For most of us who work a full time 9-5 W2 job, it is quite common to use our earned income, or sometimes called active income, for spending, whether the spending is for survival or for pleasure. There is nothing wrong with this model, and as a matter of fact, this may be the only model that some of us can afford to do. But, from a mindset perspective, if you want to achieve financial independence (FI) at some point, you need to believe in changing and then you will need to make some change.

The formula that you should go by is Active Income -> Passive Income -> Spending. You should especially enforce this formula when it comes to buying toys. It is a “no no” to Active Income -> Buying Toys! So how does it work?

Pay Yourself First

It goes back to Rich Dad’s concept of “Pay Yourself First.” Paying yourself does not mean you buy the toy for yourself, what that really means is you need to pay for your own financial future before paying everything else. It can be a little extreme when it comes to execution, but you get the point.

How to Do It

Going back to our formula of Active Income -> Passive Income -> Spending, so after you get your paycheck from your job, what you should do next is to dedicate a portion of it to investing. Yes, we at DoorInvestor like to invest to real estate, but you can pick your own method. What is important is, no matter what you pick, you can generate income out of it and then finally you can use the income you make from there (aka Passive Income) to buy your toys.

The problem with Active Income -> Spending, and then Passive Income, is that a lot of times after you pay out all of your spending, you will have nothing left for investing. And then you will think to yourself, “don’t worry, I will invest next month.” Except as you can anticipate, you will run into the same situation (again) next month, and then you push out your investment plan (again) for another month. This simply means you will never get to invest for passive income.

Change Your Mindset

If you want to achieve FI, you need to change your mindset and break that habit.