Beyond changing the way you think about money, you also have to change the way you actually make money. There are essentially two ways of doing this: Vertical income and Horizontal income. Which type of income do you make? Which do you think builds wealth?
Before we get into the details of vertical and horizontal income,
let’s first talk about what cash-flow living and asset-based living are.
Cash Flow
A cash flow income is working for the money. It’s a constant loop of clocking in and getting paid. No change. You might get a raise here and there, but most people adapt their spending to their pay, then the raise doesn’t feel like more money earned, just more money spent. Even if you win ten million dollars in the lottery, receive it in monthly payments, quit your job, and travel the world to 5-star hotels, you’re still living on a cash flow income. This is not how you build wealth.
Asset-based
Now let’s say that you only won a million dollars in the lottery and kept your job. It’s less than our first scenario, but wait... Instead of throwing it at a year long vacation, you invest it into a handful of homes. After fixing them up, renting them out, and paying a manager, you’re still bringing in cash. Long after ten-million-dollar-lottery winner has ran out of his winnings, your investment is still bringing in an income that is continually growing. This is asset-based living. This is how you build wealth.
Now let’s see how these fit into vertical and horizontal income...
Vertical income (active)
Everybody makes vertical income without realizing it. It’s a cash flow life. You develop a skill, you get a job, you get paid. The end. It’s called vertical because if you look at your cash flow on a graph, it’s a single arrow (representing your job) that goes directly up over time. Even if you have two or three jobs, you’re still making money the same way. From the first year to your 10th year to your 30th year, hopefully you’re getting raises and/or making more commissions, but it’s all considered active income in that It’s all directly related to the amount of skill, time, and experience you put in. Any job you have is active income. From dog-walking to being a surgeon. If you don’t work, you don’t make money.
Horizontal income (passive)
Now here’s the good stuff, the kind of income everybody dreams of making, but has no idea what it means to do it. It’s horizontal income. This goes beyond working for your money. This is money working for you.
It’s called horizontal income because if you were to see it on a graph, it’d be not one arrow going up, but multiple arrows going up making the graph build horizontally the more investments, interests, and dividends you have. Horizontal income can come from a home you’ve purchased and are renting out, or even stocks you’ve put money into. That money you’re accruing from your tenants or stocks did not come from you laboring every day. It came from an intelligent investment decision that resulted in a check with your name on it. And you didn’t actually having to “go to work” for it. It’s not money you make as an employee. It’s employing your skills and knowledge to receive a passive income.
This doesn’t mean you should quit your job today for the asset-based life. It takes time, learning, and strategy. You can aim to have all of your expenses covered by your horizontal income, but it doesn’t happen right away.
So, instead of working for your money, make it a mission to work for wealth.
Wealth means freedom, and freedom can mean whatever you want it to mean.
Now ask yourself again: What kind of income do you make? Does it build wealth?
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