We have discussed how well advised it is for people who earn their income mainly from a regular pay cheque to mind their own business. Today we consider how they can do so.
Minding your own business is not about starting your own small business. Rather, it is about realising that developing and managing your assets are your most important business no matter what your profession. It is about what you are doing to build up and sustain the assets which will free you from the day-to-day slaving of employment.
Employees tend to make their profession the focus of their lives, making someone else rich. Rather, they should be focusing on acquiring and expanding their assets – that is their business. That will make them financially independent.
The most important task involves differentiating between liabilities and assets since liabilities can be mistaken for assets. An asset puts cash in one’s pocket. A liability takes cash out of one’s pocket. By building up assets, one can eventually raise as much or more income than from one’s profession.
Firstly, a business that does not require the presence of the owner is desirable. If you have to work in the business, it becomes your job. The business in this case is not one that you have to mind directly.
It is an investment that generates cash income for you while other people manage it.
Then, there are stocks – shareholdings in companies. Cash income will be generated by way of dividends. In addition, stock can be sold in order to realise capital gains (which are not taxed in Barbados) and part of the proceeds reinvested. Mutual funds provide an alternative for the investor who may not wish to spend the time analysing and choosing the companies in which to invest.
Alternatively, you can purchase debt instruments in public or private enterprises, typically called bonds or debentures. Cash income will arise from the interest payment during the life of the bond or when the bond matures.
Real estate that generates income also falls among the assets listing. So, too, do notes receivable – when you have loan someone funds that the borrower agrees to repay with interest by a written and signed note.
Royalties from intellectual property such as books, music and patents can also be a cash income source. In fact, anything that can generate income or that appreciates in value and has a ready market can qualify as an asset. The key requirement is that your assets must be able to provide cash.
Minding your own business means acquiring assets and building up as many assets as possible, regardless of your employment income.
Investment experience is paramount to minding your own business. As early as possible, one must acquire and build one’s asset base. Eventually, if you mind your own business successfully, you will have enough passive income to afford to retire early.
So, instead of acquiring a mortgage that will take cash out of your pocket (a liability), use the funds that would have served as the down payment on the mortgage to get investment experience.
It is only when your assets have started to provide income that you should consider acquiring a mortgage commensurate with the level of cash flow generated by your assets.
Louise Fairsave is a personal financial management advisor, providing practical counsel on money and estate matters. Her advice is general in nature; readers should seek personal counsel about their specific circumstances.