What Is The Prosess Of Asset Creation?

Why ‘alternative income’ is preferred over ‘income from job’?

We have more control over our alternative income. But the same cannot be said about the income from job.

Alternative income generation should always get priority over ‘income from job’, why? Because of the roots from which they originate. To understand this, we will have to look more deeper within ourselves…

Why we need money? Mainly to support our standard of living and managing other living expenses. For a human being these expenses are basic and uncompromisable.

How we ensure that these expenses are met? For most people, one has to work hard (like in job) to generate an income. This income in turn helps us to meet our expenses.

But the problem is, our expense grows with time. Hence our income must also grow. So here comes the distinction between ‘income from job’ and ‘alternative income’. How the income will grow in these two cases?
  • Income growth in job: This income comes from doing a job and building a reputation for self in the company. It is the reputation that triggers ‘income growth’ for a salaried person. But reputation building in only partly in our control. Outside entities has a bigger say in reputation growth over time. Which means? We have less control on income growth in job. Read more about building millions in first job.
  • Alternative income growth: This is dependent more on a ‘mathematical formula’. Hence it is more certain. Alternative income comes from accumulated assets. The bigger will be the asset base, higher will be the passive income. The rate of income growth here is more dependent on your ‘skill‘ than on other factors. Which means? We have more control on growth of alternative income. Read more about building alternative income while in job.As we have more control over growth of alternative income, hence it becomes our preferred income stream.

In the initial years, the quantum of ‘alternative income’ will be low (compared to job). But do not let it dishearten you. Keep on investing and buying more assets, alternative will grow.

How a common man can build assets?

For people who are already affluent, their way to asset building is different. How a common man can start building assets? These are the three steps:

  1. Save: Saving money is more important than investing itself. The easiest way to save money is to put aside part of income. Reducing needless spending will also increase free-cash in hand. Even richest men in the world has to save money to stay rich. As a rule of thumb, if one saves 25% of total income, it is called a decent saving. Give standing instruction to salary account to divert 25% money to saving account. This should happen on the first day every month.
  2. Invest: Why to invest? Why not keep building savings, and then use savings to directly buy “assets”? This will be nice, but keeping money as savings is not advisable. Why? Because of two reasons, (a) savings gets spent too easily, and (b) invested money multiplies faster. Where common men can invest savings? Mutual funds, stocks, real estate, gold etc.
  3. Lock Funds: This is the most essential step. Generally we stop at step two. But we must take this extra step. In this step we are converting ‘all assets’ into ‘income generating assets’. How we can do it? My best avenues are (a) dividend paying stocks, (b) rental properties, and (c) REITs.
The whole asset building process can be realised by following the above three steps. There is nothing new that I have told, but what is worth remembering here is the step number three.

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