I've been speaking at several seminars this fall. My topic of choice is wealth strategies because wealth strategies cover it all - not just wealth, but taxes and business too. Plus, the topic of wealth strategies takes me all over the world to speak because wealth strategies cross over international borders. I just returned from Canada last week and next month I'm on my way to Sydney, Australia.



- The Big Passive Income Mistake -

At the last seminar I spoke at, I met a gentleman with a question about his wealth strategy. His situation was not unfamiliar to me, I've heard it many times, so I knew exactly what the mistake was in his wealth strategy before he even finished.

I'll call him Pierre - the name changes but the story I hear is always the same. Here is what Pierre shared:

A few years ago, Pierre started his investment plan to generate passive income because he knew that passive income was his ticket to financial freedom.

Pierre earns $150,000 annually and is able to set aside $30,000 each year to invest.

In his first year of investing, Pierre put his money in investments that generate passive income at a rate of 5%. After his first year of investing, Pierre is thrilled about the $1,500 of passive income his investments generated and he continues working and investing $30,000 every year.

Pierre is now a few years into his investment plan and realizes that it will take him over 30 more years to have enough passive income to replace his earned income. This realization has Pierre spinning because he thought he had a sound investment plan.

As I mentioned, I immediately saw the mistake in Pierre's investment plan.

I call it the big passive income mistake and it can set a wealth strategy behind by years.

Pierre didn't see the mistake, and honestly, most don't. At first glance, it seems Pierre is doing great by following a sold plan of investing $30,000 every year. But let's think about what Pierre is trying to do. Pierre is trying to create massive passive income, meaning he is trying to generate enough passive income to cover all of his expenses.

With his current plan, Pierre is generating passive income, but not massive passive income.

What Is The Big Mistake?

Some people think the big mistake is the 5% rate of return, but it's not. If Pierre had $3,000,000 and invested that at a 5% rate of return, he would have $150,000 in passive income. With that amount of capital, the 5% rate of return is not the issue.

And that is the big mistake! Pierre needs more capital!

The big passive income mistake is investing too soon in assets that generate passive income. Too soon means the amount available to invest (the capital) isn't enough to generate the passive income desired.

What Can Be Done To Correct This Mistake?

To correct this, the focus should first be on generating enough capital. Once there is enough capital, then the focus can shift to generating passive income, and at that point, it will be massive passive income because the amount of capital is large enough to generate the desired amount of passive income.

Instead of jumping from earned income to passive income, Pierre needs some stepping-stones that grow his invested earned income into the amount of capital he needs. Once Pierre has grown his invested earned income into his target capital amount, then the focus of his wealth strategy can shift to passive income investments.

- Reduce the Risk in Your Wealth Strategy -

One of the ways to reduce the risk in your wealth strategy is to increase your knowledge. Think about how Pierre's wealth strategy was impacted by not knowing the formula to create massive passive income. Where could Pierre's wealth be if he had followed the massive passive income formula from the start?