Everyone wants to find ways to be successful and accumulate wealth over the long term. But the truth is, passive income streams don’t appear overnight. They take time, commitment, and resources to cultivate.
If you’re looking for ways to create a system of self-perpetuating wealth for the future, here are a few tips to keep in mind as you go along.
Shift Your Approach to What Defines Wealth
The way that a person views their wealth can have a big effect on how quickly (or slowly) they accumulate it.
If they see their net worth as the ultimate measuring stick, it can become a distraction. If an individual’s goal is to be “worth as much as possible” it has an indirect effect of capping their growth.
For instance, if someone wants to be worth $1,000,000 and they currently have $900,000 in assets, they might look for ways to generate another $100,000.
This may sound great but consider this. You could invest the effort that goes into creating that additional income into an asset with the potential to generate $20,000 per year in perpetuity. That means after just six years the passive income stream would be more valuable than a lump sum of $100,000.
Strategic financial planning firm Wealth Woman addresses this issue of differentiating net worth from income streams. “We are taught to measure the rate of return based upon our growing net worth. I would argue that is the wrong measurement. If my end goal is income, then my rate of return should be measured on how much income I can generate with my assets.”
The message is clear. If you want to create wealth systems, focus on passive income, not overall net worth.
Diversify Your Income
Diversification is a key element of growing wealth. It reduces risk by spreading out investments across different sectors and industries. That way, when the market slumps in one area, all of your wealth isn’t impacted.
As you seek to build up different streams of passive income, make sure to avoid cubby-holing yourself into one area. Over-dependence on a single stream of income leaves you open to higher levels of risk. While some risk is okay, if you’re trying to build a wealth creation system that can go the distance, it needs to have a certain sense of stability.
The good news is that you can find ways to diversify, even within the range of a specific income stream.
Entrepreneur Michelle Schroeder-Gardner owns the blog Making Sense of Cents. She monetizes her site through multiple channels, including affiliate links and selling her own courses. The self-made business owner recommends diversifying income streams since, in her own words, “Diversifying your income streams allows you to not be reliant on just one way of making money or just one of your traffic sources. Instead, you will have balanced income streams to mitigate risk.”
Diversification has the obvious effect of guarding your wealth as it accumulates, but it also has a hidden bonus. It helps you quit a project when you realize it isn’t working without fear of jeopardizing the rest of your income streams in the process.
Set the Right Goals
Goals are a powerful tool. They can help you clarify your vision and create a series of “North Stars” to focus on as you go along. At least the right goals can do that.
However, setting financial goals can’t be as simple (or as vague) as “create a system of wealth” or “set up a passive income stream.” Sure, that can be the inspiration that leads to a goal, but it doesn’t have enough substance to be the goal itself.
Instead, those looking to create passive income streams for the future should set goals that are tangible. They should be measurable and attainable. They should be tough enough to push you without completely overwhelming you.
The SMART acronym (Specific, Measurable, Attainable, Realistic, Time-Sensitive) works well here. However, there is more nuance to setting financial goals, in particular.
Commit to Your Goals in Writing
The team at Ramsey Solutions points out that “A financial goal is any plan you have for your money. You can have short-term and long-term goals.” They suggest a few tips to make your financial goals as effective as possible, including:
- Committing to them by writing them down.
- Making them measurable by choosing actual numbers and statistics to reach.
- Giving yourself real deadlines to get things done.
It’s also important to set financial goals that are your own. Don’t just look around for other forms of passive income and copy what others did in the past. The entrepreneurial world is always in flux, and a formula rarely works the same the second time. Instead, assess your own situation. Then come up with goals that uniquely apply to what you want to accomplish, especially as it pertains to passive income.
It doesn’t take a genius to create systems of wealth management. However, it does take someone who is willing to strategize and think things through. Consider things like your perspective, diversification, and financial goals. Then come up with a strategy that can help you create truly measurable lines of passive income that can feed into a successful future for years to come.
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