Dr. James, 0s:

Here is what annoys me, annoys the heck out of me, to be honest with you with regards to passive income, and only insofar as I really feel that people would benefit from seeing it in a slightly different way, because I do think that it is a massive misconception that a lot of people share. So when I say annoy, what I mean is it's coming from a place of love, in a kind way, in a positive way, always, of course, but that goes without saying. Anyway, let's talk about passive income. I think what we should really do in the first instance is define active income versus passive income, because passive income is this loose concept that a lot of people have that sounds juicy and sounds amazing in principle, but there's a few caveats to it, to how it actually pans out in reality, that actually make it a little bit. How can I say this? Yeah, people don't always. I feel like people's understanding of it could be a lot more developed and it could help them, and it certainly could help me as well, because whenever I make this content, I'm talking to james from like flipping five, ten years ago, who was trying to do all this stuff. Wasted, all wasted, his time, didn't see things in the right way and hopefully now sees things a little bit more clearly. That's all. It's more about how well we understand these concepts. It's more of a continuum rather than do we get them and do we not get them, and I would. I would debate that it's very, very rare as a person that completely understands any specific topic inside out. But you know what, if someone hopefully has learned a few things on that front and hopefully, as maybe has progressed, uh, in their own life on that front, maybe they can share a little bit of wisdom in the hope that it might accelerate each other's journeys or other people's journeys as well. And that's what this podcast is. So let's talk about defining active versus defining passive income. So what is active income? Well, this might sound obvious, but it's when we get up and it's when we do something to generate some money, to make some money that comes into our bank account. So that's one extreme. That's where we go. We have to go and do something, and perhaps it's hard, physical manual labor. It's like the opposite of everybody's concept of passive. This is extremely tough, tedious work. Maybe we're like doing hard manual labor every day, like, I don't know, building houses or digging roads or something along those lines, and maybe the pay isn't the best, so that's as active as it can get, right. So that's like one end of the scale. And then I suppose the other end of the scale is passive income. And for me the true concept of passive income is when you wake up, you literally don't do anything and some money just magically appears in your bank account consistently, month in, month, month out, or at least that's most people's definition or concept of how it works. So it's akin to just lying on your bed with a window open and a gust blows 50 pounds in through the window and it lands right in your hand, right? So pretty fanciful that that is ever going to happen. But I guess that would be akin to what people's most people's concept of passive income is. But then obviously, I don't know, maybe one day that 50 quid will blow through the window, who knows? But obviously for it to be income and for us to be able to live off it, well, it has to happen constantly, right? So that might sound pretty ludicrous, and that's because it kind of is, in my opinion, to be able to design something that's going to just make us constant money like that. Well, that's pretty much what's happening, you know so. Does that actually exist in reality? Well, happening, you know so. Does that actually exist in reality? Well, I guess, when we kind of look at it with those eyes, uh, to me it's pretty fanciful that that might ever happen. Who knows, perhaps there are some people out there. But we have to be realistic. What is most likely to allow us to achieve our goals? Because that's pretty much akin in my mind to sitting around and hoping that you win the lottery. So for me, you've got true active, as we've just described. You've got true passive that it just appears one day or one day, all of a sudden, you just get this consistent income out of nowhere, whether it's 50 quid, blowing through your window or not, or via another means. That's what it is. It's truly passive. You never had to do anything to actually make it happen is what I'm getting at. So that's the other end of the scale. So here's the thing it's kind of like. It's pretty obvious that it's not really a binary thing. It's almost like a continuum really, because the further and further we can propel ourselves along that scale towards having more and more income, for that does not require as much effort. Well, to me that's getting closer and closer to that 50 quid blowing through the window scenario, which is more of an ideal than anything else. It's pretty not realistic to happen. So how can we get something that is as close to that as possible, which is more realistic and likely to happen? Right, brilliant, now we're thinking along the right lines. So for me, it's not about passive income and active. It's more about to what degree can I make my income passive, as in how can I minimize my effort so such that I can maximize my returns? And of course, that doesn't look like freeloading. We're not talking about that at all. What we're talking about is being remunerated to the level that we desire, for the level of effort that we desire, however that looks, and obviously contributing to society and doing our bit on this earth and all those great things as well, because we definitely want to do those. But, like I say, for me it's more about to what degree is this income passive? Because, realistically, unless you win the lottery or something amazing happens like that 50 quid scenario we were talking about just a second ago, we're realistically going to have to put some effort in at some point at some stage for it to happen, because I bet 99.999 times in the history of humanity that somebody achieved something close to the common concept of what passive income looks like. They probably had to do something in the first place, like they probably had to move some things around or create something or purchase an asset which allows them to do that. So in reality, we had to do something, and I know that this might seem like I'm slightly laboring the point, but to me it's like if everybody has this concept of passive income in their head where they think that it's just something that just magically happens one day, they're way less likely to achieve it if that's what they think will happen if they just wait around for long enough versus actually doing things that maximize the odds of them creating that. So it starts by just analyzing our beliefs and it starts by just figuring out okay cool, how am I most likely to be able to achieve that objective? Is more what I'm getting at? I want everybody to be able to be in a position where they don't have to work as hard or work as much for their current level of income or more. I definitely do so. For me it's like okay, cool, what thought process is most likely to allow us to achieve that goal and that's precisely what I'm getting at. Let's think about what passive income, on a fundamental level, is, and for me I'm, and I spent a lot of time thinking about this and really mulled it over and digested it in my head and for me, what it looked. Just going back to what we were saying a second ago, remember, you have to put some effort in at some stage, realistically. So there had to be some time exchanged for that income, regardless of whether or not you built something once that took you 10 hours and it paid you for the rest of your life Again, pretty unrealistic it's going to take you 10 hours, probably take you more than that you still had to spend that 10 hours right, at some stage. There was still some time invested, right? So for me, passive income is more how can we increase the ratio of the time that we're investing into receiving remuneration? How can we increase the remuneration as much as possible and decrease that time investment or possibly make it a one-off time investment or something along those lines? So at a fundamental level, we're talking about achieving more per unit time. We're talking about increasing our remuneration or increasing our income per unit time to such a great, huge level, that it resembles something very close to that ideal in reality, that ideal called passive income. It's a bit like if you get, if you're into physics. They say that absolute zero is a temperature that can exist in theory, but you can never quite get there. You'll always be just shy of absolute zero. There'll always be some energy, there'll always the atoms will always be vibrating at some level, and that's a similar concept to what passive income is for me. If you ask me, there'll always be a little bit of time invested, and even though you can reduce that to a stupendously low level, it was always invested at some stage. So, like I say, it's about increasing income per unit time at a fundamental level. Let's pan that out, let's play that out. Let's say that you've got a dentist who can earn £100 per hour Brilliant. Now remember that can come from their clinical dentistry or it can come from their investments, but what they have to do is exchange one hour of their time to receive £100. Excellent. And you know what? Lots of people don't get there in their lives. If you have got there or if you pass, they're amazing. That's a fantastic achievement. Let's play that out a little bit more. Let's say that somebody could, and this is also possible in dentistry. This is completely doable. Depends on what your skill set is, of course. Let's times that by 10. Let's say somebody receives a thousand pounds per hour of effort in dentistry. Let's say somebody's doing implants. Let's say something is somebody's doing purely full mouth rehabs all day long? Okay, fine, so maybe they net or gross a thousand pounds an hour. Right, that's cool, brilliant. So, in other words, what they've achieved is they're able to generate a hundred pounds with six minutes of effort. If you think about it, right, because what we've done is we've taken the hour, we've multiplied their output by 10, so they're able to generate a thousand pounds in one hour. So if we divide that by 10 to return it to, to do the math, to figure out just how long it takes to earn a hundred pounds, now that's actually six minutes of their time. Now, if someone was able to put six minutes into something and generate a pounds, that is pretty darn good. And some people might even say well, that's as good as passive income, right there, and for me it's a. To me, when you think about things in those terms, you're like okay, cool, what can I do? What is actually in my hands so I can figure out all of the ways that I can increase the amount of income that I'm receiving and remember income comes from two places it can either come from a clinic clinical dentistry or your asset portfolio so that I can reduce that spending time as much as possible. Either invest a little bit of time up front so that I can create something or design something or build something that's going to pay me for the rest of my life easier said than done, by the way, that is flipping hard. People spend their whole life trying to figure out how to do that stuff. Or I can figure out how can I maximize the returns on the time that I'm willing to invest to get it to such a level that it does actually resemble something close to what people are called passive income, what people would call passive income. And then for me that's a way more likely way to be able to achieve something, because that is actually feasible. So it comes right back to being able to boost our output or level of remuneration per unit time. And now we're thinking along the lines of something that is much more achievable versus this ideal of true passive income, which requires no effort whatsoever, which is very unlikely to happen. Very, very, very, very. I want to say very unlikely. I mean we cannot understate that at all. We're talking infinitely unlikely, like the 50 quid floating through the window or winning the lottery that we were talking about just a second ago. And if our focus is on that, on something that is completely unrealistic to achieve, then for me we're very unlikely to achieve it, whereas if we shift our focus to something that we can, that is actually doable, even though it's not easy, well, we're way more likely to actually get there and be able to get back our time, because that's fundamentally what we're talking about. That's the only real reason we ever talk about money on this podcast or anything to do with dentistry and fest is so that we can be responsible with it and so that we can live our lives, have fun and do the things that we want to do. And at some level, we got to think about this stuff. Otherwise, well, we can spend seven days a week just barely making enough to exist on and just about getting by. Now, most dentists are not in that position, but you see what I'm talking about. Obviously, you have to think about it on some level, or the outcome would be that we're not receiving enough to be able to sustain ourselves per unit time. And then it becomes about thinking to ourselves okay, how can I generate the amount I would like to generate and do it in the amount of time that I would like to give, and therefore have enough money and have enough time, which is the dream world, dreamland for both people, which is the which is the dream for most people, and that is a reality. That is feasible, and you just have to think about things in these terms, or at least I find that this is what really helps. So let's circle back to what we were saying a second ago. It comes right back to increasing our output in terms of remuneration per unit of time. Now let's analyze where. So we're talking about income effectively, because that's what income is. It's in its money that appear, is, is granted to us, is bestowed upon us over a certain regular period of time. So let's say a month. Most time of the time is done over a month. So there's only. Let's get granular about this as well, because I really find that it's just so helpful to think about things in first principles and to just really distill these otherwise ethereal terms into into a series of frameworks that make it much more digestible and understandable, because it literally, when you have frameworks, you can think to yourself right, it's either this or this or a combination of the two things, and for me it makes things that much clearer. So let's talk about income. Where's the two places that income can come from? It can either come from our dentistry or it can come from our assets, our investments. There's only two places that income can come from. There's only two places. There's only two things that generate us cash flow. I would posit if there's anybody in the face of this earth and they've ever made some money, they've either done it through their career, their vocation, their job, so to speak, or they've done it through some sort of investment that they have made. To me, there's no other way that I know of. That is out there, and I don't think there is, and in fact I can categorically say that there isn't. It's either going to be one of those two things. It's either how we create it, which is via our clinical role for most of us dentists, or it's going to be from one of our assets, as in our investments, as in investments that we have built over time, how we build our wealth. Now let's switch over to the investment side of things, because a lot of people are seeking to invest to create passive income. The number of times that people ask me that it's truly great to see and like I say this podcast, I suppose is me just looking back and reflecting on all the things that I wish I would have known when I went on that same journey myself. Let's talk about investments. Let's talk about building our wealth, because everybody knows that we generate money. We create money through our clinical dentistry. Now, what do we do that? How do we invest it? To create something that will give us, in vertical commas, passive income or something that is close to that ideal as possible for the based on what we were saying earlier. So, if you want to talk about investing, fundamentally, there's only four different types of assets that you can invest your money into. Every under every other asset, every asset on the face of this earth fits into one of these four categories and each one of them have unique characteristics. First one is is lifestyle assets. Second one is business assets. Third type of assets is cash flow assets. Poor types of assets is growth assets, lifestyle asset typical example of that might be your house. It's a lifestyle asset. It doesn't throw off cash flow. You invest in it. It grows with time. What is a business asset? A business asset is exactly what it says in the tin. It is a business Cashflow assets give you cashflow. Good example of that is buy to let properties Growth assets typically those would take the form of stocks in a tax wrapper like an ISA or a pension or something along those lines. Now I won't be getting into an explainer, a full explainer of those four types of assets for the moment on this podcast today. If you'd like that, you might want to check out episode 300 of the dennis who invest podcast, because I spent about 30, 40 minutes just explaining the characteristics, the variance and the characteristics of these four different types of assets. So I feel like that would be super valuable, so shouting that podcast out, it's well worth it. I'm not going to get into that today, but suffice to say, in order to invest and grow all of those four assets, you have to invest some time into it at some stage. So we know, we know by default that we those those cannot truly be passive like we just know that that's, that's one of their character, that's the characteristics and you know what, whenever we're talking about income, actually only two of those assets will actually give you income. Your growth assets in your, in your portfolio, are designed to compound lifestyle assets that's the definition of it. Like your house, like your primary residence, cannot give you cash flow, they cannot give you income. Cash flow assets can give you income, like buy to let properties, but, however, it's not an easy game. Ask anybody in the property game, you know. I don't know of anybody who's generated a great deal of cash flow in the here and now without thinking about 10-15 years of their life into growing a property portfolio. So it's not an overnight thing. It can be done. But it's all about what you know. It's all about what your skills base already is, because anybody I know has done really well at property. They know, know that thing inside out. It stands to flipping reason, of course. So the fourth type of asset that can generate income is a business. But of course, setting up a business is not flipping easy, as we all know, and what I would argue and what I would posit is business is an extension of your skills. And what do I mean by that? The more experience you have in business, the better you are at it. The more you know about an area or a sector is the better you are at it, which again circles back to experience, which is effectively your skill whenever it comes to business. So for me, out of those four assets, you've got a business asset which is the only one that can generate a cash flow, and it's an extension. How proficient you are at generating cash flow from that asset is an extension of your skills. And when I say skills, what do I mean? I mean your ability to be able to provide value for someone else, your ability to run the business, your ability to analyze your numbers, your ability with people, your ability to be efficient within the business, your ability to sell, because that is a component of dentistry. I want us to remove all connotations from that word. People feel like it's a negative word. It's really just helping people get what they want, and it's about being ethical and only even using that ability to be able to sell unless you know that you can really truly help someone. It's about man management, it's about team management. It's about understanding how you can make the numbers work. It is about your ability as a clinical dentist. It is about how good you are at restorative dentistry, at implant dentistry, at perio everything is all linked back to your skills. So for me, if you want to boost your income, when you look at it through those that lens that I've provided just then and for me that is a comprehensive lens. I use that literally every single day. It just helped me see things so much clearly. Really, if you boil everything down, it comes back to your skills and knowledge and what you do on a day-to-day basis, and for me, that is the one way to achieve something that, even flipping, resembles passive income, and I really wish I just would have saw things in those light, if you ask me. In summary, passive income is never truly passive. That's the first thing to accept. The sooner we accept that is, the sooner we can get on with creating something that resembles it, or something that is actually closer to what is realistically achievable or actually might mean that we get to something that is very close to that existence. The second we just tweak that little belief in our head. And then the second thing is really, in the light of what I just said, the closest way that you can get there, or the most realistic way that somebody can get there, is investing in their skills because really, whenever it comes to boosting their income, most assets are not designed to do that and of the two that feasibly can business and your clinical dentistry they're both extensions of your skills.