It is a fact of life that most of us have to work hard to bring in an income.
This means that we sell our time and energy for the money we need to live. The harder we work, the more money we hope to make – but the less time we will have to enjoy it.
But there could be an alternative. Passive income, the trick of making money while you sleep. It holds out the promise of money coming in without the labour required for to earn it. Whether you're looking to build wealth, achieve financial freedom, or simply diversify your income streams, establishing passive income sources could be a game-changer.
But what exactly is passive income, and how can you generate it?
What is Passive Income?
Active income is money earned through work. Passive income is money that flows into your bank account with little ongoing effort and certainly without constantly working for it. It means getting back the time you would have spent on work. Its benefits are hard to resist:
- Financial Independence: With multiple income streams, you can reduce your reliance on a single job, providing more financial security and flexibility.
- Work-Life Balance: Passive income gives you the freedom to spend more time on the things you love without worrying about your income drying up.
- Wealth Building: Over time, passive income can snowball, helping you accumulate wealth and potentially retire earlier than planned.
But where can you find a passive income? There are actually many sources, but all of them will require some effort, and probably some investment to set up.
But don’t let that be a barrier to enjoying passive income. Once you have set up your passive income, it could potentially go on rolling in the cash for years to come with little or no effort from you. There are countless ways to potentially create passive income, with varying levels of risk, investment, and effort.
Here are three of the most effective:
1. Dividend-Paying Stocks
Investing in dividend-paying stocks is a tried-and-tested way to generate passive income. When you buy shares of a company that pays dividends, you receive a portion of the company’s profits. This can be paid quarterly, annually, or even monthly. If you reinvest the dividends – known as compounding –those dividends could buy shares that themselves earn dividends.
You simply need some upfront cash to buy stocks – and some help to find the stocks that are appropriate for you. There are many blue-chip businesses that regularly pay a dividend, but even the bluest can go to the wall if technology, fashions or markets move on. It may be best to have a spread of dividend paying holdings – or invest through a fund, which can provide a ready-made diversified portfolio, and possibly the skills of an investment manager to run it for you.
2. Property
Owning rental property is another way to earn passive income, especially if you purchase in high-demand areas. Your tenants' rent payments would need to exceed your mortgage and maintenance costs, before leaving you with profit each month.
You don’t even need to buy the entire property. A buy to let mortgage might let you make a relatively small deposit the key to investment property ownership.
Of course, buy-to-let is no longer the virtually guaranteed moneymaker it was a few years ago. Tax crackdowns and new rules and regulations ensure it is not for the faint-hearted, or the unprepared. You will also need to factor in the possibility that there may be periods where you may not be receiving any rental income where the property is untenanted.
3. High-Yield Savings Accounts
If investing in stocks and shares or property seems rather too stressful, you could simply aim to stash money in a savings account. After years of low interest rates where savings accounts could not pay enough to keep up with inflation, savings accounts have started to look very much more worthwhile.
Getting the passive income, you want
Passive income is not a get-rich-quick scheme, but a strategy that requires careful planning and commitment., and a carefully researched strategy.
Getting some expert help with developing the strategy that is appropriate for your resources and timescales can start with a single phone call.
At Continuum we are waiting to hear from you.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment, you should seek independent financial advice before embarking on any course of action.
The value of an investment can go down as well as up and you may get back less than you invested. When investing Capital is at risk.
Equity based investments do not afford the same capital security as deposit accounts.
The Financial Conduct Authority does not regulate deposit accounts and some aspects of Buy to Let mortgages.
Your property may be repossessed if you do not keep up repayments on your mortgage.
The value of property investments and income from them can go down as well as up and investors may not get back the amount originally invested.
