HIVE as a side hustle. Im sure there are people that can make a living from HIVE but not that many and even less during a bear market. You write you earn, you allocate those funds how you like. You can power up, convert to hive-engine tokens are cash it out.

b - Find your passion and do it We've all heard this before but you should do what you love. I like silver and investments, I like the numbers, I've always liked numbers. Not money, numbers. I feel comfortable with them for some reason so I produce silver content, I started a few crypto fund tokens. If you like working on cars, buy an old banger and fix it up to resale for a profit. If you like model planes, source all the components you need to build custom planes and sell them as kit packs, each 1, 1 of the kind. If you like drinking beer, start a microbrewery and sell it to local pubs/bars. If you enjoy walking, advertise yourself as a dog walker and get paid for it.

If you do what you love, it's much easier because you are already knowledgeable about that subject. This gives you an instant advantage and if you can think of a way to monetize your skills and knowledge, you'll be going in feeling confident going into your venture. With my silver passion and $500, I could buy a melting kiln and start to produce silver bars or rounds, I could buy collectable coins/bars from secondary markets and haggle to get them at very good prices and then resell them on eBay, I could start a youtube channel, I could create a silver-based forum that has subscriptions for exclusive content, access to marketplaces, etc. There are alot more things I could do but there are a few examples just to show you that you can do alot of stuff from something you think of (collecting silver) as boring.

Follow your passion and the money will follow

c - Passive incomes Passive income should really come at the later stages of building wealth because investing is better for growth and creating passive income should be viewed as creating a wage for yourself. That's my point of view.

By the time you are thinking about creating a serious passive income, you will have already build up a nice net worth and to be honest, everything under 6 figures is really not worth it and 7 figures would be ideal. $100,000 earning 5% per year is only pay you $95 per week with non held back to protect against inflation.

You might be thinking, I can earn 30% per year on defi farming but that's not really passive income because you are required to harvest and maintain your LP tokens. It's easy to earn while you sleep but you what to be earning if your in a coma for years. You can passively earn crypto and stable tokens on lending platforms like Nexo and Celsius and the returns are good but what will be the state of these companies in 20 years time as they are replaced by newcomers. They could be the banks of tomorrow and highly regulated and safe are regulations could put them out of business or make it very hard for them to operate.

My recommendation (not financial advice) would be to do the boring thing. Stick it all into an index tracker. You could go for one that only invests into stocks that pay dividends, you could go all into the SP500 and remove a certain percentage every year and make that your yearly living wage.

Let's go out there and say you've amassed an investment portfolio of $1.5 million in 20-30 years time. It sounds impossible but compounding is a hell of a drug and once the ball gets going, it only gets faster. So you have $1.5 million, your mortgage was paid off and the kids are moved out and grown-up. You remove 4% from your $1.5 million and put the rest into an SP500 tracker fund and that your job is done for the next 365 days. The 4% you removed would be $60,000 and would provide you with a pre-tax income of $1150 per week. This is enough for anyone to live in pretty much any country in the world. If you are smart, you can use capital gains loopholes to your advantage to reduce your tax bill are even void it out if the stock market has a bad negative year.

Fast forward 1 year, log into your broker account, remove 4% of your shares and wait till next year. Basically, after you invest, you have 1 job once time per year. You have to sell off 4% of your shares and withdraw that money to your bank account. From there, you can set up a weekly/monthly are even a daily standing order to your spending account so it still feels like you are getting paid.

You might be thinking what is it with 4%? 4% is not a key number to aim for, the important percentage is 3%, the average rate of inflation. The SP500 has a long term running average of around 7%. You basically reinvest the first 3% each year to ensure that your passive income will produce an income that will not reduce spending power the longer you use it. Of course, the stock market will not earn a solid 7% every year but your good years will cover your bad years over the long term and there's no fear of the SP500 not existing 50 years from now.

Lets take a look over the next 30 years to give you an idea

There are many ways to produce passive income, you could buy rental property's and let an agent handle them for you and send you a monthly cheque. You would be required to take inflation into consideration as rent prices increase every few years and the value of your property should increase as well. Property is pretty safe until you get a bad tenant that does $10k in damages but im sure this does not happen that often.

There are many ways to earn passive income but as with everything, research and understand what you are doing is very important. Earning 20% from defi farm sounds pretty cool but would you put $500k are more into a crypto farm that could proof away all your money? You go for something that's never going away.

Roundup

I sorta burned all my time over talking about passive incomes so round-up is found what you love to do, something you enjoy and then tries to monetize it. Use these extra incomes to invest and save away more money faster. Do this for years, your side hustle could turn into a full-time business, you never know. After many years of compounding happening with your investments, you should have a nice net worth, ideally the target you set for yourself in the beginning. Invest this money into something ultra-safe, reinvest to counter inflation is required and that's it, your done. You are free to do as you like, chances are you'll continue your side hustle as a hobby, haha.

I hope you have enjoyed reading through this 4th part of this series.

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