EP04 Create a Business to Serve Your Life Part 1
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ABOUT TODAY’S EPISODE:
As you consider going into business for yourself it is so important to stop and consider the type of lifestyle that you want FIRST. It is so easy to get caught up in the passion, excitement, energy, logistics and tasks of starting a new business that we often overlook considering our quality of life. In order to truly create a life you love it live it is critical to identify the life that you want to live before creating a business. Your business should serve your life, rather than your life being defined and driven by your business.
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As you consider going into business for yourself it is so important to stop and consider the type of lifestyle that you want FIRST. It is so easy to get caught up in the passion, excitement, energy, logistics and tasks of starting a new business that we often overlook considering our quality of life. In order to truly create a life you love it live it is critical to identify the life that you want to live before creating a business. Your business should serve your life, rather than your life being defined and driven by your business.
In this special 3-part series we are going to cover the multiple business models and provide you with the tools to identify the business model that will serve your life and ultimately be successful. Prior to diving into this content it is very important that you have already listened to Episode #2: How to IDENTIFY and GET the Life You Want to Live. My goal for you is that after listening to this special 3-part series that you have a paradigm shift in the way you look at starting your own business, and that you know which business model is right for you. In this series I will break this down into six steps for you.
Step #1 Understand Passive Income
Financial freedom is a key component of creating the life you love to live, and financial freedom is achieved through passive or residual income. Wikipedia defines passive income as:
An income received on a regular basis, with little effort required to maintain it.
Passive income very closely relates to what the American Internal Revenue Service defines as “unearned income”. The IRS breaks income into three broad categories:
- Active (Earned) Income
- Passive (Unearned) Income
- Portfolio Income
Passive Income is defined by the IRS as only coming from two sources:
- Rental activity
- Trade or business activities in which you do no materially participate
Some common examples of passive income are:
- Any type of property income
- Earnings from a business that does not require direct involvement from the owner or merchant
- Rent from property
- Interest from a bank account
- Royalties from publishing a book, licensing a patent, or other forms of intellectual property, such as software
- Earnings from Internet advertisements on websites
- Dividend and interest from owning securities
- Pensions
A very simple way to think about the difference between active and passive income is that active income is when you have to trade dollars for hours. Passive income is when you build something and get paid over and over for it. Most of us have to go to work in order to receive a paycheck, and we have to produce for your paycheck. Passive income is setting up a system or business one time and getting paid over and over and over on that. This is the most critical piece to understand for the financial component creating the life you love to live.
Real Life Examples of Passive Income
My good friend Rolf Gates created a passive income as a Yoga Instructor by writing a book of daily life principles and philosophies called “Meditations from the Mat”. Rolf spent a year writing the book and not making any money, but now that the book is published and available Rolf gets paid every time someone purchases his book. The second thing that Rolf did was to create simple recordings of the yoga classes that he instructs. He sold the rights to those recordings to an online Yoga community, and he gets paid when people stream his yoga classes in their homes.
Passive income often starts smalls, but grows very quickly over time. The beauty of passive income is that you have the ability to stack income streams on top of one another like Rolf did with the book and yoga streaming. Rolf no longer had to be working all of the time to earn income from those two areas.
When I was visiting the Cape with my family two years ago I had an experience that really highlighted the power of passive income. My wife and I would go for drives every night to settle the kids down and look at the beautiful properties in the area. We noticed that on the weekends all of the small inlets where people dock their beautiful boats were empty. But when we took the same drive during the week all of the boats where docked and unused for the week. These property owners have beautiful seaside homes with boats, but they don’t have the freedom of time to enjoy them because during the week they are back at their jobs trading hours for a paycheck. The power of passive income is that you don’t have to trade your hours for a paycheck and you have the ability to what you want, when you want, with whom you want.
My wife and I structure our life so that we take the summers off. We are able to do this because we have a passive income that pays us whether we work or not. This is the way that we have created the life we love to live through the creation of passive income that provides us with financial freedom. Please refer to the monthly reports on our website to learn more about how we grew our passive income. In addition the book ‘Rich Dad, Poor Dad’ by Robert T. Kiyosaki is a great resource for understanding passive income.
Step #2 Understand The Four Basic Types of Businesses and Why We are Only Going to Focus on One
Types of Businesses:
- Big Business:
Examples: Ford, Apple, Exxon - Investor:
Requires cash upfront
Examples: Real Estate Buyer, Stock Market Investor - Sole Proprietor:
One owner who works for themselves and by themselves without a large business
Examples: Landscaper, Hair Dresser, Yoga Instructor - Small Business Owner:
Own a business that operates without their constant involvement
The small business is the category that provides the greatest opportunity for passive income with the lowest barriers of entry (i.e. it does not necessary require a large upfront investment). The small business category can be broken down into 7 different types of business.
Step #3 Understand the Seven Different Types of Small Businesses
- Sole Proprietor:
- Landscaper, Yoga Instructor
- Working by yourself, for yourself
- Traditional Small Business:
- Bakery, Clothing Store
- Creating a business from top to bottom
- Franchise:
- McDonalds, Burger King, Panera
- You own and run a location(s) of a business that has already been created
- Affiliate:
- Marketing other people’s products for a percentage of sales
- Professional speakers often do this through affiliate links
- Network Marketing:
- Beachbody
- Distributing products for a company that handles all overhead costs including marketing
- This is where the majority of our passive income is from
- Content Creator:
- Blog writer, podcast creator
- Creating original content
- Real Estate:
- Buy and hold real estate and getting paid rental income
- Buy real estate, fix it up and sell it for a profit
Links:
Wikipedia Unearned Income
Wikipedia Passive Income
Rolf Gates Book
Rolf Gates Yoga Streaming – yogavibes
Rolf Gates Website
Book: Rich Dad, Poor Dad
Book: The EMyth Revisited
Keith Callahan – Monthly Reports
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