Defining Income
Most misunderstand what is passive income. Simply one has two choices in earning income:
1. Earn “Active Income”
As an employee or business owner work to get paid. They exchange Time for Money
2. Earn “Passive Income”
Earn money while reading a book or sitting on the beach. Earn Income while you are not present
Passive Income Model
The harsh reality is that there is no direct route to earning passive income unless one is fortunate to inherit or be given a large lump sum of cash. One must follow the active road to passive income by either working hard, and as income exceeds expenses, then save and invest the difference, alternatively build/create assets that earn passive income. EG. Write a book or create a utube video that people will pay for. Over time, with either route you build sustainable passive income streams.
The mainstream passive income generators are property, equities and bonds. We shall focus on property as this is the most popular form of passive income and the foundation of “serious wealth.”
Property Passive Income
Rental from property provides protection against inflation; is taxman friendly; has a low risk profile and often one can use the banks money (Loans) to get “quicker” to your passive income goals.
“However, emerging markets suffer from soft currencies resulting the Passive Income in soft currency catching many” says Costas Souris of Quality Group, as the purchasing power of soft currencies is eroded by the depreciation of the soft currency!
Since 1970 the RAND has depreciated by more than 7% pa when compared to the US Dollar. In 1970 R1 million was worth $1,4 million. Today the sad reality is that R1 million is now worth less than $69 000!
Emerging market economies import many goods and services. Cars, mobiles etc including fuel which is priced in US dollars. Every time petrol goes up it sets off a chain reaction of price increases.
Take bread which has increased by 400% since 2003 “The farmer must transport his wheat to the flour mill; from there, transport to the bakery; from there to the local Pick and Pay; and then you must drive to buy bread from the retailer.
Protection not only against local inflation is required but most importantly against imported inflation because of local currency depreciation. Can a soft currency like the RAND appreciate? Of course, but sustained economic growth, coupled with clean government and low unemployment begins the foundation!
Solution: Invest in HARD currency Passive Income with rentals generated by property. Hard currency has low inflation. Using the €uro to illustrate the benefits of hard currency rentals and being conservative by not escalating the €uro rentals; the benefits of hard currency passive income are clear! Browse the passive income model below where the currency is depreciated at a conservative 5% pa. Ones standard of living and retirement is assured. Investing in a property of €300 000 will earn rentals of €18 000pa. Look at how RAND purchasing power is assured.
Financial Independence
The passive income a person is receiving determines financial independence. BUT True financial independence is determined by access to hard currency passive income irrespective where one lives today or tomorrow.