Financial Freedom refers to the stage where you have enough residual income to cover your expenses so that you don’t need to work actively to earn a living. While we all strive to achieve it, it often takes a significantly long time to reach that goal with just our primary income. However, certain assets can make this journey a lot easier. In this article, we will discuss 15 such income-producing assets that can make you rich and make you financially free quicker.
You can read my article 7 Stages to Financial Freedom and How to Get There to understand more about financial freedom. So, let’s get started.
What is an Asset?
An asset is anything that puts money in your pocket and provides an economic benefit over the long term. It is an economic resource that requires our time, effort, or investment for once or for a short period, and generates return over the long term. It can be your house, property, car, cash in your savings account, stocks, mutual funds, jewellery, skills, etc.
Why Assets are Important to Become Financially Free?
There are two ways to achieve financial freedom –
1. Save enough cash so that you keep getting sufficient returns throughout your lifetime. As a rough estimate, this amount is 25 times your annual expense. For example, if your annual expense is $1000, then 25 X $1000 or $25000 could make you financially free. If you can accumulate this amount and invest in a mix of Fixed deposit and Index funds, you will keep getting returns throughout your lifetime.
So as a thumb rule, you need to save 25 times your annual expense to become financially free.
2. Build assets so that you keep getting cash flow every month throughout your lifetime. You can accumulate paper assets like Dividend-paying shares, Mutual funds, bonds, etc, or physical assets like rental property, land, gold, silver, machinery, buildings, tools, equipment, etc. These assets will keep on generating returns for a long time after the initial investment.
Which option do you like? In the first option, unless you have a big income source or financial backing, it can take a long time to save that much cash. However, in the second option, you can accumulate assets relatively quicker. You might already own some assets which can be crucial to achieving your financial freedom quicker.
Here let’s explore what are some of the key assets that can help you in your journey
15 Income-Producing Assets that will Make you Rich
1. Building an Online Business
Online business can be anything from starting a blog, affiliate marketing, dropshipping business, e-commerce store, online consultancy, digital marketing agency, digital asset store like eBook, logos, graphic designs, presentation, spreadsheets, etc.
The main advantage of owning an online business as compared to a traditional business is that you require a lot less capital and the potential is limitless. If you have the right skill set, you can grow your online business very quickly without having to spend a great deal of money.
To become successful at this, a lot of upfront work and time is needed to build an audience and establish your credibility. However, once your reach a certain level, it generates a steady flow of income without having to invest any significant effort. I highly recommend you explore these ideas and start something of your own.
2. Build a Traditional Business:
Aside from the online business, owning a traditional business is also equally effective when it comes to generating income. If you have enough capital to run a traditional business, you can start exploring different opportunities and start something of your own. There is a wide range of options to choose from, like-
- Café
- Restaurants
- Business Franchise
- Electronics store
- Car wash
- Clothing store
- Ice cream parlor
- Saloon
and many more.
While some of these businesses require a significant investment of time and money, others require less time and maintenance costs. You can choose the right business depending on your investment capacity, whether you want to dedicate full-time to your business or just look for some side income, the competitive landscape, and many other such factors.
Starting a business does not guarantee success, moreover, it is often considered risky as well. So, while owning your business is a great asset to have, making it work is your responsibility.
3. Real Estate and Rental Property
Real estate and rental properties are some great assets and can be very rewarding. By owning rental properties, you get a steady source of income every month in the form of rent. You can buy apartments, duplexes, houses, and vacation homes and use services like Airbnb to make money off your property.
However, owning a real estate property may require significant investment. If you don’t have enough money to own a property, the next option would be a great alternative.
4. REIT
If owning a property for renting is not feasible for you, then investing in REIT could be a more practical idea. REIT or Real Estate Investment Trust is an entity that channel funds into operating, owning, or financing income-producing real estate. It operates similarly to how Mutual Funds work. While Mutual Funds invest your money across multiple businesses, REIT companies manage portfolios of high-value real estate properties and mortgages. For instance, a REIT company will lease out properties and collect rent from them. Later they distribute that rent as income and dividends to its shareholders.
Investing in REIT provides regular income, portfolio diversification, and long-term capital appreciation.
Examples of some of the REIT companies in India to look out for:
- Embassy Office Parks REIT
- Mindspace Business Parks REIT
- Brookfield India Real Estate Trust India
5. Stocks
The stock market can be very rewarding if invested wisely. A share represents a unit of equity ownership in a company. So, when you purchase a share, you become a stakeholder in the company and you directly befit from the company’s growth.
We all have heard stories about the great Warren Buffet, and how he became a billionaire by investing in the share market. Warren Buffet made his fortune by relying on the time-tested rules of value investing which means investing in high-quality stocks at fair market valuation. He then holds his investment for a long term, often indefinitely, and lets the power of compounding do its magic.
One thing you keep in mind is that Investing is very different from trading. Investing refers to holding on to a stock for the long term to earn returns, whereas trading is buying and selling shares in the short term in the hope of making quick money. Due to short-term market fluctuations, trading becomes like gambling, and you run the risk of encountering big losses. So, avoid trading and focus more on long term investing.
So, few things to keep in mind while investing in stocks –
- Diversify your portfolio
- Do your own research to identify good companies
- Read the company’s financial statements
- Aim for long term
- Regularly review your portfolio and adjust based on changing market dynamics
- Stay up to date with market whereabouts
- Don’t buy a stock simply because somebody said so
Investing in stock requires time and effort to stay updated, and find out good businesses. In case you can not dedicate that much time, mutual funds could be a better option.
6. Mutual and Index Funds
One of the key concepts in stock market investing is portfolio diversification so that we are not heavily reliant on one particular stock. Mutual funds and Index funds bring together a bunch of securities in a single basket. So, when you invest in a Mutual fund or Index fund, your money gets allocated to securities such as stocks, bonds, and short-term debt. That’s how it manages the risk and generates decent returns (depending on the type of fund).
Mutual and Index Funds are great instruments to build wealth. You can either invest a lump sum amount or invest systematically through SIP (Systematic Investment Plan). Investing in a SIP manner helps you further minimize the risk by eliminating the impact of short-term market fluctuations.
You can easily get a return of 12%-15% (on average) through these funds. So, if you invest regularly, increase your investment as your income grows, and let it compound for 15-20 years, you can build a significantly large wealth. The final amount might as well shock you. You can check out how much wealth you can build in this way using many SIP calculators available online.
7. Dividend Paying Stocks
Some companies distribute a certain portion of their annual/quarterly profit to their shareholders in the form of dividend payments. Dividends are most likely paid by well-established sustainable companies that don’t need to reinvest a lot of money back into their business. Hence, dividend-paying stocks are often stable and less volatile. So, while you are less worried about market fluctuations, you get a steady source of income for many years.
Not all companies pay a dividend. So, please do your research before investing in such opportunities. You can evaluate dividend stock opportunities by their dividend per share, dividend yield, and dividend payout ratio.
8. Certificate of Deposit (CD)/FD
CD is safe income-producing assets offered by banks and credit unions that provide interest premiums on your savings in exchange for you agreeing to keep your deposit for a predetermined fixed period of time. You can think of it as giving a personal loan to the bank and in exchange, they pay you some interest.
You can compare various bank FD rates to figure out your best bet. However, in most cases, the interest you get is not significant. So, you won’t be able to grow your money by too much. But, if you are someone who wants to keep some of your investment safe, like the money for your emergency fund, this could be a good asset.
9. Bonds
Investing in bonds is similar to investing in CDs, the difference is that instead of loaning your money to the bank, you are loaning it to the governments or corporations. Investment in bonds is a safer option for balancing out your portfolio. Bonds are usually stable and provide a fixed percentage of return. Here are a few types of bonds you can invest in:
- Government Securities Bonds
- Corporate bonds
- Treasury bonds
- Junk bonds
- Municipal bonds
- Convertible Bonds
Bonds being safer investments offer lower returns when compared to stocks.
10. Gold and Silver
Investing in precious metals like gold and silver could provide you a hedge in a potential economic or market downturn, as well as during sustained periods of rising inflation. Prices of gold and silver always tend to increase over time, unlike other assets which are affected by market dynamics. Gold in particular has very less correlation with stocks and other major asset classes. Hence, gold is less affected by economic declines. Both silver and gold are good portfolio diversifiers.
However, many investors do not consider gold and silver as Income Generating assets which means these assets do not generate any income by themselves. Still, I would recommend keeping some in your investment portfolio as extra security.
11. Freelancing
Freelancing is great way to generate a side income. If you are a content writer, administrative assistant, graphic designer, video editor, teacher, digital marketer, developer, or possess any other on-demand skills, you can market these skills online on various platforms and find clients who need your service. There are many websites like Fiverr, Freelancer, Upwork, Toptal, etc. where you can showcase your skills, build a portfolio and find clients.
12. App Development
Nowadays we use an app for almost everything. If you are good at programming and understand the technicalities involved, you can develop a useful app and place it on the right platform. If it turns out to be successful, you can become financially free a lot quicker. If it fails maybe, you can experiment with your new big idea. With help of the right tools like Andromo, AppsGeyser, AppMakr, and Bubble, you can develop an app with little to less coding knowledge.
13. YouTube Channel
If you are a content creator, you can earn money from your YouTube channel through
- Advertising revenue
- Channel memberships
- Shopping
- Super Shat or Super Stickers
- Super Thanks
- YouTube Premium revenue
Content creators can join the YouTube Partner program after accumulating 1,000 subscribers and 4,000 hours of watch time on their uploaded videos. This gives creators access to monetization features such as advertising, fan funding, and merchandise sales.
However, this is a highly competitive space.
14. Digital Course
If you have expertise in a certain domain like Investment, Video Editing, Graphic Design, Real Estate, Coding, Digital Marketing, etc, you can make a digital course and sell it through various platforms. The global e-learning market has seen significant growth post the pandemic, and the demand for authentic and credible digital courses is increasing. There are various platforms like Udemy, Skillshare, Coursera, Teachable, Podia, Thinkific, Kajabi, etc. where you can create your digital course and gain access to potentially limitless learners.
15. Intellectual Property
Intellectual property (IP) refers to creations of the mind, such as inventions, works of art and literature, designs, names, and images that can be associated with legally recognized rights such as copyright, trademark, or patent. This includes articles, books, music, movies, artwork, photographs, comics, software, logos, and more.
A great example of this would be the content itself. I am writing this article in 2023, and it will keep getting views for many years to come. If this article is a valuable one and ads will be running then I will keep getting some income through this article for a long time. If you create any such asset once and earn royalty or revenue from them for life, then these are brilliant assets.
Place your Intellectual Property in the relevant marketplace, sell them through your website, and build an audience who will be willing to purchase that.
Hope you learned something today. Would love to hear your thoughts in the comments. Let me know in case I missed any asset that you feel important.
