Passive Income Exceeding Expenses

In my previous post, I explained that to have financial freedom is to match your passive income with your expenses.

However, it’s important to remember that often, this is not sufficient.

Why?

Well, imagine if you have $10,000 per month of passive income and $10,000 per month of expenses. Yes, this is financial freedom. You are now able to retire comfortably, spending time with your family and doing the things you love most. You no longer have to work for money. You let money work for you.

However, having passive income level that EXCEEDS (not only match) your expenses do have its own merits.

For example, $15,000 passive income versus $10,000 expenses.

The $5,000 leftover per month can now be used to further expand your asset base, thus increasing your passive income even further.

Now, you can enjoy your lifestyle even more and can perhaps give back more to your community.

Another issue you might want to consider on why it is important to increase your passive income as time goes by is because of inflation.  I forgot to address this issue earlier. Thanks to one of my readers for reminding me.

When it comes to inflation, $1 this year will not buy you the same thing next year. The purchasing power of $1 received this year will erode as the year goes by (of course, this is if the economy is in the state of inflation, not deflation).

You might want to refer to my previous entry on inflation.

Thus, I think it is important to have some significant left overs from our passive income not only for the purpose of expanding our asset base, which then could increase our passive income further, but also to track inflation.

Till next entry..

About nadlique

This blog is about the journey of a 28-year-old Malaysian towards financial freedom. This blog was started back when the blogger was 21 years old. However, his journey towards financial freedom had begun way before that. Materials such as investing, business, entrepreneurship, equities, and real estate are presented. The author also posts his thoughts and observations on life in general.

Comments

  1. great post

  2. thanks kate 🙂

  3. I thought the reason for that was inflation? In a country where the government likes to entertain itself with wars, for example, public debt will increase faster than tax revenues. Politicians solve this kind of problem by printing extra money to pay for their entertainment. Paper money that has no basis in substance cheapens previously existing money, with the result that prices go up. At least the numbers get larger, so that what used to cost 100 dollars now becomes, say, 115. People with passive incomes need to increase their basis in order to gain a higher payout. Alternatively, they can seek higher rates of payout.

  4. Yes, one of the reasons of wanting to increase your passive income is to track inflation. I had forgotten to address that issue. My bad. Will update this post with that issue. Thanks for reminding me.

    Apart from inflation, personally, I would want what’s left over from my passive income to be of some significant so that, not only to track inflation, I can also expand my asset base, thus accelerating the rate that the amount of my passive income increases.

    I adopt an approach called Tiered Targets. That is, I’ve put to place a few passive income targets to achieve. The first one will be the hardest due to the fact that I need to work hard (and smart for that matter) to first accumulate capital. Once the first target is achieved, and I can consider myself financially free, the subsequent targets can then be achieved from those passive incomes, and not relying on me having to go to work again.

  5. With regards to the money printing issue, I believe most developed and maturing economies worldwide such as Australia, and Malaysia, do not do this anymore. It’s fair to say that they have learnt from history that this approach will form the problem of hyperinflation.

    However, there are governments that still print money to bail themselves out from economic problems. Countries in Africa for example? Zimbabwe?

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