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Income-producing assets pave the way to financial independence

Start young and involve spouses at an early stage.

Financial independence is where someone’s sustainable “passive income”, overtakes their living expenses. What a pleasure, getting up in the morning and your bills for the day, month or year, have already been provided for…

Financial independence is generally set as a retirement goal. This is just how we are programmed. Why should this not be brought forward? A significant number of individuals bringing this goal forward (say age 30 or 40), do achieve this goal just a few years later. Contrary to this, many individuals that leave financial independence as a retirement “concept”, sadly never achieve it. 

The concept of financial independence should not be connected to retirement.

Prospective retirees mostly aspire to be financially independent, where financial independent individuals, rarely want to retire… think of Warren Buffett, Donald Trump, Richard Branson or Elon Musk.

Financial independence is achieved through owning income-producing assets.

Income-producing assets:

  • Financial instruments gaining in capital value and earning investment income;
  • Rental property that has a cash flow “break-even” and positive inflow within say five to seven years after acquisition;
  • Ownership of a business which is cash flow positive, successfully building up market share and value;
  • Ownership of a patented idea, recipe, lyric, recording, mathematical sequence that can generate exponential future cash inflows;
  • Hiring human capital is a great way to accumulate income producing assets (hiring individuals doing what you can’t or multiplying your own capabilities);
  • Education or an uneducated life skill, exchanged solutions for economic benefit. Wayde van Niekerk is the perfect example of an entrepreneur selling his “fast skill” for millions.

Looking at modern budgets, a too small proportion of monthly spend is focused toward acquiring income-producing assets. The individuals that give greater priority towards acquiring real assets, tend to retire successfully and some retire exceptionally young.  

Items that are not income producing (hence not assets)

  • Primary residence – (lifestyle choice).
  • Cars if not utilised as a taxi, courier or Uber – (lifestyle choice).
  • Boats / planes if not used for commercial purposes (lifestyle choice).
  • Jewellery / watches, even valuable items like a Rolex or Shimansky Evolym – (lifestyle).
  • Expensive depreciating technologies (cell phones / laptops / iPads) if not clearly providing a competitive advantage, to generate a higher income – (lifestyle)

Overspending on these leaves individuals generally wanting during retirement.

Acquiring income-producing assets will fast-track financial independence…

Succession

Once individuals start focusing on acquiring income-producing assets, it is worth it to have a realistic, rational succession plan at death. Acquiring assets is not easy and requires focus, skill and a lot of hard work.

Leaving the remainder of these assets behind to a spouse or children is generally one of the greatest challenges. Studies have shown that as much as 70% of all global fortunes do not survive the second generation. Also, 90% of global fortunes disappear in the third generation of origin.

Critical thinking, innovation and exceptional achievement are mostly born out of necessity. These attributes can, however, be handed down onto future generations, although generally it requires a great deal of time investment.

Financial advice

Starting young and involving spouses and children in the family business and financial affairs is a good idea for succession planning. Involve them with financial planning, introduce them to the family’s financial advisor and let them interact during meetings. These interactions simulate the real world, leaving them thoroughly prepared with the necessary financial mindset. 

A financial advisor can assist avoiding general financial mistakes and focus on acquiring income producing assets. Income-producing assets are at the core of financial independence. They generally drive a lifestyle of self-actualisation and get you permanently out of the rat race.

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I wish someone had told me when I was young. that NO 1 goal is to become a citizen of a country that offers 1st world benefits mainly medical care.

+robertinsydney

Your medical access is top class but Oz folk are slipping into the fast lane of “entitlement” and your taxes, punishingly high already, inhibits many to seek financial havens of there own.

Absolutely BRILLIANT article. Really like the focus that this is not only about retirement.

No waffle, to the point and loaded with good general advice.

Max your (relevant) education out. I.E. continue till you fail. Too many bright young bucks say they cannot do more studying when in fact the truth is they do not want to; they would rather have fun.

In SA would caution against the rental property as cANCer wants to take all land without compensation. Until sense prevails one should limit this exposure to home residence at most.

Thanks RICHus.

This is the articles that must be in todays school curriculums, lets get rid of prescribe “Shakespeare” and “Fiela se kind”, their is more to learn in this type of writing than in (“Et Tu Brute” and than Gordhan / Cesar fall). Give them “Milionare next door” or “Ridge dad, Poor dad” for a reality check.

The true reality of what is going on in the “universe of existence”, is a vision of what is portrayed in social media, Hollywood and the media like Huisgenoot and Peoples magazine. Talking about money is boring for them, the future is a PlayStation game, with and endless supply of starting over. Reality comes, when its to late!

Thanks Rickus, as a “poor dad”, at least I can educate my and teach my children (with articles like this), the true value of education, entrepreneurship, saving and money.

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