Passive income has the power to bring financial freedom to Latin American families. However, many people do not reach them for various reasons: ignorance, lack of resources or distrust.
Therefore, today we will give you some tips to better manage your investments and achieve passive income not only with the real estate sector, but with any other investment.
What is passive income and why manage it?
According to economist James Chen (2022), passive income is that generated by your investments. It is about that inflow of resources that is not conditioned to your salary.
Some analysts have concluded that one of the best ways to build capital and achieve financial freedom is through passive income. Robert Kiyosaki, famous for his book Rich Dad, Poor Dad showed how all his bills were paid with the yields of the real estate he owned, while his salary was money without commitment.
Warren Buffet (n.d.) also said it in his famous phrase “the only way to achieve financial freedom is to make money while you sleep”. In other words, passive income.
Looking for this type of income in Latin America is occasionally more important than in the rest of the world for several reasons. The most obvious is inflation.
According to ECLAC (2021), at the end of 2021, the region had a price increase of 7.2%, not counting extreme cases such as Venezuela or Argentina. That means living in Latin America became more expensive and wages stayed the same. However, those who have alternative investments, grow their money and shield themselves against this inflation.
Now, passive income doesn’t always bring financial security. To achieve this, you must first actively manage your investments and do so through trusted entities. Understanding that management takes time, requires financial control and discipline, especially if your goal is reinvestment.
5 tips to manage passive income
1. Have financial intelligence and clear accounts
According to Anna Pérez (2021), analyst at OBS Business School, financial intelligence helps you make better decisions and understand your limits with money. If your accounting is written and you know exactly how much you have and how much you will have next month, it will be much easier to look for other sources of income without needing to work more.
Additionally, you should know that there are always associated risks. Risks can range from illiquidity, market downturns, to rising prices. Therefore, having clear accounts and consulting with experts will help you in case any risk materializes. However, risks should not stop you, rather, you should learn to mitigate them.
2. Leave investment management to those who know
In Latin America there is a saying: “shoemaker to your shoes”. Professional investors have data, context, information and the complete knowledge to manage their investments, so why not let them make the daily decisions? Or at least do the research work for you.
Real estate investments, for example, are full of variables that can be complex. That’s why there are companies like PFS Realty that study the real estate market in Florida, analyze it and find businesses with potential for their clients.
3. Enter new investment projects
Reinvestment is a great habit to generate this type of income. If a business is doing well, it would be logical to reinvest in it to accelerate its growth. However, you have to know how to identify the good businesses from the bad.
The first thing is, as we said before, to listen to the experts. It is true that no one can predict the market, however, there are cases where understanding the local context can determine the success of an investment. That is the case with real estate investments.
According to Michelle Fox (2021), you have to be careful with emotional investments. Two-thirds of investors regret making decisions because of the fashion of the moment. These investments are made on impulse and do not usually end well.
Remember that what worked for some won’t necessarily work for you. If you want to invest your money safely, analytically and based on data, it may be best to seek advice from experts.
4. Understand possible extra expenses
According to Dave Ramsey (2021), one of America’s leading financial disseminators, knowing your future spending and budgeting can give direction and meaning to your spending, rather than wondering too late where all the money went.
Sometimes there are extra expenses in investments that are worth considering. Some may be taxes, commissions or formalities. Knowing these costs will be important for achieving this income.
5. Reinvest in the most profitable markets
Reinvestment is possibly one of the most effective weapons to achieve passive income. In fact, it has historically been shown that, when investing on a recurring basis, you almost always see profitability in the long term, even when there is a crisis in the process. It’s about generating money consistently.
However, at this point diversification becomes important, this implies not putting all investments in the same part. Thus, if any mishap were to occur, there would not be such serious consequences. If you invest in several properties and one of them does not take off, the others will sustain your investment.
In conclusion, passive income is justified in the quality of your investments. A good investment will therefore depend on active management and how successful the market is.
As Daniel Oblitas (2021), consultant and analyst, says, in times of crisis, passive income is usually a lifesaver. According to him, when there is uncertainty it is more difficult to make important financial decisions. Therefore, if you have a surplus of capital today and want to make your savings profitable in the long term, consider investing them. The question is not why to invest, but when. The market tends to reward patience and good decisions. If you are looking for advice in the Florida real estate sector, do not hesitate to contact us, at PFS Realty we specialize in these investments.
References:
Buffet. W (n.d.). Listen To Warren Buffett: Make Money While You Sleep. Seeking Alpha. https://seekingalpha.com/article/4436331-listen-to-warren-buffett-make-money-while-you-sleep
Chen, J (2022). Passive Income. Investopedia. https://www.investopedia.com/terms/p/passiveincome.asp
Economic Commission for Latin America and the Caribbean (ECLAC, 2022). Inflation in America, another victim of the pandemic in 2021. SwissInfo. https://bit.ly/3JhsFv5
Fox, M (2021). Two-thirds of investors regret emotional, impulsive investing decisions. Here’s how to not be one of them. CNBC. https://www.cnbc.com/2021/08/11/how-to-avoid-impulsive-emotional-investing-decisions-you-will-regret.html
Kiyosaki, R. (1997). Rich dad, poor dad. Tech Press,.
Oblitas, D (2021). Why diversifying investment is key in times of crisis. The Financier. https://www.martesfinanciero.com/voz-calificada/por-que-diversificar-la-inversion-es-clave-en-tiempos-de-crisis/
Perez, A (2021). Financial intelligence: what is it and how to get it? OBS Business Schoolhttps://www.obsbusiness.school/blog/inteligencia-financiera-que-es-y-como-conseguirla
Ramsey, D (2022). I’m Having a Hard Time Sticking to a Budget! Youtube video. ://www.youtube.com/watch?v=oUOmy7x7i5U
