The point: Creating passive income is a way to generate money to cover your living expenses while freeing up your time. It usually requires some initial time commitment but once you setup a passive income stream it continues to bring you money without additional (or minimal) time commitment.
Who is the book for: People who value their time more than money and want to figure out a way to maximize the time they have to focus on their interests rather than working a traditional 9-5 for 40 years.
Key points:
Baby boomers might not need 2 million dollars saved up to live off in retirement but they certainly need more that what many of them actually have saved. A 2016 study showed that the mean retirement account savings of people in the 56-61 age bracket was one $163,577. According to the Government Accountability Office (GAO), around 29% of households age 55 and older have neither retirement savings nor a pension.
The author believes this method is flawed because they feel 1. Saving $2,000,000 is hard; you can only cut your expenses so much 2. You can’t control the stock market 3. You could experience a divorce, death, long-term disability, lawsuit or medical emergency 4. Working for 40 years is not appealing 5. You could die and not ever reach retirement 6. You could become ill and not be able to fully enjoy retirement. She further states “…ain’t nobody ever gonna save $2,000,000 by cutting back on their daily Starbucks and investing their money in mutual funds. It’s going to take a lot more than that.” But if you cut out a Starbucks latte ($6) for a month (20 working days) that would save $120 a month or $1440 a year (just saying).
Although I do agree that without a certain income level saving up 25x your spending can be difficult to do. Most advocates of the FIRE movement tell you to do what you can to increase your salary and cut back on your spending as much as possible. Despite what the author says there are many people who are living examples of saving up a huge nest egg by cutting expenses and increasing their income but it is true that most of them do develop some alternate source of income (real estate, their own business, side hustle, etc.) This book advocates for developing income sources that might take an initial sum of money or investment in time but then generate ongoing income with minimal effort.
The book poses this question: Time or money: what is your most valuable resource? If you could have more money or more time, which would you choose? A study found that most Americans valued money over time but people who chose time over money were happier and more satisfied with life. This question goes back to the book Your Money or Your Life where it reminds us all that time is a finite resource and we each need to decide how much of our limited time here on earth we are willing to give up for money (and by extension things, standard of living, etc.)
Notes: There are many ways to create passive income and in some cases developing more than one income stream is possible to really generate a monthly income that frees up your time.
I don’t want to go into detail of them all but the categories the book covers are Royalty Income, Developing Online Courses, Software, Franchising, Minerals, Vending Machines, Investing, Generating Ads Revenue, Drop shipping and Owning Rental Properties. Each type has pros and cons. The main thing to think about is her Factors of SCRIMP. The author states that you won’t have to scrimp once your build a passive income empire.
The factors are:
- Scalability -Can your idea/product be produced or offered en masse?
- Controllability and Regulation -How much control do you have over it?
- Investment -What is the upfront time or capitol investment in Stage 1?
- Marketability -Is there a need for it?
- Passivity -How much work must you do to maintain the income stream in Stage 2?
Figure out which factors are most important to you and order your priorities as then decide which is the best passive income stream for you to pursue first. Work on developing multiple streams as you have more time and money to do so.
Keep in mind:
- Building passive income is hard work. There is no such thing as a get-rich-quick-scheme.
- You need to make sure your finances are in order. If you have that down, then passive income is the natural next step.
- You need to free up time or capital in order to develop passive income streams.
The techniques in the book aren’t fail-proof. Anyone can try them, not everyone will be successful. Develop your passive streams of income before quitting your job or making lifestyle changes.
Related Readings:
Millionaire Fastlane by MJ DeMarco. You can get rich quick (in 10 years) by building a business and a stream of income that builds up
Your Money or Your Life by Vicki Robin. Time is our most valuable asset and if we squander the money we earn by chasing possessions and always wanting more, we end up having to work longer and use up more of our limited time generating income.