Financial freedom is important. But not many people seem to realise it. Even if you have no intention of escaping the rate race and quitting your job, I would argue that everyone needs to earn enough passive income to cover their expenses. For who knows, your world as you may know it might end tomorrow just by one silly or reckless mistake.
Think this is impossible? Just look at the anchor woman fired over a Facebook post. The man let go from his apprenticeship at a Cleveland-area real estate firm after a tweet. The women fired from her job before she even starts it after a tweet. And the now infamous Dr. Walter J. Palmer who had to shut down his business in the wake of the Cecil the lion scandal . Just one false move and the primary way of earning your daily bread could vanish – and in the case of Dr Palmer, most likely for life.
All the above people have discovered that in a world of smartphones, tablets, computers, watches, traffic cameras, security cameras, Tumblr, Twitter, Snapchat, Tik Tok, Youtube, Facebook, and Google, there’s not many places people can hide unless they remain off the grid. Now I am not saying his will happen to you. I hope you are more sensible than that. The point is to show you what can happen and how a stream of passive income can make your life less bad.
If you are in employment, or even self-employed for that matter, you need to acquire cash generating assets that are pumping out the dividends, rents, and royalties on a regular basis.
Say you bought a block of 25,000 Royal Dutch Shell shares 3 years ago and all of a sudden a scandal hit you that were to cause you to lose your job or damage your reputation to the point of where you had to close down the business you own. Your primary economic engine – the thing that generated the lifestyle that allowed you to live so well and took more than a decade of hard work – has been wrecked; permanent impairment that will be difficult, if not impossible, to recover. That would be a pretty tough place to be in.
Thankfully, you bought shares in a publicly traded company that cannot discriminate against your ownership. Your shares are still worth the same as everybody else’s. Your shares are still worth a six figure amount. No matter how hated you are, you will still be receiving £27,200 per annum from your cut of the oil, gas, chemical, refining, transportation, and other activities.
You’d still be earning the average UK income. Every three months, you’d open your statement to see another £6,800 deposited. It doesn’t matter if you are loved or despised. It doesn’t matter if your reputation is in tatters. As long as your name is engraved on those stock certificates, you ownership still gives you the right – whether someone likes it or not – to collect your pro-rata share of the distributions.
Unlike a small business, you can’t exactly boycott Royal Dutch Shell over a single, relatively small investor (and everybody is relatively small to Royal Dutch Shell– the empire has a market capitalisation of around a quarter of a trillion pounds).
Even if you owned shares in a smaller company, the advantage is that unless you open your mouth, stocks can largely be hidden so people wouldn’t even know to boycott that company in the first place because nobody would have any clue he owned it!
There are almost no disclosure requirements under most circumstances for a U.K. based investor acquiring a U.K. based stock provided you don’t cross the 5% ownership threshold, which is easy to stay under even for billionaires given the size and scope of the domestic equity markets. The same goes for bonds, REITs, (to some degree) royalty unit trusts, and anything else that allows you to “disappear”, in a sense, into a broad crowd of thousands of other owners.
Once you own shares in a company, you make that jump from employee to shareholder. You become someone that cannot be fired or made redundant. You become someone that cannot be discriminated against. As long as you invest in the right companies your passive income stream will keep growing year on year as the profits move higher. That is why financial independence is important. So if catastrophe strikes, at least you have an earnings stream in place that you can rely on.
Even if you love your current job, you should have money invested. Management can change, teams can reorganise, recessions can hit, layoffs can occur and good colleagues come and go. Enjoy the good times but have investments for when catastrophes strike.