Do you think that the world today is flooded with so much money as it is perceived to be? What if you’re wrong?
Have you considered yourself rich after buying a house, a car, or a retirement bond? The truth is any investment becomes valuable if this can be converted into cash and generate purchasing power.
In this blog post, we want to clear out all the misconceptions about what true wealth is. We will help you figure out assets from liabilities. It’s not your car, house, or even your retirement bond. They are not assets for some reasons.
A Brand New Car
Most people thought of a car as an indicator of being rich. It’s a big mistake. Why? Cars always depreciate in monetary value. When you buy a car today, you can expect that after a year its monetary value could depreciate to at least 50% from its original purchasing amount. If you don’t have a solid financial foundation, you should delay buying a new car. You can use the car depreciation calculator tool to assess the value of your car.
A Residential House
It’s an old thought that your residential house is the best asset you can have. But pause for a while and try to imagine the cost you need to shell out for your house such as taxes, utilities, maintenance, and insurance. Do you think your house is generating any income for you every month? If the answer is ‘no,’ then obviously your house is not an income-generating asset.
We’re not saying, however, that you should not buy or secure a house for your family. What we want to emphasize is that a house is not considered as an asset.
Many financial experts may be telling you that having a retirement bond is one of the best ways to have a sustainable financial future. Don’t get this wrong. It’s still a good idea to invest in retirement bonds as part of your financial portfolio. However, there are risks involved, including inflation, credit, and interest rate.
Investing in bonds through mutual fund companies means lending your money to the bond’s issuer. When the money you have invested reaches its maturity date, it’s the obligation of the issuer to give the money back to you with its corresponding interest being computed periodically.
Here’s the risk. Today’s financial environment has shown that there’s only a little room for the rates to decrease. It means that the supposed interest rates of your bonds would dramatically surge in the future. It implies crisis because once the supposed rate goes up, your bonds will in return go down. Bonds with longer term are at the greatest risk of keeping pace with inflation. Your bond issuer may also not be able to make timely payments.
So what should you do?
Learn how to make passive income
Most wealthy people invest in things that will surely give them direct cash. They always have an intense desire to invest in assets that can generate them the so-called “purchasing power.” The best advice is for you to invest on things that will generate passive income. There are 4 options you can learn here.
Real Estate Investment
Even if we mentioned above that your residential house might not be a good asset, there are real estate investments that can still give you direct cash and can intensify your purchasing power. One good form of investment in this category is rental properties, which could turn out as a regular source of income.
There is another form of investment – real estate investment trusts (REITs). If you don’t want to face the burden of managing your own apartment or condo unit, then go for this one. You can earn as much as 90% as dividends from the taxable gross income. REITs are passive income generators because they will help you earn money every month.
This is one of the easiest ways to have a passive income. You can earn money from this investment through dividends. When the company earns profit, there’s a portion of such income that will be divided and distributed among its investors. This investment gives you more room for flexibility with your earned dividends – either to buy more shares or to convert this into cash.
It’s advisable that you stick to the stocks that offer higher dividends for a period of at least 25 years.
What are index funds? They are mutual funds that are associated to a specific market index. This form of funds is used to determine the performance of the index they are tracking. They can be a good source of passive income for some reasons.
First, there’s no need for you to manage your index funds; that’s why they can give you residual profit. Second, their securities don’t usually change unless there’s a change in the index composition. If you’re one of the investors, there’s less risk. Why? You’re doing nothing, plus there’s only a lower management cost. And third, the lower turnover rate makes the tax of your index funds becomes more efficient. Investing in index funds is a good form of residual income.
P2P or Peer-to-Peer Lending
Peer-to-peer lending exists for about 10 years now. It’s a good choice if you want to add another financial backbone into your portfolio. There are already known P2P lenders today, like Prosper and Lending Club. They allow investors to fund certain loans starting at $25 capital.
What about the returns? As practiced over the years, the profit is promising and the more you invest in this form of passive income source, the more you can earn money. The usual range of returns is from 5% to 12%.
Maybe all these years you’ve thought that those fancy cars and extravagant homes will make you rich. You should ask yourself twice or thrice if those assets are giving you passive income.
Financial facts have already revealed that cars and homes are not the sole indicators of being rich. The economy’s volatility should remind you that you have to spend your money wisely and that you have to invest for the future. Go for the real sources of a passive income. If you want to become financially stable and secure, then choose one of financial sources that will lead you to financial freedom. After all, your decision today is what will set you financially free in the future.