If the goal of freedom through passive investing is to generate enough passive income to meet or replace your earned income, then it makes perfect sense to track the progress. After all, what is not measured is not managed. Without doing so, how will you ever know how you are tracking towards your passive investor goals.
I believe that tracking your passive income streams is more effective than tracking your net worth. Why?
1️⃣ Net Worth Calculations Include Assets That Are More Like liabilities
According to your personal balance sheet, a car is an asset, as are other personal possessions. Does that mean we should buy more stuff? I think you know the answer. Net worth tracking can be misleading because it treats all assets – those that pay you and your family (stock dividends, bonds, multifamily real estate) as well as those that you pay to own (cars, home, etc.) – the same.
2️⃣ Net Worth Includes Illiquid Wealth
Net worth calculations include all assets that have value but may not be liquid or helpful during tough times. For example, if you had a $2M art collection but hit hard times, that art will not pay you until you sell. “Assets” help your balance sheet, but not all are created equally. The real goal of time and space is to have assets that pay you.
3️⃣ Net Worth Does Not Mean You Are Getting Paid
What is more important than the size of your balance sheet is how hard your money is working for you. There are some very rich people who have no time and space because their wealth and business depends on their presence and attention. Tracking passive income specifically is more effective for anyone who wants their investments to eventually work harder than they do for earnings.
How to Track Passive Income
Now is the time to identify your monthly or quarterly passive income goal. If you seek to earn $5k monthly in passive income, that is your target. Secondly, very simply, listing your assets and their monthly income is the straightforward way of tracking your passive income. There is nothing advanced or complicated here, so anyone can do this. Your attention to these goals will be the largest contributor to your success in financial and time wealth!
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