Jan 18, 2020
A Roadmap to Financial Freedom XI — Mailbox Money
Wouldn’t it be nice just to sit back and reap the rewards of your hard work? You could decide to do what you want with your days. No worry about where the money’s coming from. No, I’m not talking about hare-brained politics like Universal Basic Income. I’m talking about being a smart investor. In my last article, I covered a few of the steps you could take to get yourself out of the debt hole and stay there. But is that the end of the road? What do you do with the extra money you make?
Your Dollars Are Your Employees
You shouldn’t think of yourself as an individual. It would help if you started thinking of yourself as a company. Each dollar you own, is an employee, and its goal is to make as many more of its kind as it can. To do so, you have to find a job it works well at. Now, granted, some of your money will leave you, and the “only” thing you’ll get to show for it would be food, or trips, or some material goods. But for the rest of those workers, you need to find a place to put them to work. That’s where investing comes in.
How Does Investment Work?
There are entire university courses dedicated to teaching people how to invest appropriately and the right way to speculate using fancy mathematics. I can’t comment on the theories regarding investment since I’m not an investment banker. However, I can try to break it down in a simple way so you can understand. As an investor, you aim to find a company that you can put your money into. It’s not a loan — you’ll never see that initial seed money again — but you’ll own part of the company your money’s in. However, you’re getting something from that money that you probably wouldn’t get otherwise — a constant return. This continuous return, according to Nerd Wallet, is called a dividend.
However, as Forbes mentions, businesses aren’t required to pay dividends. Still, they are an excellent incentive to keep investors interested in investing in their company. The reason businesses create shares for sale in the first place is because they need funds to do something. Whether that means buying new equipment or expanding into a new industry, the money they get from those share sales can then be used to help the company grow. As the company grows, the value of the shares goes up, meaning that the investors can then sell their shares to someone for far more than they paid for it. It’s a win-win situation.
Getting Money in your Mailbox
Dividend checks are usually paid to shareholders at the end of every quarter (usually), although other companies have different methods for sharing that money about. Many personal finance enthusiasts refer to this as “passive income.” A Medium article by Sam Weistreich notes that many of the passive income systems aren’t really that passive. The only one that guarantees that you don’t have to DO anything is dividends from stock.
Why is Passive Income Important?
When I talk about financial freedom, I see it as the means and ability to do what you want with your own time. No longer chained to a desk and working for someone else. Instead, you’re on your own beat, able to do as you want and follow your passions. Passive income not only gives you that freedom but also offers you the chance to explore more about the things you enjoy.
In the next series of articles, I’m going to cover a few ideas about investing to help you wrap your mind around what it is, how you can do it, and what it entails. However, this article wraps up my Roadmap to Financial Freedom. I’ll be posting one more piece in the series that’s a recap of what I covered before. If you missed any of the previous articles, this is your chance to catch up. Thanks for sticking with me all the way through this, and I hope to see you in my next series!
Sincerely,
Jason K. Dookeran
