Do you make money in your sleep?

Most people earn an income either from working a job or from providing a product or service to their customers in running their own business.  So the question begs, what happens if something happens to you and cannot exchange your time for money?  Or what about when you decide to work less and enjoy more of what life has to offer?  At that point will the aged pension be sufficient for you to travel, dine out, be involved with social activities, help out the kids, donate to charities, and live a desired lifestyle?

Passive income is the secret to financial freedom as it allows you to receive an ongoing cash flow (income) without 'you' being the servant.

Not all income is created equal and to achieve financial freedom, it is important to understand the differences and what you have to do to achieve an ongoing passive income for life.

Working income is what you get from doing a job.  You exchange a unit of time for a unit of dollar.  If you don't turn up to work, you don't get paid.  This is similar if you run your own business, unless of course you have staff to perform certain roles where the business can run without you.  However the majority of Australian small to medium businesses would not run successfully without the owner being involved or hands-on, in some shape or form.

The difference with passive income is that you do the work once but continue to get paid over and over again without you having to be at work, or to do the work.  Is this something that sounds appealing to you?

This is what property investors do.  Initially they save up a deposit from earning an income (work).  They then invest (leverage) their deposit to buy into an investment property and they provide accommodation to a tenant.  The tenant is now obligated to pay a regular amount of money (rent) for the benefit of living in the investment property.  The ongoing rental income is known as passive income.  And the more properties you own, the more passive income you receive.

Sounds simple?  It is!

As the saving goes, if you fail to plan, you plan to fail.

The more property you accumulate throughout your working life, the more assets you will have in your later years and the more passive income that you would have accumulated to do what you like.

The key ingredients to buying property and create more and more assets (and passive income) for your later years are as follows:

1)  Build more deposits. Buying the right investment properties will accelerate this for you as capital growth in your existing properties can then be used to buy more property.

2)  Take on good debt.  There are two types of debt but only one type will help you become financially free.  The good news is that banks and lenders have a strong appetite to lend money for you to purchase property.  Maybe it's to do with it's long proven history of performance and the fact that property is a human need which will always be in demand.

3)  Leverage your working income.  To achieve higher borrowing capacity you need to demonstrate to the bank that you have the capacity to repay the debt.  Money borrowed to buy property is usually serviced by you, the tenant, and the tax man.  As time goes on, there will be less reliance on you having to service the debt as your loan balance will reduce and your rental income will increase.

In summary, if you aren't' investing in assets (like property) that will pay you money in your sleep, you will never become rich or enjoy your later years the way you want to.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.