Passive income
Money that comes in without you going to work — the key to financial freedom.
In One Sentence
Active income needs you to keep putting in time and effort; passive income comes from assets, and it flows in whether or not you go to work.
Why It Matters
There are only 24 hours in a day, so income from work has a ceiling; assets, on the other hand, can stack up year after year, and the income they bring has no upper limit. That's why I say the purpose of investing and managing money is to create passive income. Once it's more than your salary, you could stop working tomorrow without cutting back on how you live. That's financial freedom.
One Number
A median office worker who relies only on savings from work and Taiwan's Labor Insurance pension, and spends NT$45,000 a month over a 20-year retirement, would come up NT$2–3 million short (DGBAS, Bureau of Labor Insurance · Chapter I). (This applies to Taiwan.) That gap has to be filled with income from assets.
In the Book
Chapter II uses the golden formula for wealth to tell active income from passive income, then uses the six stages of financial freedom to show how passive income grows.
Go Further
- Cash flow Send money to assets first, and over time it turns into passive income.
- Six stages of financial freedom How much passive income you have decides which stage your family has reached.
- Assets and liabilities Passive income comes from assets, so first be clear about what really counts as an asset.
- Capital and labor Capital working for you is where passive income comes from.
- Pay yourself first Pay yourself first, so you have the money to buy assets that make money.