The world’s most successful investor, Warren Buffett, famously said “If you don’t find a way to make money while you sleep, you will work until you die”.
A lot of people misunderstand this quote from Buffett. The man himself is 92 years old, and he is still working.
And what does he exactly mean by “making money when you sleep”. Is it even possible?
Let us try to understand the quote in a little more detail, because it has the potential to change your life.
In simpler words, Buffett is encouraging people to “make money work for you – instead of spending an entire life trying to earn money”
How exactly do you do that?
The answer is – passive income.
Right from childhood, we (Indians) are made to believe we need to work hard throughout our lives to earn a living.
But times are changing and there are multiple ways to generate income without ‘actively’ working for it.
- If you have a fixed deposit of 1 lakh, which gives ₹ 6,000 every year as interest. Are you working for that money? No, right? It is passive income.
- You buy shares of Reliance Industries and the company gives dividend every year. Are you giving your time to earn dividend income? Nope.
You are earning without working. This is what Buffett means when he says “find ways to make money while you sleep”.
If you set aside half-a-day and think about ways to earn money while you sleep (passive income), the list can get pretty long.
Here are some more ways people earn passive income:
- Popular YouTube channels are generating income even when they are fast asleep. Not only is the channel generating income from new videos they publish, but also from old videos which continue to get views.
- The article you are reading on this website (which has advertisement from Google), helps generate income for me. My work ends when I write and publish this article, but people will continue to read it for years to come. And as long as this article is relevant – it will continue to generate income.
- Websites, Apps, content creators and authors of books are generating passive income.
Think about those best-selling books. Some of them were written decades ago, but are selling and making money today.
When Buffett talks about “work until you die” he is talking about individuals, who are working everyday for a fixed sum of money. Those earning ‘active income’.
Here are some examples:
- Salaried job.
- Professional services: Doctors, Lawyers, etc.
All of these people are giving away their ‘time’ everyday to be able to ‘earn’ income.
Have you ever wondered what if, one day, you aren’t able to give time? What if you fall sick and cannot work for a couple of months. What if this happen when you have a family that depends on your income?
Or if you are earning a lot of money, but do not have the time – to be able to do what you really want to do. And it isn’t only about having time for vacations – but also the work you do.
There is a big difference between doing work that you are really passionate about – and work that you do not like, but have to do to sustain a living.
To sum it up, Warren Buffett, through this quote tries to explain the importance of passive income – which can significantly improve the quality of life.
Even if you currently have an active source of income, it is important to generate one or more sources of income which is passive. This can be done through investing in inflation-beating asset classes or starting a side hustle which can one day possibly even replace your job.
It is worth giving this a serious thought.