What would you do if you were working your job and didn’t receive a paycheck on payday? My guess is that you’d call your boss immediately and ask about the money! Unfortunately, many people don’t view their investments the same way. 

Most people treat investing like an additional activity rather than a necessity. Even though investment income is excess, you must expect your investments to produce for you. If you don’t expect the best, you will get lackluster results. The Law of Income is a financial principle that will help you master your money and reach financial freedom.

What is the Law of Income?

The Law of Income states that investors should expect income from their investments on a monthly, quarterly, or annual basis. You should know when an asset will pay you and an estimate of how much it will be. 

Now, there is certainly room in your investment portfolio for long-term strategies like an IRA and a brokerage account that you hold until retirement. However, that can’t be your only (or even your primary) strategy. Only investing in long-term strategies handicaps your ability to build wealth, and you never learn how to make money.

 Instead, you’re entrusting your money to someone else and never learning for yourself. To maximize your wealth-building potential, you must become income-oriented. With investing, many people stand on the sidelines and wait for a huge payoff. However, building wealth requires active cultivation. Attaining passive income does not mean that we are passive in the process.

How to Apply the Law of Income

If you apply the law of income, in due time, you will be able to replace your earned income with passive income. The investment income will allow you to quit your job if you want. The key is to purchase assets that provide passive income without selling them and then use that income to invest in more assets.

To apply the law of income, you must know how an asset will pay you before you invest in it. For example, let’s say that my cousin asks me to invest $50,000 in their new restaurant. I’ll first want to know if my cousin knows anything about running a restaurant. Does he have a track record? Has he proven that he can have some level of success in running a restaurant? Then, I’ll ask about the return on my investment– how much will it be, and when will I receive it? 

Now, if I wanted to help my cousin out of the goodness of my heart, there’s a smarter way to apply the law of income. I’d rather say, “I’m not going to invest in your restaurant, but I will loan you the money. I’ll take a lien on your property, and you can pay me 8% on the $50,000 I lend you. I’ll take an equity stake in your restaurant, too. That way, I know I have income coming in every month, and you will pay me what you owe me on that $50,000 at 8% annual interest.” That’s the law of income!

Examples of Income-Oriented Investments

Aside from business, several investment vehicles work with the law of income. When it comes to most stocks, you must sell them to get paid. Basically, you have to wait for the stock to appreciate, hope they don’t depreciate, and sell them in order to receive income. If you have a large sum of money, you can purchase dividend-paying stocks, which do qualify as income-oriented investments.

Real estate is one of my favorite income-oriented investments. If you follow our real estate formulas and rent out the property, you don’t have to sell to get paid. As your tenants pay their monthly rent, they will cover your mortgage and provide extra cash flow (we show you how to get at least $300/month per property.)

Given the right environment, bonds and CDs (a Certificate of Deposit) can be safe, liquid forms of passive income. When you purchase a CD, you loan money to the bank for a specified amount of time in exchange for interest. A bond is similar, except it typically involves a loan to the government or a business. They pay periodic interest payments, typically every month, quarter, or year.

I hope this blog helped you understand the importance of applying the law of income to your investments. Remember, never invest in anything you don’t understand. A key part of understanding your assets is making sure they pay you!

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