Harrison - Passive Income Secrets: The Essential How-to Guide for Creating Financial Freedom and Living the Life You Have Always Wanted!

Before we continue discussing Passive Income, I think you will appreciate learning about the secrets of Warren Buffett in bringing success to his company Berkshire Hathaway. Back in the 1960s, the value of Berkshire Hathaways stocks was only at $8. Today, the value of the companys stocks is more than $100,000. In one of his current shareholder letters, Warren Buffett explained how he and the management team focus on two value buckets for the company. The 1 st bucket is composed of several operating businesses that Berkshire Hathaway owns a controlling stake while the 2 nd bucket is composed of other investment vehicles such as stocks, bonds and mutual funds.

The two-bucket strategy gives Berkshire Hathaway the following two key benefits that allow the company to achieve success:

1. When the stock market crashes down, Warren Buffet is able to depend on the cash inflows produced by the various operating businesses of the company. He can then use part of those cash inflows to re-deploy funds into the stock market and buy stocks or other assets at a very cheap price. This will not have been the same case had Warren Buffet decided to put all of the companys funds into mutual funds, stocks and bonds. When the stock market crashes down, the value of all these holdings will come crashing down, as well. He would have been compelled to sell some of his investments which were already under-valued in order to purchase other assets or investments that were even more under-valued.
2. Except for the operating businesses with parent holding companies who have public stocks, all the other operating businesses owned by Berkshire Hathaway are basically shielded from day to day appraisals. This fact makes those operating businesses to have a lot more secure net worth and projected value in the private market. Stocks, bonds and mutual funds can have very volatile market value. This is the reason why banks and other credit institutions are more inclined to offer long-term loans with fixed rates to a more established and secure business who owns real assets like factories, buildings, retail stores and vehicles. A company whose majority of assets is invested in a portfolio of stocks, bonds and mutual funds may not be able to enjoy such debt leverage.

You can apply the same two-bucket strategy in your own life. You will be able to find it a lot easier and quicker to increase your personal net worth when you create two sources of income active income and passive income.

For a lot of people, their day jobs are considered as their principal operating business. No matter what your profession may be teaching, firefighting, accounting or even as a part-time restaurant waitress, your income from your day job enables you to pay your monthly rent and utility bills, buy your groceries, pay for your other necessities. This source of income can also provide you with the actual capital that you can use to get into real investments.

You need to treat your finances as your own business and as a business owner, you would want to make sure that you are able to increase your profits, which in this case are your income from both active and passive sources, while using the most minimum investment required. If you will be given a choice between working extended hours as a waiter to earn more money and continuing your studies to become a licensed physician, which will you choose? Well, you may choose continuing your studies because it can allow you to have more earnings in the future compared to working in double or triple shifts as a waiter. And here you will learn the golden rule in building wealth in your life which is to prioritize investments in your own self if you truly wish to achieve financial freedom in your life. You need to continuously aim to gain new skills which you can utilize to make monetary gains.

There are a lot of specialized skills that you can choose from depending on your abilities and interests. You can choose to become a neuro-surgeon, auto mechanic, dentist, plumber or fluent French speaker. Practically every one of us has the potential of adding unique and distinctive skills into our occupational toolbox in order to get ahead in life. We can no longer live inside the dream world where we can simply graduate from high school, look for employment, work until retirement age and enjoy your old age in abundance and peace. That dream world no longer exists especially with the continuous globalization of our economy. You can no longer escape reality.