With the help of the family budget, I am building the money-making machine – growing the snowball by accumulating new cash and old cash from active income and passive income, and reinvesting as much as possible of it.
The same or very similar money-making models have been described in many business books already, spoken about during lectures in business schools and practiced by personal finance enthusiasts around the world.
So, I am not investing the wheel here. I just simplified this money concept and applied it to my own life.
New cash and old cash in details
Over the last decade, I have been building the money-making machine. This is how our money-making model works.
I define ‘new cash’ as money that I own for the first time and, ‘old cash’ as money that I have already had in my possession.
Let’s take a look what the money-making machine is made of, and how it works in the real life.
A. ‘NEW CASH’ FROM ACTIVE INCOME
NEW CASH: The major inflows of ‘new cash’ come from savings from two full-time jobs. My wife and I have been earning Active Income from traditional employment in the past 10 years. Our full-time jobs earn predictable and stable Salary with annual salary increases usually between 5%-10% of the base salary. Our part-time jobs, a few smaller gigs throughout the year, pay Wages with payments depending on workload and frequency of projects. All ‘new cash’ saved from Active Income goes into investments. We regularly save around 70% of our Net Income, or Income After TAX. This year, our Saving Rate is going to be approximately 88%. In the next few years, it is expected to increase to around 90% as our new investments will keep on earning us more money.
1. Full-Time Jobs. Two full-time jobs earn Salary. Annual salary increases are usually between 5%-10% of the base salary.
2. Part-Time Jobs. A few smaller gigs throughout the year pay Wages. The payments usually depend on the workload and frequency of projects.
Any new cash available obtained from active income goes into investments. This ‘new cash’ is our monthly savings. Savings happen after spending are deducted from monthly earnings after TAX. Our Saving Rate this year is going to be approximately 88%. After 2022, our Saving Rate is expected to increase to around 90% as our new investments will keep on earning us more new money.
B. ‘OLD CASH’ FROM PASSIVE INCOME
OLD CASH: In addition to ‘new cash’, I also concentrate on investing – building four passive income streams including real estate, bank deposits, online business and stocks. I believe that these four asset classes are the best vehicles for preserving the value of money, generating regular cash flows and building wealth.
These investments exist for the purpose of generating us monthly and quarterly cash inflows as the main aim of investing is to acquire safe money-generating assets that earn stable, recurring and predictable Passive Income. I do not have any emotional attachments to owning real estate or stocks. All of the old ‘old cash’ that current investments generate also goes into purchasing more new investments to grow the wealth snowball as more investments will generate more passive income in the future.
In summary, at the current stage, the major providers of cash inflows for my family are of course two full-time jobs paying predictable monthly salaries. I always think about the best way to deploy our family savings into profitable investments. It is not as easy as it sounds especially when investing and reinvesting larger sums of money one month after another for years. When investing, as long as you have the money coming in, you do my homework, and you know exactly what you are doing and why you are doing it, you should be fine.
In short, to grow the snowball, I aim to provide constant monthly inflows of both new cash and old cash into passive income sources which I am currently building.
