Don’t Buy Material Things, Buy Income Generating Assets
Material things are nice, but they depreciate over time and don’t make us money. For example, when you decide to buy a new Tesla after getting a raise at work opposed to investing in assets that can consistently generate income for years, you are making a foolish financial mistake. Don’t get me wrong, some material things, such as cars and TVs, are sometimes essential purchases that we can’t avoid. However, the key is to strictly buy what you need (Ex/ not purchasing a luxury car even if you can afford it) and to then invest whatever’s left over into income generating assets.
Income Generating Assets
Income generating assets are financial instruments that provide steady income streams in addition to potential capital gains when you invest in them. Examples include, but are not limited to, dividend stocks and bonds, real estate income properties/property crowdfunding, P2P lending, money market funds, digital or tangible products, etc. By investing in income generating assets opposed to buying material things, you begin to create the “snowball effect of wealth” which is the best thing you can do for yourself financially. For more details on developing multiple income streams, see here.
Snowball Effect of Wealth
If you’ve ever watched the show “Shark Tank”, I’m sure you’re familiar with “Mr. Wonderful”. I adopted the whole concept of paying the bare minimum for necessities and investing the rest from him and this is some of the best personal finance advice I’ve ever received. If you save a majority of your income and invest it into income generating assets, eventually you can create enough passive income to supplement the income from your full-time job.
I keep a passive income excel spreadsheet that tracks all of my different income sources on a monthly basis. They say the average millionaire has 7 income sources. Your goal should be to have all of these different income sources add up to more than the monthly income you’re receiving from your full-time job. That way, eventually you’ll become financially free and can escape the rat race making money while you sleep.
To create the snowball effect of wealth, you simply have to reinvest the proceeds from your income generating assets. Slowly but surely, you will increase your passive income levels since the money you reinvested will earn income that can be reinvested as well. This never-ending cycle, if executed correctly, is the key to building long-term, sustainable wealth.
What is more likely to get you on the fast track to wealth? Using your disposable income to buy material things, or investing in income generating assets that can earn you money which can be reinvested to make even more money?
The answer is obvious. If you truly want to establish financial freedom and to create a steady flow of passive income, you need to discipline yourself to spend the bare minimum on expenses (rent, utilities, food, etc.) and allocate the rest to income generating assets. Having a diversified portfolio of various financial instruments that earn income is the surest way to long-term prosperity.