How to Make Safe Passive Incomes By Increasing Your Earning Power
How to make safe passive incomes was the first question that I entertained when I started out to achieve financial independence. While in the process of uncovering the answer to this question, I got introduced to a term called “earning power.”
Developing an understanding of “earning power” lays the foundation for us to make better financial decisions. This is what I mean by “better.” As I began to comprehend how earning income has a natural growth curve to it moving from wage earning, the financial infant stage to interest earning, the financial adult stage, I started using money as a tool. No matter if I earned income from a job or a business venture, I understood, that money earned is a tool to leverage for getting more money.
My financial paradigm switched from being a consumer, someone who constantly spent the money I earned, to instead investing my earnings into vehicles that would increase my earning potential.
The degree of power that you have to earn income depends on how many pipelines leading to money to which you have access. Hence, by strengthening your earning power, you protect your income from all threats of financial ruin.
Now let me answer the question, “What is earning power?”
The term “earning power” refers to the degree to which you are capable of generating income. For our purposes, when I use the word “earn” I may mean to earn wages, to earn interest on money, or to exponentially grow your money outside of investing it the traditional way.
Understanding the 4 Phases to Increasing Your Earning Power
There are four phases to increasing your earning power. Everyone operates within at least one of these phases at any given time. After reading this guide, you will be able to identify which phase you are in and how to move forward to the next phase. In order to strengthen your earning power, you must successfully progress through the phases to arrive at the degree of earning power that you desire.
Now, let me give you an overview of how these four phases to increasing your earning power work and how you can systematically and strategically progress through them to attain unlimited and secure income.
Starting with the first phase, you will need to establish a steady, full-time income flow. Then you must promote yourself to the next phase called the middle-income bracket. To move forward into the third phase, you will need to leverage your current income to establish at least one passive income stream. Then in the final phase, you must access a secure source of income that enables you to establish a financial estate that lives on for generations after you have passed on.
In summary, these are the FOUR phases to your earning power:
Phase 1: Steady, Full-Time Income Flow
Phase 2: Middle Income Bracket
Phase 3: Passive Income Independence
Phase 4: Secure Financial Estate
You must move effectively and completely through these four phases to increasing your earning power if you want to eliminate your financial worries forever. In order to do that, there is basic knowledge about where this journey will take you that you must have when starting out.
Knowing Where You Are in These 4 Phases
To be in the “Steady, Full-time Income Flow” phase means that you work 36 hours or more weekly and have been consistently over an extended period of 5 years straight. You have not experienced a layoff if you work a job. If you operate a business, you have stayed in the black for that long. You may earn anywhere between $18,000 to $50,000 per year.
The downside to being in this phase is that you will be under constant pressure to prove yourself to yourself and/or to your employer.
The “Middle Income Bracket” phase means that you are a person working in your career field or doing work you are passionate about. If you are an entrepreneur, then you are operating a profitable business that has crossed over the 5 year mark. Statistics say that over 90% of business’ fail by this time, so if you make it this far, you must be operating in the black. You may earn anywhere between $50,000 to $150,000 per year.
The downside to being in this phase however, is that you most likely work more than 40 and even up to 70 hours per week.
The “Passive Income Independence” phase means that you no longer have to trade your time for money to earn income. You only work when you choose to work. Passive income can have different degrees of passivity. The most common definition for passive income means that you do not need to put in any physical work to keep the income flowing. Typical examples of this are stock investments, seller-financed properties or retirement income from IRA’s.
There is a pseudo-passive income definition which means that you need only to put in minimal effort to keep the income flowing. You may put in 2-5 hours each week to generate $10,000+ monthly. Typical examples of this are online affiliate marketing or network marketing done online and not the conventional word-of- mouth method.
A misnomer about passive income that you must understand is that passive income does not necessarily mean permanent income. A passive income stream may end one day. A company that you depend on for passive commissions or dividends may go out of business. This is not uncommon. That’s why it’s wise to generate as many passive income streams that you are able to.
The downside to being in this phase is that it will require a large money and/or time investment upfront to get your passive income stream established. If you choose to establish some form of passive income investment like an IRA then it will require large amounts of money invested. If you opt to pursue methods outside of the traditional investments like seller-financing or network marketing, it may require a large amount of both time and money investment.
The “Secure Financial Estate” phase means that your income is protected from loss for generations to come. At this phase of earning power, your income will outlive you. Certain types of financial products can guarantee that you will not lose your principal invested and can guarantee you a specified rate of interest. These products include a “guaranteed income” clause as a term of the contract.
However, there is a downside. Your personal income must be so solidly established with a considerable cushion of expendable income that you can allocate a good amount of your current income to fund these types of financial products. In addition, you must be able to invest a required sum of money into it on a monthly basis as well.
Furthermore, to build a secure financial estate, you must have certain factors at your disposal. You must have:
Expendable monthly income;
Thousands of dollars with which to purchase financial products initially;
The financial education to identify a solid financial product investment; and
Reliable sources from which to purchase the products.
Knowing Which Avenues to Income Are Suited for Each of the 4 Phases
(Note: The following list is not comprehensive by any means but just a starter to give you an idea of how to categorize your options.)
Steady, Full-time Income Flow – Ideal Avenues: Jobs, Careers, Entrepreneurial Ventures
Middle Income Bracket – Ideal Avenues: Jobs, Careers, Business Ownership
Passive Income Independence – Ideal Avenues: Retirement Investment Savings, Seller-Financed Properties, Affiliate and Network Marketing, Peer-to-peer lending, Stocks
Secure Financial Estate – Ideal Avenues: Whole life insurance contracts and Annuities with “guaranteed income” clauses as terms to the contract, Stocks in a long-standing company