From Balogun street in Lagos Island to Idumota to Idumagbo to Alaba Suru to Alaba International to Ladipo market to Oshodi to Computer village Ikeja to Victoria Island you will see the hard working Igbos hustling to make both end meet.
From hustling on the street to owing some of the best small businesses in Lagos to working in some of the well establish corporate organizations, the importance of Igbos to Lagos economy cannot be over-emphasize.
However, as lofty as this statistic may show, it is noteworthy that most Igbos in Lagos have 95% active income as a percentage of their total income.
This is especially important because when you visit some of the popular markets in Lagos, you see some Igbos in their 60s still actively involved in the day-to-day running of their business or even being the sole manager.
This article is an eye opening information and a call to Igbos in Lagos to re-evaluate their approach to income generation.
The purpose of this post is to encourage the Igbos in Lagos to apply the Business Quadrants Golden Rule of Wealth to build a passive income on the side while still working on their active income.
What is an ‘Active Income?’
Active income is Income for which services have been performed. This includes wages, tips, salaries, commissions and income from businesses in which there is material participation (Dictionary.com).
Active income is essentially when you get paid for your time. You’re exchanging your time for money. That could be at your job, you spend an hour at your job, you get paid for that hour. It could be coaching, consulting or public speaking, a service that you might provide. Maybe in your business you are a coach or a consultant, you get paid to speak at different events.
It could be based on a service that you might provide. Maybe you have a removal agency and you get work and jobs that way, and for every removal job you do, you get paid a direct fee for that. It could also be if you’re a freelancer, maybe as an online freelancer. A graphics designer, a web designer, you get paid for your creation.
Essentially you’re exchanging your time for money. It’s active because, in order to make money, it requires your work, your time and your energy. What happens is when you stop working or you stop providing that service or putting in the hours or time, then the income basically stops.
Active income is the main form of income that most Igbos in Lagos earn. Most of them have small scale business(es) in different part of Lagos. Others work as apprentice or in corporate organizations.
Most Igbos in Lagos have about 95% active income as a percent of their total income.
However, as you will later find out, active income should be a means to an end and that end is a passive income.
What is a ‘Passive Income?’
Passive income has been a relatively loosely used term in recent years. Colloquially, it’s been used to define money being earned regularly with little or no effort on the part of the person who’s receiving it (Dictionary.com). Earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not materially involved.
Portfolio income is considered passive income by some analysts, in which case dividends and interest would be considered passive.
However, in this Business Quadrants Wealthflow Theory, I do not consider portfolio income as passive income. So, for the purpose of this article, portfolio income is not a passive income. The type of earnings people usually associate with this are gains on stocks, interest, retirement pay, lottery winnings, and capital gains. While these activities fit the popular definition of passive income, they don’t fit the technical definition as outlined by the IRS.
Passive income, when being used as a technical term, is defined as either ‘net rental income or income from a business in which the taxpayer does not materially participate’, and in some cases can include self-charged interest.
Most Igbos in Lagos have just about 5% passive income as a percent of their total income.
Why Passive Income Is Worth More Than Active Income
Active income is good, I love active income because I can make a lot of money in a short period of time, I can make money and I do things that I enjoy, like coaching and working with people, and speaking.
That’s fine if you enjoy it, but you want to think about how you can have your money work for you. The money that you’re making, take that money and invest it in a business that can make passive income.
For me, when I retire one day which I probably will do late because I love what I do so much, but one day when I retire, I don’t need a pension or anything like that because that’s peanuts to what my passive income business will continue paying me.
The content, the products, the investments that I have, they’ll continue paying me money forever. Even beyond my time on this planet. That’s working smarter, developing passive income streams. For me, if I want to be lazy for the next month and travel the world, do nothing.
If something happened to me and I had to go to the hospital or something like that, my business is still running. My business is still making money; I still have passive income coming in. I can take a year off in my business and I’m still going to make at least six figures or seven figures from my business. That’s the power of passive income, it gives you the ability to have freedom. That’s the ultimate form of income, and there are many ways.
It may require time, energy, and perhaps revenue to get multiple streams of passive cash flow doing work for you, but when you do you are able to live abundantly and not have to work again.
Passive revenue comes in a lot of shapes and forms. There are virtually 1000s of ways that individuals have produced robot like streams of revenue, and more are being produced day in and day out.
Rich and financially successful individuals have forever created ongoing passive revenue. Today more individuals are hearing about it, recognizing how vital it is for financial success, and needing to know how they may produce streams of automatic revenue for themselves.
The great news is that there are no deficits when it comes to acquiring multiple streams of revenue, as the possibilities for passive revenue are everywhere.
That isn’t to state that you’ll ever earn anything at all without first placing work into whatever passive income business example you select to go after.
However, soon the powerful revenue streams will take over and start working for you, rather than you working for it.
Most of the Igbo traders in Lagos have businesses that produce active income. It is time they start to build something on the side that can generate passive income.
The Ideal Passive And Active Income Split
90%+ Active Income As a Percent Of Total Income: When you have more than 90% of your total income as active income it’s easy to feel like a slave to your job. Stop working and you starve, it’s as simple as that. Most Igbos in Lagos are in this bucket where their job is their only source of income. The need for money and healthcare trumps one’s dissatisfaction for work. The trick is to increase your passive income to coincide with the decrease in the desire to work. It’s the same idea as paying off your mortgage completely by the time you retire.
I was in this stage for eight years after college (1999-2007) and it was fine because I was full of energy until 2009. But the 2009 downturn really beat my motivation to a pulp. If I was still trying to kill it during my 11th year of work without a reasonable passive income stream I’d be depressed because I would need to work another 10 years to get to financial freedom as a less enthusiastic worker bee.
60-89% Active Income: You’ve begun to taste the sweetness of passive income. You aren’t generating enough passive income to do whatever you want yet, but you know that if you stay the course for X amount more years, you’ll get there. To stay motivated, your passive income is earmarked to cover particular expenses such as vacation, food, clothing, or shelter. Once you find a purpose for your passive income, you gain more appreciation and motivation.
I was in this stage from 2008-20011, but instead of spending my passive income I just kept plowing the proceeds back into my investments. There was still a lot of anxiety because of the downturn so I felt the need to work as hard as ever. One motivational thought I kept on thinking was that every $10,000 dollars saved was like giving myself a $400 a year raise so I kept on going.
40-59% Active Income: You are now generating as much passive income as your active income. Thoughts are now dancing seriously in your head about whether you should quit your job or active income business and do everything your heart has been desiring all these years but couldn’t. Half of you take the leap of faith because you’ve been dreaming about this day ever since you started this passive income journey so many years ago. The other half of you stay at your job because suddenly, your job feels so much more fun without all the pressures to perform!
20-39% Active Income: With the majority of your income coming from passive sources, you’re only working because you find the job stimulating. You enjoy your co-workers or customers or business partners and can’t see yourself doing anything else with the majority part of your day. You feel that your day job income is now bonus income because you can easily live off your passive income. The feeling of making “double money” is exhilarating. However, sooner or later your enthusiasm starts to fade. You begin to do some soul searching to find more purpose in life.
<20% Active Income: There’s now really no need to work at all for a living. If you are working, you start feeling a little guilty about taking up a position that someone younger and hungrier would love to have. Doing something for money feels off. As a result, everything you do that provides compensation adds some value to society.
Strive For A Good Mix Of Passive And Active Income
Consider leaving a job or business you dislike when your passive income produces enough to take care of you and your dependents or when your passive income equals 30% or more of your total income. Obviously the greater your total income, the less passive income percentage you will need to survive.
At 10% passive income as a percentage of total income, you’ve got your savings habits down pat, and you’ve also got room to grow your passive or semi-passive income streams if you dedicate your time.
After studying over 1000 successful wealthy business people, I have found they have something in common. My curiosity led me to discover what I called the Business Quadrants Golden Rule Of Wealth.
I challenge you to read the story of most of the successful business people today and you will find this rule common to them. It is instructive to note that the business quadrants golden rule of wealth is based on the Pareto principle.
The Business Quadrant golden rule of wealth states:
“Use 80% of your active net income to build a passive income business and live on 20%”
It is important to have a general formula for calculating what the 80% active net income will be.
The Business Quadrant golden rule of wealth formula states that:
80% of your active net income (NI) is equal to total of your monthly net income minus total of monthly basic expenses (BE) minus your total major expenses (ME).
It can be represented as n = (BBC + ME) / (NI – BE)
where n is equal to the number of month(s) to work 80% of your active net income that will cover the cost of building your passive income business, NI is Active Net Income, BE is Basic Expenses, ME is Major Expenses, SC is Startup Cost, OC is Operating Cost for First Year and BBC is Business Budget Cost which is SC + OC.
With the formula, Igbo traders can calculate what it will cost to build a successful passive income business.
The importance of building a passive income business on the side cannot be overemphasized for the Igbos in Lagos.
Tomorrow, government may come with zoning policy and move all traders in a settlement to a new location. Increase in rents and political instability is one of the reasons why you should consider building a passive income business now. There could also be disaster, fire outbreak, theft and other unforeseen tragedies. Besides, as you age, a time will come when your health cannot support your active income business.
You should prepare for the raining day.
There are many businesses you can do that will produce passive income, but one I readily recommend for small scale business owners like Igbo traders in Lagos is network marketing.
Network marketing allows you to leverage the time, effort and money of others. These are resources that help a person attain financial freedom.
If you are an Igbo person and work or do business in Lagos and you will like to learn how to build a network marketing passive income on the side, you’ve got my back.
I provide one-on-one counselling, in-office counselling and seminar on how to build a 7-figure monthly network marketing business part-time from home or an office. You may call or WhatsApp 08073102012. You may as well get started by visiting How To Join Royale Nigeria Network Marketing MLM Company.
Now over to you, what is the ratio of your active to passive income? Don’t forget to share this article with your friends so that they too can start to prepare for any financial uncertainties by building a passive income business on the side.