Chapter 5: Define Your
Goals
If you are just starting to build your portfolio of passive income sources, it is important that you go through the process of planning where you will have to identify the specific goals that you want to achieve. What are your real motivations for wanting to earn passive income? Do you want to ensure a comfortable life when you retire from work? Do you wish to buy your dream house in five years without having to be burdened by debts? Are you preparing for your children’s college education? Do you dream of living a luxurious life with private jets and several houses with swimming pools? You need to find your true motivations and goals so you can identify the correct approach that you should take when building your passive income portfolio.
Dennis Gilbert, a modern sociologist, defined being “rich” as living off on the earnings of your investments and not on earnings that are driven by your occupation. When we use this definition, we can then say that a senior manager of a multi-national company who earns an annual income of $1 million is not really as well off as a person who earns the same amount from his various passive income sources such as stocks, mutual funds, real estate properties, and book royalties. The difference between the senior manager and the investor is that the investor can choose to just stay at home and will still earn his income. The senior manager, on the other hand, will stop receiving his salary when he is not able to go to the office to work.
Do you want to know one truth? A lot of people do not really want to be wealthy. This fact is supported by an important research study conducted by Daniel Kahneman and Angus Deaton who were both the Princeton University under the Center for Health and Well Being. They were able to prove that money can really help you obtain happiness but only up to $75,000 each year. This means that when you are able to earn an annual income of at least $75,000, your daily experience will not necessarily become enhanced when you start earning more than that. But your “life satisfaction” will still continue to grow because you will feel more accomplished and fulfilled. This is basically considered icing on the cake. So, if you are just starting to get a hold of your finances, it is quite reasonable that you should concentrate on earning an annual income of $75,000 as your primary goal. As you build your portfolio, here are some of the other goals that you may want to achieve:
- Live a zero-debt life. If you are able to stay away from debts, you definitely cannot go bankrupt.
- Make sure that your portfolio is well diversified to minimize your risks and to lessen your worries at night. Do your assignment in studying the investments that you will get into so that you can manage your risks. You do not really want to end up staying awake at night worrying if you will lose your capital the following day or not.
- Ensure that you have sufficient insurance coverage to further lessen your worries about losing a lot of money when some of your investments go wrong.