To begin, we need to clear some misconceptions…
When talking about investing, finance or success in the world of entrepreneurship, you inevitably find statements like:
Let your money work for you.
Invest so that you can do nothing and earn money.
Create passive income streams.
These are wrong.
They are selling a dream. Or rather, they are selling the wrong idea. You need to know….
There is no such thing as passive income
What?!
I hear your but but but… stocks, real estate? That guy on TikTok showing all kinds of ways for passive earning.
STOP❗
Is any of that really passive? Did you not need to take action (and pay money) to buy stocks? Do you not need to manage tenants in real estate (or pay someone to manage it for you)?
Even winning the lottery requires you to get up, go buy the ticket, see the results when they are broadcasted, check them against your ticket, discern if you won and then claim the prize.
Granted, this required very little effort compared to the prize you get for it… but it is not passive.
When it comes to mindset, details are important
These semantics seem silly to argue about, but it makes all the difference in predicting success.
If your goal is to have money and assets work for you in order for you to do nothing, you will be disappointed. If you, however, choose to view the world as a series of transactions, where you are simply trying to get most out for what you give in (remembering that you need to give to get), then you are thinking of…
ROI (Return on Investment)
ROI, or Return on Investment, is primarily a financial metric used to measure the efficiency of an investment. It is calculated by dividing the net gain or loss from an investment by the initial cost of the investment. ROI is usually expressed as a percentage and is used to evaluate the performance of an investment over a certain period of time.
Example of a ROI calculation:
You invest $10k in a marketing campaign. After the campaign, you see increase in revenue of $150k. To calculate the ROI, we divide the net gain (increase in revenue) by the initial cost of the investment (the marketing campaign):
ROI = ($150,000 - $100,000) / $100,000 = 50%
The ROI of this marketing campaign is 50%, meaning that for every dollar invested in the campaign, you saw a return of 50 cents.*
*It's important to note that, ROI is a relative measure, it should be calculated and compared to other investments. Additionally, ROI calculations should be done over a period of time, as the investment produces cash flows over time.
ROI tells you if your investment was good and how good (or bad). This is important to know, so you can avoid making bad investments. For instance, if the marketing campaign above cost more than increase in revenue, you know that you have to change something.
Investing mindset
Like investing money into a marketing campaign, we are investing time in things we do every day of our lives.
- By working a job, we invest time to get profit
- By hiring a new employee we are investing money to gain time (yes it goes the other way around as well)
- By spending time with our family we invest time and in return we get love & companionship (and a bunch of other positives, but still, that is profit for investing time into family time)
- By spending time brushing our teeth we gain better oral hygiene and even some money (less dentist visits down the line)
Virtually everything you do in the world can (and in my opinion should) be viewed as a transaction of spending something to get something in return…. khm khm… return on investment.
But why?
Humans are inherently selfish
Altruism doesn’t exist. There I said it.
When we look through the lens of ROI, altruism becomes just another transaction. What do you get if you buy a meal for a homeless person? You get an affirmation of you being a good person. You get happiness seeing someone happy. Whatever it is, you give help, but receive positive emotions. That is a business transaction.
One of our guides at Niblu Group is: “we get a kick out of seeing other people succeed”. That might be noble and all, but it is (again), a transaction, because we give help and get a feeling of satisfaction and money.
How does that help you?
What is a sure way that a business will fail? No plan, no direction, just doing something out of opportunity and going with the flow. That is no way to run a successful business…
Tu succeed in business you need data. You need to know what you are selling. You need to know what you get out of it. You need to know if what you spend (time and money) is getting you desired results (ROI). If you don’t have the numbers, you cannot succeed.
So why treat life differently?
Stop being lost
Imagine you quantify your life. Imagine you gain clarity on what are the things that bring you the most happiness and purpose. Imagine you know exactly what to do in order to maximise the best results. Imagine yourself doing the things that give you the best results in life the most!
Imagine yourself as a person who feels AMAZING after they accomplished something (as most people do) and you know it. You know that investing time & effort into finishing something and checking it off gives you this immense feeling of joy (before everything else). You now know to structure your life around accomplishments. Set tasks to complete them, no matter how small, and get you that joy!
Another example would be:
Imagine you run a successful agency and earn a lot, but still feel like something is missing. You quantify how much of a positive aspect money has on your life and how much time you spend for that amount (a ROI calculation). You figure out that 20% of what you do actually earns you 80% of all income (that is the Pareto principle and I have a separate post about it).
You also figure out that spending time with friends and family is worth more to you than 20% of your income. You now have the tools to restructure.
You identify the 20% most important tasks that give you the largest ROI and do more of them, which increases your profit. You also cut the 80% of least important work and replace that with family & friends time, which gives you more worth back, further increasing your life ROI.
You can see how business and life are intertwined.
Analysing and quantifying your effort as an investment is something I teach businesses (because many sorely need it). It can also improve your life, drastically. Just as in business, if you figure what gives you the most value for the least investment, you will win. Everytime!
Conclusion
In conclusion, it is important to clear up misconceptions about passive income and instead, adopt the mindset of return on investment (ROI) when it comes to investing and building wealth.
Passive income is not a reality, and even investments in stocks and real estate require effort and management. By viewing everything as a transaction and focusing on maximising the ROI, we can make better decisions and achieve greater success and fulfilment in all areas of our lives.
Additionally, it is important to remember that humans are inherently selfish, and everything is a transaction of spending something to get something in return, which is the ultimate goal of ROI.