5 Passive Income Mistakes - the Investing Mindsets and Ideas
5 Passive income mistakes you better learn to avoid before you try and fail. We are going to discuss the very nuances on how to become smarter and successful while investing for passive income. I will also tell my stories about that.
Hi, I am Henrikh and we are going to cover the importance of passive income and later go over the common mistakes people are mostly facing. Passive income is the money you get constantly in a way that requires little to no effort to maintain. With this advantage, you can have enough time to build your other passive income sources or to increase your active income. This is one of the most important things in becoming wealthy and living your life without worrying about the bills of the next month. Passive income generally won’t make you wealthy overnight, so forget about any magic formula of get-rich-quick schemes you’ve heard of so far. But steady, profitable passive income can build you serious wealth in the long run. As Warren Buffett said: “If you don't find a way to make money while you sleep, you will work until you die”.
Ok, now let me introduce the 5 passive income mistakes one by one in detail and also tell my stories, which were really expensive lessons for me. I have made at least 2 of those mistakes in my investing journey which was the hardest way to learn. Learn the lessons in an easy way, not like me. And always try to learn from other people’s mistakes. There is absolutely no need to fail yourself, lose money or go broke in order to learn something. Be one step forward to learn from those who already went through the hard path.
1. Passive Doesn’t Mean Permanent
Many people build a small business and put some automation systems in it and when the profit starts to come without a need for hard work by them, they think they have reached the passive income. That’s a false passive income. That’s actually not even a passive income. That’s just a way to get paid more based on the hourly work they do. Because sooner or later they get beaten by competitors who are willing to work harder on that sphere. Real passive income must have sound fundamentals and in most cases, it must have real asset value in the fundamentals.
And to be even safer, the income should not be from a single source. So to be sure you have the real passive income you must have a sound business with I think more than 500 employees and real systems that have proven to work. That is right when we talk about passive incomes from businesses, not from assets like real estate, stocks, bonds, licenses or others.
2. Not Starting Small
People don’t like the idea of investing for passive income to get for example $200 monthly.
That’s a really big mistake. If you are waiting to save a million dollars and invest to get $10,000 monthly, you will most probably never see passive income. Starting small is important for at least 3 reasons.
Reason A: You better start sooner to take advantage of compounding interests.
Reason B: You must train yourself with real experience until you start investing big, as almost everyone does mistakes when starting
And the reason C: Believe me if you do a few small deals and you collect $1000 passive income that will help you vastly for your future growth even if you are living in a city where you need $7,000 dollars to live on. Ok, let’s go to the next passive income mistake.
3. No Active Income
Before you start building your passive income sources, make sure you have an active income to live on. That’s my first mistake when I started my investing journey. I started my first steps in financial education when I was 21 and loved the idea of passive income so much that I forgot to generate active income firstly. My main focus was building passive income and I was doing nothing for active income. I started businesses and failed for 3 years and my liabilities went through the roof as I was not able to generate active income. When you start investing you make a lot of mistakes for sure, and you most probably lose money, but the effect of going broke becomes way bigger when you add up your liabilities to living expenses. So when you start building your passive income portfolio you most probably lose money at the beginning, so make sure you have enough active income to cover your living expenses, otherwise the difficulty of success becomes a few times harder. So when I understood that I had to build my active income first, it was already too late and I had been collecting too much debt for about 3 years, which put me in a way harder situation than it normally should be.
4. Forgetting the Asset Value
This passive income mistake is something I went through myself and that was a really expensive lesson for me again. The first Real Estate I bought for renting out didn’t have all the required legal documents. The land had no ownership, but the building on it had. And while I was happy to collect the rent for a few years, I finally faced the problem that my government was trying to demolish the building because of the lack of documents. It was a shop on the sidewalk of the street and the new government really didn’t like the idea of having it there. So while the new government was trying to remove all those types of buildings, the asset value really dropped because nobody wanted to buy it as it had too much risk to be removed. So I paid about $15,000 dollars for the building and collected about $3,000 yearly, which is about 20% cash on cash return. That is an excellent investment right? Wrong! That was a terrible investment as I made the number 4 mistake of passive income investing and I forgot the asset value while being happy to collect the rent. So make sure your investment doesn’t go down in value while investing for passive income.
5. Relying on Promises
Always do your own research and analysis to understand if your investment is a good one or not. Having someone promise a check is not a good passive income source. Not only one can lie to you, but also one can have more than realistic expectations from the business he runs. Mostly this refers to investing in dividend stocks. When a company has been paying dividends for 5 or 10 years that doesn’t really mean that they will be able to continue the dividend payments for the future or at least with the same rate they did before. You must make sure you are investing in a wonderful company that will have business growth and won’t die in the long run. And to find really wonderful companies to invest in, I would suggest the “value investing” type of strategy and mostly make sure the companies numbers are good enough, it has steadiness, an economic moat, a good management team and a good price to buy. Also please check “Margin of Safety” to get more understanding about what it really means to buy a stock or any other asset at a good price. How to determine if the price is good to buy or not.
Ok, those were the 5 passive income mistakes you better avoid to be a step forward and save a few years in your future for becoming successful.
5 Passive income mistakes you better learn to avoid before you try and fail. We are going to discuss the very nuances on how to become smarter and successful while investing for passive income. I will also tell my stories about that.
Hi, I am Henrikh and we are going to cover the importance of passive income and later go over the common mistakes people are mostly facing. Passive income is the money you get constantly in a way that requires little to no effort to maintain. With this advantage, you can have enough time to build your other passive income sources or to increase your active income. This is one of the most important things in becoming wealthy and living your life without worrying about the bills of the next month. Passive income generally won’t make you wealthy overnight, so forget about any magic formula of get-rich-quick schemes you’ve heard of so far. But steady, profitable passive income can build you serious wealth in the long run. As Warren Buffett said: “If you don't find a way to make money while you sleep, you will work until you die”.
Ok, now let me introduce the 5 passive income mistakes one by one in detail and also tell my stories, which were really expensive lessons for me. I have made at least 2 of those mistakes in my investing journey which was the hardest way to learn. Learn the lessons in an easy way, not like me. And always try to learn from other people’s mistakes. There is absolutely no need to fail yourself, lose money or go broke in order to learn something. Be one step forward to learn from those who already went through the hard path.
1. Passive Doesn’t Mean Permanent
Many people build a small business and put some automation systems in it and when the profit starts to come without a need for hard work by them, they think they have reached the passive income. That’s a false passive income. That’s actually not even a passive income. That’s just a way to get paid more based on the hourly work they do. Because sooner or later they get beaten by competitors who are willing to work harder on that sphere. Real passive income must have sound fundamentals and in most cases, it must have real asset value in the fundamentals.
And to be even safer, the income should not be from a single source. So to be sure you have the real passive income you must have a sound business with I think more than 500 employees and real systems that have proven to work. That is right when we talk about passive incomes from businesses, not from assets like real estate, stocks, bonds, licenses or others.
2. Not Starting Small
People don’t like the idea of investing for passive income to get for example $200 monthly.
That’s a really big mistake. If you are waiting to save a million dollars and invest to get $10,000 monthly, you will most probably never see passive income. Starting small is important for at least 3 reasons.
Reason A: You better start sooner to take advantage of compounding interests.
Reason B: You must train yourself with real experience until you start investing big, as almost everyone does mistakes when starting
And the reason C: Believe me if you do a few small deals and you collect $1000 passive income that will help you vastly for your future growth even if you are living in a city where you need $7,000 dollars to live on. Ok, let’s go to the next passive income mistake.
3. No Active Income
Before you start building your passive income sources, make sure you have an active income to live on. That’s my first mistake when I started my investing journey. I started my first steps in financial education when I was 21 and loved the idea of passive income so much that I forgot to generate active income firstly. My main focus was building passive income and I was doing nothing for active income. I started businesses and failed for 3 years and my liabilities went through the roof as I was not able to generate active income. When you start investing you make a lot of mistakes for sure, and you most probably lose money, but the effect of going broke becomes way bigger when you add up your liabilities to living expenses. So when you start building your passive income portfolio you most probably lose money at the beginning, so make sure you have enough active income to cover your living expenses, otherwise the difficulty of success becomes a few times harder. So when I understood that I had to build my active income first, it was already too late and I had been collecting too much debt for about 3 years, which put me in a way harder situation than it normally should be.
4. Forgetting the Asset Value
This passive income mistake is something I went through myself and that was a really expensive lesson for me again. The first Real Estate I bought for renting out didn’t have all the required legal documents. The land had no ownership, but the building on it had. And while I was happy to collect the rent for a few years, I finally faced the problem that my government was trying to demolish the building because of the lack of documents. It was a shop on the sidewalk of the street and the new government really didn’t like the idea of having it there. So while the new government was trying to remove all those types of buildings, the asset value really dropped because nobody wanted to buy it as it had too much risk to be removed. So I paid about $15,000 dollars for the building and collected about $3,000 yearly, which is about 20% cash on cash return. That is an excellent investment right? Wrong! That was a terrible investment as I made the number 4 mistake of passive income investing and I forgot the asset value while being happy to collect the rent. So make sure your investment doesn’t go down in value while investing for passive income.
5. Relying on Promises
Always do your own research and analysis to understand if your investment is a good one or not. Having someone promise a check is not a good passive income source. Not only one can lie to you, but also one can have more than realistic expectations from the business he runs. Mostly this refers to investing in dividend stocks. When a company has been paying dividends for 5 or 10 years that doesn’t really mean that they will be able to continue the dividend payments for the future or at least with the same rate they did before. You must make sure you are investing in a wonderful company that will have business growth and won’t die in the long run. And to find really wonderful companies to invest in, I would suggest the “value investing” type of strategy and mostly make sure the companies numbers are good enough, it has steadiness, an economic moat, a good management team and a good price to buy. Also please check “Margin of Safety” to get more understanding about what it really means to buy a stock or any other asset at a good price. How to determine if the price is good to buy or not.
Ok, those were the 5 passive income mistakes you better avoid to be a step forward and save a few years in your future for becoming successful.
