Building Passive Income
By: Win Chan
Tags: Scalability, Business Strategy, Personal Development, Invesment, Passive Income

When we spend enough time with friends, family, or on the internet, we may come across people sharing about investment, passive income, financial freedom or something similar in this category. In short, it’s how we can grow our wealth exponentially. At the same time, this is also a mythical area, where many tried but very few succeeded. Regardless of the investment vehicles that we use, scalability is the very crucial factor to grow our wealth tremendously.

What is scalability?

It’s a concept that whether we can duplicate the result with minimal effort and time. The duplication is the effort of creating passive income.

For example, you have one lemonade stall that give you RM10 profit daily. You can scale the investment by opening another stall. This duplication gives you the possibility to double up your profit without much extra effort and time.

How to scale up?

Before deciding on how we can scale, we should chart a plan to clarify our purpose and direction. Without a clear roadmap, our investment and money could be parked at somewhere less productive.

Clarify our plan with these questions:

What is my purpose of generating this passive income?

What is my investment goal?

How much income am I looking to generate?

What is my expected time frame to achieve the target?

Once we have a draft of the investment road map, we can now get into choosing our investment vehicles and our approach to scale up the income.

Approaches to Scale

Scaling our income means that we will be able to increase our income without requiring much additional time. In other words, creating passive income by duplicating or multiplying our result with the similar amount time used.

We generally can scale up income through 3 major approaches.

First on the personal level, we can scale our income by investing in people development. A common example, we can gain new skills or qualifications. That potentially scale up the time-money income, where others use 1 hour to generate RM50, you can use 1 hour to generate RM5000.

Besides, we can leverage our investment into businesses by multiply our income generation channels. Simply illustrate with this scenario, Mr ABC, he sold a pair luxury shoes, profited at RM1000 per pair. With his usual ability, he can sell only 5 pairs a month. To increase the sales amount, he will need to develop and duplicate another business unit to do the same. Now the whole business can potentially sell 10 pairs of shoes in a month.

Another approach is gathering capital to scale the income. If want to generate about RM4000/month at 10% annual investment return, then you will need about RM480,000 of capital. In this case we will need to have RM960,000 to double up the income. Therefore, we will need to gather another RM480,000 of capital through our cash, borrowing, or equity offering.

Conclusion

Successful investments require us to have clear goal, purpose, and direction. Without them, we may have to pay a lot of unnecessary opportunity cost. When we understand and apply the concept of scaling, duplication, and multiplying, we will be able to generate passive income in any business or career that we are building. Whereas, investment or passive income generation is not limited to the typical financial tools like stock markets, unit trusts, or real estates. To be more precise investments planning is done on 3 aspects: people, channels, and capital resources.