Extra income is always sweeter than the regular income. There are some jobs where the extra income is much more than the regular income. We are not talking about those jobs, though.
Here we will discuss the idea of passive income. A passive income is extra income that you can earn without putting much effort into it regularly. This is one of the better ways to utilise your time and any other talent you have. Moreover, this income helps you fight inflation, plan a better future and be prepared for the rainy days.
There are a few ways which can be used to earn passive income.
Investing
Investing as a source of passive income is very old idea. Even now, you will encounter many people who live on passive income. Some of the usual means of generating passive income using investing are the following:
Dividend paying stock:
A dividend paying stock is issued a company that pays cash dividend periodically. These companies are matured and very big where growth has reached a stable stage and they do not need much money for growth. Instead, companies distribute the earnings to investors in the form of dividend. You can easily find companies that pay dividend in any of the business sites. Dividend income is best for people who need extra source of income regularly.
However, companies are not liable to pay any dividend. Dividend paying companies have been paying out since last couple of years and they may continue to do so. There is no law to force companies pay dividend.
While investing in equities for dividend is a great option for passive income, it is risky. Companies’ fortunes change in the short term and they are not mandated to pay dividends. Remember that the dividend comes from earnings, and companies might refuse to pay in some years when they are not earning.
interest paying bonds:
Additionally if you compare index returns or return from blue chip stocks, you can see extreme fluctuations, while bond returns are stable. Bond funds or bonds are less risky as bondholders are like loaners who have to be paid interest regularly. Defaulting on payment of interest creates extremely bad impression for the organisation and companies. Hence most companies pay the interest on time. Hence coupon payment (payment of interest periodically) is largely assured.
Moreover, every bond has to go through a rating process. The rating is an indication of the financial strength of the company which will ultimately be useful for coupon payment. You can look at the rating on the bonds and decide accordingly.
Use your professional expertise:
Don’t underestimate your job even if it is boring. It has equipped with you a skill that many people do not have and will be ready to pay for. For example, I know a few people who are working in banks but also teach in business schools over the weekend without affecting their schedule.
If you are in software, your expertise is most valued. There are enough small and medium enterprises that are looking for freelance developers who can build their website and manage it. It may look very easy for you to do but for non-technical people, this is a nightmare and they are ready to pay for it.
REIT (Real Estate Investment Trust):
REITs are yet to arrive in India but it is going to happen soon. Today only Singapore REIT has shown interest in starting its operation in India. REIT is an investment trust that rents out properties (also known as equity REIT) or provides loan for buying properties (also known as mortgage REIT). The idea is very simple. Equity REIT companies own properties that they rent. This rental income is given out as dividend to investors in the REIT. Similarly, mortgage REIT firms get interest on the loans they provide.
Blogging
Blogging has become a very popular way to earn money. There are bloggers who get paid to write articles for content syndication companies. This doesn’t take much time if you know your subject.
You can start your own blog and once it starts getting visitors, you can use the space for advertisements and collect income. The Internet is full of possibilities. You can use email marketing to popularise a product.
A close cousin of blogging is social media management. It involves a whole range of services such as writing reviews on social media site, promoting a product, passing comments etc. Social media has become very powerful and most of the companies use it for marketing and sales campaign.
