Passive Income
What Does Passive Income Mean?
Earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not actively involved. As with non-passive income, passive income is usually taxable; however it is often treated differently by the Internal Revenue Service (IRS).
Investopedia explains Passive Income
There are three main categories of income: active income, passive income and portfolio income. Passive income does not include earnings from wages or active business participation, nor does it include income from dividends, interest or capital gains. For tax purposes, it is important to note that losses in passive income generally cannot offset active or portfolio income.
It is important to note that, by some, portfolio income is considered passive income; in which case dividends and interest would be considered passive. The important definition is the one the IRS uses, and to be sure your taxes are filed correctly, it would be prudent to check with the IRS or a tax professional on this matter if you have a blend of active, passive, and portfolio income.
Top 10 ways to become the Millionaire Next Door
Everyone wants to get rich and become the Millionaire Next Door. Unfortunately most of us will not be on the Forbes list of Billionaires under 40. However, we would all like to have the Millionaire Mind
or be the Millionaire Next Door. Some keys tips to becoming the Millionaire Next Door are:
- Live well below your means, try paying cash for purchases versus running up debt. In order to not run up debt you will need some ideas on how to save money and reduce your expense.
- Own your own home, now is a really great time to own your own home. The fastest way to build wealth with your home it to get a shorter mortgage. Make sure you consider the advantages of 15 year vs 30 year mortgage.
- Most millionaires are married
- Unfortunately, working for 30 to 40 years is key. This is sort of the get rich slowly mentality but it works, however there are ways to become a millionaire as an employee. Make sure you invest in your companies 401K. You can take advantage of matching funds and the tax benefits.
- Own your own business or be self employed.
- Be conservative with money have a family budget, save and invest your money
- Get a college education, advance degrees are better, Eighteen percent have master's degrees, 8 percent law degrees, 6 percent medical degrees, and 6 percent Ph.D.s. It is a know fact the if you have a degree you are more likely to have a job. 98% of the people with college degree are employed right now. It is worth taking the time and figuring out a way to pay for college to get this advantage in your life.
- Put in your time most millionaires work 45 to 50 hours per week.
- Invest wisely and diversify your portfolio, stock picking is tough, you have to stay on top of it. Consider hiring a financial planner to help you with your investments. It is well worth it is you get the right person.
- Non-formal education is also important, read a lot, self help, investment magazines, Wall Street Journal
So for most of us, and based on the Top 10 list will need some time become a millionaire. However, if you are looking to find out how to earn extra income. Or you are curious how to develop a passive income as describe in the book the 4 hour Work Week, you need to start now. Did you ever wonder about all those internet millionaires? The guys that started Youtube or Facebook and sold it for a gazillion dollars? Most of us will never be those guys. I know that I am not smart enough. However, I would love to earn extra income on the side and eventually build it up to something I might be able to do full time. I frankly would love to be able to work at home. If you are curious and looking for a way to jump start your passive income. Click Here!
Related links:
If you enjoyed this post please Subscribe to Strategies for Life. If you would like to tag this post at del.icio.us click here.
The millionare nextdoor .Pdf Ebook Download
What’s Wrong with The Millionaire Next Door
I put a passing reference to The Millionaire Next Door in my post Wednesday on The Tragedy of Impulse Saving. A commenter asked about it and actually followed up to say that he would love to hear my opinion on the book. I can’t bring myself to write a proper review of a 13 year–old title, but on the flimsy pretense that one person who comments must represent thousands of silent readers who feel the same way, let me share why I don’t like it. (That’s the problem with leaving comments here; I just read what I want to.)
To start with, Millionaire Next Door is poorly written. Large sections just dump information on the reader without drawing any conclusions or giving any advice. And the authors’ choices of topics, and how much ink to use on them, is peculiar, as if they just threw together the book from notes they happened to have had lying around. So, for example, 70 pages (of 245 in my paperback copy) are spent on giving money to your children. 36 pages cover buying cars. There isn’t much of anything on buying houses. There’s a big section on selecting financial advisors, but little on investing as such.
The core advice in the 70 pages on giving money to your children is that you shouldn’t give money to your children. Not only will it make you poorer, but it is bad for the kids. They will amuse themselves by spending it and not learn to be frugal like you. The authors cite data that shows that adult children who get money from parents are in general poorer and argue that giving your kids money will have the opposite of the intended effect. Unremarkably, they do not consider the possibility that maybe those children got money from their parents because they were poorer, not the other way around.
The other reason not to give your children money, besides it being good parenting, is that if you give it to them then you will not have it anymore. And it is here that I stop being able to even relate to the message of the book. You save your money carefully throughout your life not so you can spend it on the finer things, nor even so you can spend it on the ones you love. You save it because it’s the right thing to do. This is the Scrooge McDuck school of wealth management.
The authors describe sharing their research with an audience of “affluent grandmothers.” (Yes, really.) One takes them to task.
I’m as indignant as hell. What am I supposed to do with my money? My daughter’s family is having a rough time making ends meet. Do you know about the problems with public school around here? I’m sending my grandchildren to private schools. (p. 145)
I’m with grandma on this one. Starting a statement claiming to be “indignant as hell” is not the way people, even affluent grandmothers, talk in my part of the country. But where I come from, sending your grandchildren to private school is just about the most wholesome thing you could do with your money, short of anonymous donations to charity. The authors of Millionaire Next Door have different values. Private school tuition is mentioned repeatedly in the same category as big houses, country club memberships, and, of course, luxury automobiles. (Did I mention the other day that the authors were professors of marketing at state schools?)
And their analysis of this obviously deranged old lady:
It is obvious to us that this grandmother is not completely at ease about providing economic outpatient care to her daughter’s family. The real problem is not with the public schools; it is that her daughter’s family is in a situation of economic dependency. Mother has difficulty with the fact that her daughter married someone who is unable to earn a high income. (p. 146)
Even I have trouble getting beyond the Neanderthal sexism implicit in this diagnosis. Perhaps the son-in-law does just fine but it is the daughter’s career as an aroma therapist that disappoints her mother. Or maybe daughter is a single mom.
Even if we accept that this woman is disappointed in her daughter’s choice of life partner, can it really be that the authors are blind to the fact that it is not the daughter or son-in-law who are the recipients of grandmother’s largess? It is the grandchildren who are going to private school. Perhaps Grandma wants them to have every advantage they can, something especially important given their good-for-nothing father.
Alas, these authors cannot get beyond the fact that this person is allowing her descendants to live a lifestyle beyond their means. The right course is to live well below your means. Living at your means is bad enough, but beyond it is just flat out wrong. And reading this book you come to realize that they do not mean wrong in the sense that it is fiscally unwise. They really mean immoral.
Scratch the surface of Millionaire Next Door and you find an ugly streak of class envy, or maybe class disgust. The heroes of this book are the millionaires who look and act like ordinary folks. They shop at J.C. Penney and drink two kinds of beer: “free and Budweiser.” The villains are those that have expensive tastes and spread those tastes to others. And nowhere is it suggested that those expensive high status things might actually be objectively nicer than the lower status alternatives. For the authors of this book, status is the solitary benefit you get from the country club or from sending your kids to a private school.
Millionaire Next Door has, and I use this term carefully, a Marxist view of consumer culture. It holds that the reason that most people with steady jobs lack tidy fortunes is that they are seduced into spending all they make, and possibly more, on high status items consistent with their perceived station in life. The problem is not that you, the reader, cannot figure out how to live the lifestyle that you desire but that you desire it to begin with. The point of the millionaire living in the ordinary house next to yours is not that even somebody like you from this neighborhood can get rich. The point is that the millionaire had the good sense not to take on pretensions and move on to a nicer area.
Millionaire Next Door sold about three million copies and spent three years on the New York Times bestseller list. I don’t think this was because the late ‘90s was a time receptive to an anti-materialism, anti-status, anti-rich message. On the contrary, it was the surface message, that anybody could become rich if they followed the secrets in the book, which generated enthusiasm. Readers just ignored the anti-rich stuff and the kooky advice about buying cars by the pound. That’s the trouble with giving advice; folks just read what they want to.
