Passive Income

Many people would desire some form of passive income. Let’s review the definition and I will list the sources of passive income and you can determine and decide what may be your best forms of passive income. For me, I have decided on Affiliate Marketing as well as Value Investing. Affiliate Marketing to build up a number of good quality websites promoting products in a few niche markets. Value Investing requires some base capital and may not be for everyone right away but in the longer term, you build your wealth by investing wisely and compounding your wealth further.

What is Passive Income

Investopedia defines Passive Income as earnings an individual derives from a rental property, limited partnership or other enterprise inPassive Income which he or she is not materially involved. Well that is a technical definition in the investment world. Nowadays, Passive Income is more commonly used to refer to income generated when an individual does not trade his or her time earning it, so practically any income outside of a salary like interest income, dividends paid out from equity portfolio, rental income, income from online business etc can be considered as passive income.

The concept of passive income is most relevant when a person retires or decides not to have a full-time job anymore for whatever reasons. This is because without regular pay-checks, you have to make sure the passive income collected monthly exceeds the monthly expenses which still run.

To me, having passive income is important not just from the perspective and concept of financial freedom but also the freedom to choose how you live your life every day, choosing to do things you are passionate about doing, be it spending more time with your family, your children or pursuing a hobby or interest. Gone also are the days when you can hold on to a job forever. New technology and innovative business models are disrupting and wiping out entire industries!

How much passive income is enough depends largely on your lifestyle and stage of life you are in.

Sources of Passive Income

So, how can you build passive income? It will not fall from the sky, and you do need to consciously build it up. The most common that a lot of people know of is putting aside a portion of your monthly pay-checks as savings, put them into the banks and collecting interests. There is nothing wrong with this, and this is very safe unless the banks default. However, your enemy is inflation and also the yield of low single digit percentage like 1%, 2% will not grow your real wealth, in the pressure of inflation.

There are a number of forms of passive income:

1. Online Business 

Done well, this can be a very efficient way to start building a Passive Income Generator. There are 2 billion people online and your audience reach is global and the capital investment is low. What do I mean by an online business? It can be you already owning some physical products and now you set up an online store to further expand your business. It could be you have a passion writing and you like food and you can start a food blog and monetize your website through advertising revenue. My focus here is of course Affiliate Marketing, promoting, marketing and selling other vendors’ products and earning a commission.

2. Portfolio Investment

Investments are made into a portfolio of financial instruments (stocks, bonds, unit trusts etc) and you derive dividend income or take profits from appreciation in asset values. This is another area of my great interest. My advice is you must learn enough about the stock market, how it works and before you buy any stocks, you must have thoroughly studied the financial fundamentals. When you buy into a stock, you must have mentality that you are buying into a business, and thus you want to buy below its intrinsic value.

3. Real Estate

Most common is investment into residential properties while there are other real estate types like industrial and even agricultural lands which can be explored. Here, the passive income is the form of rental collection and also the possible longer term asset appreciation. It is my personal preference that I now focus more on investment into stock portfolio rather than real estate investment because real estate investment requires huge capital outlay into a single investment. The stock market allows a lower quantum investment for you in real estate investment through REITS (Real Estate Investment Trust) and buying into property stocks.

4. Interest Income

As mentioned, this one your parents and grandparents know very well. You put your savings into savings accounts or term deposit accounts. Be careful that while this is almost risk-free, interest rate tends to be low and may not even cover inflationary pressure and in the longer term, you actually become “poorer”.

5. Network Marketing

Also called multi-level marketing or direct selling, this often draws negative connotation. Some members of Network Marketing companies may also deploy unethical tactics to attract members purely for their own financial benefits. It is a tough option but the rewards can be very fulfilling because once you have established a base of downline members, and you coach and take care of them, you basically have regular passive income as the team continues to get more members and sell the products by the network company. Be sure that the network company is a good one, selling products which are great and loved by end users.

6. Starting a Business

You can also start a business and when successful, the business will generate profits, issue dividends and the dividends will provide steady stream of passive income. At certain point, you may also decide to sell entirely or partially equity ownership of the company and channel the capital to other investment types.

Financial Freedom & Time Freedom

Financial freedom and time freedom is a very attractive proposition and you will see many Facebook Ads, websites promoting all sorts of programs, systems, whatever promising get-rick-quick methods to achieve great wealth, financial freedom and time freedom.

While some of them are preview workshops of genuine and well-intentioned trainers eager to impart what they know about a thing or two, majority of them are largely scams. Success requires hard-work to be invested and there are ways to be a better educated stock investor, there are ways to learn the ropes of Affiliate Marketing, there are key success factors of building a great company etc.

Do check in regularly on more discussions on the topics listed above.