title: Building a Passive Income description: [AFW M.1.16] Michael's Epiphany #16 published: true date: 2026-06-30T08:07:55.918Z tags: editor: markdown dateCreated: 2021-04-19T22:54:14.354Z

The epiphany is related to Epiphany #23 Play the Long-Game

Watch AF MKOM #1712: Building a Passive Income VIDEO

Introduction¶

The name of the game is building a passive and residual income. There are six "types" and you'll want to work most, if not all, of them.

"To become financially independent you must turn part of your income into capital; turn capital into enterprise; turn enterprise into profit; turn profit into investment; and turn investment into financial independence." —Jim Rohn

"If you don’t find a way to make money while you sleep, you’ll work until you die." —Warren Buffett

Up-Front Revenue¶

Up-front revenue. This is not passive income but it keeps you in business long enough to build your passive income streams.

Recurring Revenue¶

There are two forms of recurring/residual revenue: ARR & PACs.

Annual Recurring Revenue (ARR)¶

ARR includes trails, 12b-1 fees and VA renewals.

Auto-Drafts / Pre-Autorized Checking¶

This is automatic electronic funds transfers on a monthly basis. Called Pre-Authorized Checking (PAC).

$4,200 in monthly PACs gives you the equivalent residual income as $1M in AUM. That’s approximately four “fully-funded” families.
Opportunity. It’s easier to find clients to add/increase $4,200 in PACs than to add new $1M in assets.
PACs are paid-out 52 times a year! Make sure to spread out your clients’ draft days.
Standard. Recommended standard to employ: "Any combined accounts that don’t meet the $25k-breakpoint must have a monthly PAC attached."

Client Follow-Up¶

Having a professional, non-invasive, systematized client follow-up system will help you get more revenue from existing clients (another form of passive income):

Getting clients to add more money to their existing accounts (subsequent contributions).
Add/increase their PACs.
Prodive referrals/introductions to prospects.
Help you cultivate the children fro future clients (see below).

Referrals¶

Referral-based business. Generating new clients without directly prospecting is a form of passive income. This is another reason why client follow-up is so important.

Earnings from Investments¶

The Final Solution is living 100% off of the earnings from your personal investments. This is your ultimate goal. This business is merely a long-term means to an end. But this is the end. This is Quadrant Four of the Cash Flow Quadrant.

Watch my video The Final Solution VIDEO

“The poor and middle class work for money. The rich have money work for them.” ―Robert Kiyosaki

The Cashflow Quadrant¶

Rich Dad's Cashflow Quadrant by Robert Kiyosaki BOOK This is the best book I've read on the topic of passive investment income.

Read my book notes.
Get the ebook.

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Summary¶

Three Phases¶

Earn your desired cash-flow from your upfront commissions.
Earn your desired cash-flow from your ARR.
Earn your desired cash-flow from your personal investments.

Your ultimate goal is Phase 3. As amazing as our firm is, it is merely a means to an end (ie, earn surplus income and invest as much as you can for Phase 3).

Use the Income Game-Plan Calculator in the AFMS to help you with the above.

Three Pro-Tips¶

Always take a much upfront income as possible, and:

Fund your emergency fund (at least $50,000)
Fully-fund all of your retirement account and your spouse's. Make sure to include your SEP IRA.
Pay off debts.