How to Analyze And Implement the Best Way of Building Passive Income
Everyone wants to live well, but not everyone does. The income of a salaried employee is always limited unless you are the CEO of a Forbes Top 200 company. However, today, in the age of capitalism, the average office worker also has a chance to get rich. What’s more, you can even become completely financially independent and stop working at all, making money passively. In this article, we will discuss a few ways to build passive income and see which one suits you best.
How much do you need to sleep well?
Passive income is a type of earning that does not require any active actions. The source of income is an asset in the person’s possession. The main goal of a successful investor is that the money itself makes more money.
In popular culture, it is often said that for happiness one needs to have a million dollars. And in terms of finances, this is quite true. If an investor, for example, wants to have a passive income of 4 thousand dollars a month, his portfolio should be valued at a minimum of half a million dollars.
However, a rookie investor cannot expect such a high percentage of the investment earnings right away. Moreover, it is obvious that such a big portfolio for an average person becomes the result of a long way of accumulating assets.
Before setting out to form your own source of passive income, you need to clearly define the purpose, urgency, and regularity of gaining it. It is important to understand your own financial possibilities and appetites, as well as calculate how much to invest now to be able to spend the required amount in the future.
Quite often, an investor first creates a so-called “retirement portfolio” that is not intended to bring money today. It should enable them to maintain their standard of living and quality of life in, let’s say, 20 years. Afterwards, current capital becomes the mean for earning passive income, which must be regular and, for the most part, guaranteed.
Buying a flat and simply renting it out isn’t the best option. Moreover, it’s better to renovate it, as it will cost more. Also, you may need to do some marketing activities to attract potential clients.
The funds invested in marketing may be quite small. As the rent payment comes in, it is worth thinking about increasing the advertising rates. At the same time, your credibility will increase and this is building your name as a brand. Competition for the chance to live in your house or flat may even increase. However, it all sounds more like a job than a way to earn passively. So let’s move on to the next option.
Stocks and bonds
Buying stocks and other risky assets is only worthwhile if you don’t have an immediate liquidity need or if you are prepared not to lock in your returns for several years.
Shares increase in value and will yield a profit when sold later on. In addition, the holder of the shares may receive an annual dividend, which is also an income. The process of holding the rising stock is therefore profitable.
If you already have the start-up capital to earn a regular passive income from the stock market, experts advise you to look at fixed-income instruments. The most popular is investing in bonds. These are securities that are designed to provide the investor with a fixed and unchanging payment on a specific date.
Here, cash flow can be calculated with a high degree of accuracy. However, the yield on the bond market is of course significantly lower and is always at +2-3% of the deposit yield.
Thus, it is better to accumulate stocks for the long run, and when it is time to spend and save capital, it is better to use bonds. The share of stocks can be significant, provided companies pay generous dividends on them.