As most of you might know, passive income, also known as after-burner income, refers to the income which you do not have to work physically for. Examples of Passive Income are:
1. Dividends (from business and shares)
2. Interests (from CPF, saving accounts, fixed deposits)
3. Realised Profits of Capital Gains from stocks,funds,bonds, properties etc.
4. positive Rental income (after deducting expenses and mortgage)
5. Currency Exchange Gains
6. Profits from Business
How many of the above passive income sources do you have at the moment? Many of us desire to have passive income - because it sounds cool to have money coming in without having to work for it. However the majority of us do not have enough passive income to stop working.
In Adam Khoo's book "Secrets of the Millionaire" he depicted 4 stages of finanical independence, all of which are related to the essence of passive income.
Stage 1: Financial Stability: a six months' worth of savings with no passive income
Stage 2: Fianncial Security: Passive income is just about sufficient to cover your basic expenses (like food, transport etc)
Stage 3: Financial Independence: Passive income is sufficient to sustain your current lifestyle
Stage 4: Financial Abundance: Passive income is sufficient to sustain your desired lifestyle (tour round the globe, throw birthday parties with celebrities etc)
I hope by now you would have understood the concept by now that financial independence is really a function of your passive income and your expenses.
Financial Independence = Passive Income - Expenses, and has to be greater than 0.
Which Stage are you in currently?
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