This is the story of two brothers. Their parents divorced when the boys were young, and a single mom raised them. With their mom constantly working to make ends meet, the boys were left on their own, with the older brother (by two years) caring for, the younger brother most of the time. They got to school on their own and, once back home, were on their own with their school work and meals. There was little parental attention or supervision, but their mom instilled in them the value of hard work. They did well in school, both earning scholarships to state schools.
The older brother went into accounting, and the younger brother went the MBA route. The older brother graduated in four years. After undergrad, the younger brother put in the requisite two years as a financial analyst before starting the MBA program at a prestigious Midwestern program. The MBA degree was financed with hefty student loans.
After graduating, the older brother took a corporate job, but after three years, he decided to branch out and start his professional services firm. He also met and married his wife and started his family in that time period. His firm provided a good living, but his family’s arrival shifted his perspective. Did he want to go through the grind of professional life and miss out on so much of his children’s lives? No.
The older brother decided that he had to find a way to generate income that didn’t depend on him being at the office. He could delegate a lot of duties and bring on a partner to run the firm, but to live the life that he truly wanted to live with his wife and kids – one in which he could do anything with them any time he wanted – he would have to find a source of income that could make him money in his sleep.
After extensive research and opening up his mind to alternative investment opportunities, the older brother was attracted to commercial real estate (CRE). After all, many billionaires and millionaires had made their fortunes from real estate. There must be something to it, he thought. But, with his already busy schedule, he did not see a way for him to climb the steep learning curve of commercial real estate investments in a short amount of time. Also, the types of properties he was interested in would require capital he needed help to come up with.
But then he discovered the world of passive investments and the opportunity to invest passively in private companies that invested in CRE, offering investors the chance to reap the financial rewards of CRE without the time restraints of financial limitations of doing it on their own.
With the transparency and access to management offered by private companies raising capital, the older brother could latch onto a local private offering for his first investment. He parlays the cash flow from that investment into other investments to generate multiple passive income streams. He eventually reached the point where his passive income matched his professional income, and he could theoretically walk away from his career if he chose. He had achieved financial independence.
After graduating with his MBA, the younger brother jumped head first into the corporate world – working his way up the ladder and becoming an Executive VP by the time he was 36. He was making half a million dollars a year. He, too, got married and had a couple of kids. To compensate for his absence, he spoiled his wife and kids – giving them carte blanche with credit cards to buy and do what they chose. They lived in a huge house, drove the nicest European cars, ate out, and spent extravagantly. Between his student loans, debt and expenses, he had little in the way of net worth.
Both brothers are millionaires, but their lives are very different. One has freedom, no debt, peace of mind, less stress, and even pays fewer taxes. The younger brother burns the midnight oil, is constantly stressed, brings his work home, and, other than the two vacations he takes a year sees little of his family. He has no financial freedom. If he stopped working today, it wouldn’t take long for the money to dry up.
The younger brother is an income millionaire. He makes a million dollars in income every two years. The older brother is a net-worth millionaire. The value of this brother’s assets exceeds the value of his debts. Besides that, the type of assets each brother owns is very different in their utility. The younger brother has assets that only drain his pocketbook – cars, a home, and toys that need constant upkeep and expenses. These are diminishing assets – assets that deplete wealth. The older brother has productive assets that make money 24-7. These assets generate passive income, which is reinvested to create additional income streams and grow wealth exponentially.
The lesson from these brothers is that being a high-wage earner doesn’t automatically secure financial freedom. That independence can only be acquired through generating income streams, not dependent on a time clock.
You must find a way to put your money to work to avoid being in the younger brother’s position of having to trade time for money. However, if you can generate passive income like the older brother, you can buy back your time and live the life you have always dreamed of.
