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Passive Income: The Key to Financial Freedom

When it comes to getting a chance to live a stress-free life, nothing beats passive income-generating assets. And in that, we mean real estate and a healthy stock portfolio. In this article, we will cover how a simple real estate portfolio can secure a family’s financial well-being for generations to come. We will also touch on at what stage in a person’s lifecycle should such an undertaking be pursued in order for the rewards to be reaped in time for financial growth to be achieved. 

 Stage 1: 20-something years old

 As a person is in his or her 20s, they are usually facing many uncertainties as to where their careers are taking them, what kind of lifestyle are they looking to lead, and what are they expecting to manage or own as a portfolio in the future. 

For the majority working class individuals, a job provides security with a chance to start a family and be able to barely make ends meet. In that, we are referring to the ever-growing list of expenses anyone of us incurs when we are in the process of managing a household. 

We all want to be in control of our finances, but we also know that it is very difficult to keep track of things all the time. Our lives are ever-changing and hence our needs are always changing. 

Nevertheless, if you are able to start a saving plan by placing upwards of 15% of your income in it (consider going for a financial planning tool for savings, retirement and education fees) by the age of 25, you will be in good shape to achieving financial freedom by your mid-40s. 

Also, ask about safe stocks to buy in the local bourse market (there are a few that are considered “too big to fail” in Bahrain). Whenever you have some loose cash, throw them in this market. They pay well and you will see your portfolio grow quickly year after year. 

Any thought of real estate investing at this stage would be simply to own your own home. If you are getting support from your parents, you are in luck, because real estate is expensive. Plan out where you want to live and whether you want that property to be your first dream home. Many of us opt to start with a small apartment which we can pay small installments towards even before getting married. But most of us end up waiting because the spouse is usually the one who decides where the family wants to live and how. Either way, prepare for it early. Get it locked in before your 20s are over. Know what you are up against before life throws more demands your way. 

If you opt to buy a property worth BD 120,000 (typical price of a villa nowadays) your mortgage will be around BD 1,100 for the next 20 years. So my suggestion is unless you have a plot of land already given to you and your parents are helping out with the construction, don’t go big. Start small and work your way up. Buy a BD 60-70k property, this can be affordable with a 10 year mortgage. By the time you own it outright, it will be time to upgrade. This means that you can use this asset to pay for a downpayment towards your next larger property. 

Stage 2: 30-something years old

At this stage, you would probably already know where your career is headed. A huge mistake that most individuals make during this stage is to depend entirely on their career. Regardless of what your day job brings to the table, you must continue your original “financial freedom” plan, which we started in during stage 1. By now, your savings plan is probably half way through it’s maturity and you would have saved around BD 40,000. You would also have owned your home outright. And if you continued investing in the stock market as planned, your portfolio would probably look quite healthy (BD 25-30k). 

It is now time to shift gears and take things up a notch. If your original savings plan was considerably small, increase it by 40-50%. If your stocks portfolio is weak, start buying more. If you have an opportunity to get into starting a real estate portfolio, find small units that are available for sale off-plan and book one or two. You would want to get to a stage where these assets and stock portfolio will start yielding formidably by the time your at stage 3. 

The reason you need to plan this out during this stage is because during your 40s you may not have enough time to successfully attain financial freedom when it really counts the most. And in this, we mean while you are young and strong enough to really enjoy being financial free. 

Stage 3: 40-something years old 

This is your time. At this stage, you should start your “financially free” lifestyle. But, in no way do I mean retirement. Your life should not change in anyway except having more income achieved from passive sources than expenses. Any other source should be considered a plus. This also means that you can simply do whatever you want. So spend your time wisely. Take up a hobby that makes you money. Work at a job that is rewarding and pays well. 

And there you have it, financial freedom is possible by simply following these simple steps. It’s all about timing. When to activate such plans. You don’t need to have a million dinars to be financially free. The assets we are encouraging you to invest in during these stages of your careers and lives all generate passive income. Nobody wants to work for the rest of their lives. They might enjoy it but certainly don’t want to be forced to do it. No career is worth spending your entire life pursuing. You only live once. You can’t redo this. If you are 50-something and you didn’t do any of the above, you will know you are not going to be in good shape financially and you will need to work for the rest of your life. When you reach your 60s and you are given your retirement package, you will not like it. Your income will be less than what you were earning when you had a job. Nobody wants that. Plan your way to financial freedom. Invest in passive income generating assets now. Don’t wait anymore. The sooner you can, the better it will be for your future self. Think of it this way… your future self will love you for it. Make him or her happy. Live a long prosperous, healthy and stress free life. Travel. Enjoy your family.

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Ahmed Khalifa Khalfan

Mr. Ahmed Khalifa Khalfan is a published Fulbright Scholar holding an MBA from Seattle G. University, Washington, USA as well as a Bachelor of Science in Information Systems Management from University of Bahrain.

He previously worked with Batelco, Kuwait Finance House, Al Safar Group Holding and most recently with Bin Faqeeh Real Estate Investment Company and GFH Financial Group as Director of Business Development.