In my last posts, I introduced you to the passive income ratio, which refers to the amount of passive income generated in relation to your expenses. The more passive income, the easier it will be for you to reach your financial independence ratio.
Now, when you’re building your Financial Independence Ratio, I’ve got what I call a Passive Income Qualifier that helps you determine how active or passive any business venture or investment is.
This is how it works: You analyze the passive potential of any opportunity or existing investment by answering the following questions, ranking each one on a scale of one through 10, one being totally active and ten being nearly or completely passive:
- Is it providing immediate and regular cash flow (versus paying off someday or trickling in unpredictably)?
- How much of your personal time is required to manage the investment? How much of it can you delegate?
- How sustainable is the cash flow? How much longevity does it have?
- Can you manage the investment from anywhere in the world?
- Does the cash flow have the ability to be increased over time?
Now add up your total score. Anything with a score lower than 20 should be either optimized or eliminated. Anything between 20 and 40 should be optimized to maximize the passive potential. Anything above 40 is a great passive investment.
The goal is to manage your income so that you can be free of the confines of a typical job – so you can live your life as you wish. It takes focus and dedication and work to get there – but you’ll see how much it’s worth it. Passive income leads to an active way of life where you’re not tied in by a job.
Some people, however, choose to stay stuck in a trap of active income. I explore that in my next post.
In the meantime, if you’ve decided to increase your passive income ratio, how are you going to go about it? I have plans for you to follow, but have you thought of doing this before? I’d love to hear from you. Thank you for sharing.
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