JUST WHAT YOU NEED TO KNOW ABOUT INCOME

JUST WHAT YOU NEED TO KNOW ABOUT INCOME

What if I tell you that COVID did some good! Yes, you read that right, the Global pandemic that turned the world upside down and brought it to a standstill did not do us only wrong but some good, as well!

The one good thing was to expose our weaknesses or areas of laxity that we never knew about. It brought us face to face with areas we failed to deal with, the knowledge we refused to acquire in different areas of our life, finance inclusive. So, when I said it did us some good, I know what I’m talking about. During the pandemic, people whose source of income was just salary felt the heat more—thereby forcing us into searching for other sources of income.

Did you know that there are different types of income? Whatever your answer is, follow me, still, as we go through my novel found knowledge together. In one of my searches, I discovered that income is categorized into three.

There are three types of income; the active income, the passive income, and the portfolio income.

Active Income

Active income is the money that you earn from while working, either as an employee or an entrepreneur. The unique thing about this income is that you are paid for the work you actively do. When you aren’t active or stop rendering services, then the income seizes. That’s the popular income we all know or have, and the typical examples that come to mind are examples are salaries from jobs and profits from businesses. Active income solves mostly short term problems.

Passive Income

A passive income is one in which money is usually received regularly (might not be daily though) basis, where no additional effort has taken place. Passive income flows to you or your family, whether you are sick, not in the country, or dead.

Oh, how I love passive income streams, but just that most passive income streams require significant efforts to acquire. A passive income stream grants you the luxury of making money without being there or mainly working. Passive income might not be passive initially; it might require a little time before it begins generating flowing in (patience is key here).

Examples of passive income are income derived from interest or income paid from bank deposits, rental income from real estate/property, royalties from writing a book, network marketing, etc.

Portfolio Income

Portfolio income is from investments, including dividends, interest, capital gains, and so on. It’s also the income that you make from selling an investment much higher than what you originally paid for. The con of this income is a large amount of money needed to start it. Most active income earners save up for this type of income, and you would need to do adequate research to ensure you don’t invest in liabilities. Also, you can’t determine how an investment turns out. There’s a level of risk involved (well, what doesn’t include risk in life?)

Now, we know the types of income. It’s time to work on expanding our means of income. Once bitten, twice shy. Don’t let the lessons from COVID- 19 become a waste.

It’s essential to know how money works and how we can get cash before going for any income type. It’s also important to know that not all avenues may be for you! There are options out there, and sure they might take some time to work, but the rewards can be unbelievably great when applied with wisdom and understanding.

Now you know, make a difference in your finance. I hope this was helpful?

Do you some other form of income you can share with us? Let us know in the comment session.

The Little Book Of Common Sense Investing by John C. Bogle – A Review

The Little Book Of Common Sense Investing by John C. Bogle – A Review

Compiled by Aina Joseph

Chapter one – THE PARABLE

In the first chapter of his book- The Little Book Of Common Sense Investing, John C. Bogle succinctly used a simple parable of the Gotrocks family that was originally narrated by Warren Buffet, the CEO of Berkshire Hathaway and the infamous Oracle of Omaha. Bogle, whose parable seemed convincing enough, argued that the more active is your investment, the more tax you pay, and the more your money goes out as commission to the intermediaries.

Thus, sustainable investment and a wise investor will diversify but, at the same time, keep fees low and build over the long term. Hence, the need to invest in index funds or other mutual funds because they provide a better opportunity and platform to do this successfully.

Bogle pointed out that the higher the level of an investor’s activities are, the greater the cost of financial intermediation and taxes, and ultimately this will lead to a less net return from the shareholder.

Chapter two – RATIONAL EXUBERANCE

Many investors make the mistake of holding a stock for a short time, and when the market is down, they tend to lose their money. Rather than using this route, John C. Bogle advised investors to buy and hold stocks for a long time.

Although there are ups and downs in stock investing, in the long run, the aggregate shows that you will earn more. This is what Bogle referred to as rational exuberance.

He proved that for each $1 invested in 1900, the return would be $43k over 116 years. Although no one may live up to 116 years, your next generation can, thus, long term stock investing is a way of building generational wealth.

The author also noted that stock trading involves forecasting “swing in investor’s emotions,” and to do that accurately is impossible, but predicting the long-term success of a company carries a remarkable higher odd of success. Conclusively, there are two types of investments; speculative investment or stock trading and a long-term investment like index funds.

Chapter three – CAST YOUR LOT WITH BUSINESS

Rely on Occam’s Razor to win by keeping it simple. Occam’s Razor: when there are multiple solutions to a problem, choose the simplest one. So how do you cast your lot with business? “Simply by buying a portfolio that owns the shares of every business in the United States and holding it forever,” the author suggested.

He used William of Occam’s expression of 1320 to buttress his point. “When there are multiple solutions to a problem, choose the simplest one” It is a simple concept that guarantees you win the investment game played by most other investors who – as a group- are guaranteed to lose.

To focus on the long-term investment, the best parameter to look at is the business and their number and not speculation surrounding individual stocks.   

John Bogle claimed that the S&P 500 is highly profitable. He did this by comparing the performance of the S$P 500 and the total stock market over some time. He expressed how major government parameters are utilizing an index fund to achieve a long term guaranteed profit from the investment.

Join the club to Read More…

How to Sources Funds for your Business Idea – My thought & Experiences

How to Sources Funds for your Business Idea – My thought & Experiences

You might have heard that you don’t need money to start a business. I think the better way to put it is – you don’t require capital to start working on your business idea.

Every business at any stage requires capital – to start, to run or even to expand. No business can out-grow the need for external funding. Let me put it in a better way; no business is too big or too small to ask for more money.

The focus of my thoughts on this matter will be on two things. First, what to do before you ask for (more) money and second, where to look for money. Join me on this ride.

Four things to do before you ask for (more) money

  • Move past the idea stage.
  • Know what you want
  • Use your own money
  • Horn your communication Skills

Let’s take a look at each of them one after the other.

1. Move past the idea stage

One day I was in my business mentors office, and a young man (let’s call him Nemi) came asking for money to fund what I called a very brilliant business idea. That idea was so bright that when I heard it, I was like wow! I will invest in this idea if I have the money. But after listening to Nemi with rapt attention for like 20 minutes, my mentor simply asks, “How much do you need?”

Nemi replied with a very ridiculously low amount?  He smiled and asked again, “What did you need the money for?”

“To start the business”, Nemi responded.

“What precisely”, my mentor propped further.

Nemi man could no longer answer.

He simply asked Nemi to go and bring his business plan.

After Nemi has gone, my mentor turned to me and said, “Nick, you see that young man, he is not returning to me again. The best way to turn down young entrepreneurs who don’t know what they are doing is to ask them to bring a business plan. They will never return.

That was three years ago. Since then, I have learned never to ask anybody for money until I have done real work on my idea. I mean real work.

They are five stages of business growth – the idea, startup, growth, expansion and maturity stages.

The idea stage is the stage of conceptualisation. You just got this excellent business idea that is going to among Fortune 500 in the next five years. You have everything figure out in your head, you want to start tomorrow, and you need the money now.

Well, I will say, calm down. It doesn’t happen that way. Only a few funders fund ideas, but no one who can, will resist investing in a startup that has proven sustainability and scalability. So before you ask for money, do some work about your idea?

Carry out a feasibility study, identify your target customers, validate your users and be sure that they will love to pay to use your solution. Do your financial analysis and have figures at your fingertips. All this information will lead you to write a “killable” business plan or business proposal.

A powerful tool that can simplify this for you is called “The Business Model Canvas (BMC)”. Maybe one these days we will look deep into it.

2. Know What You Want

From our little story above, the significance of knowing what you want, when it comes to getting funding for your business is apparent. Nobody, including your friends and family, will take you seriously if you do not know what you want. Run your figures to understand what you want, how much you need and how much is for what. You can even go-ahead to run the financial projection of your profit.

Find out your break-even points, break-even revenue or even break-even unit. You can learn this calculation online. Seek for an assistant if you need to. If you can memorise your figures and have them handy, it will be super awesome. It shows you know what you are doing.

3. Use your own money

You are the first investor in your business. If you can’t put your money into your idea, don’t expect others to do so. No matter how little it is, put your money in your business. It also helps to show others that you are serious-minded.

4. Horn your business Communication Skills

When you have done your underground work, ran your figures and even invested your money in your business idea, there is still a high possibility that you will not get the fund if you don’t know how to pitch your business idea correctly.

When pitching your idea, the first thing you should take note of is your target audience. Different things attract different sets of funders.

The investors are more concern with the scalability and sustainability of your idea, especially in the long term. Thus net profit (bottom line) and break-even analysis ( how long it takes you to generate them)  is fundamental to them.

The bank is interested in your cash flow and ability to pay to pack the principal and the interest. They are less concern with your bottom line (net profit), unlike the investors.

Most grant donors are more interested in the social impact of your business. They gave out money for a course and achieving that course is very important to them. If it is to create more jobs, they will be interested in your number of employees.  They always are concern with your environmental sustainability and social impact on the community or the less privilege and venerable.

Your friends and family will want to know if you will be able to pay back them their money back. Or that you will use the funds appropriately and expand your business. Some of your uncles will think you should not be asking them for money any longer because he has empowered you.

The summary is, you should know what your funder wants and design your pitch to amplify it.

A business pitch can be writing or oral. Whatever means you are using or you are required to use, always try to be clear, concise and straightforward. You wouldn’t want to bore your audience with unnecessary jargons or unfamiliar business terminology.

Now, where can you source your business funds?