5 Ways to Create Passive Income
Imagine a regular pay cheque that goes straight into your bank account and requires minimum effort to generate.
Sounds too good to be true, doesn’t it?
But passive income – an enterprise or asset that makes money which you’re not actively involved with – is an amazing way to boost your long-term income and get one step closer to achieving your dreams.
Before dollar signs start flashing before your eyes though, be assured that passive income is not a get-rich-quick scheme! It involves time and effort to begin with. And that’s where we come in. With twenty years’ experience supporting people with financial advice, we’ve helped plenty of Kiwis with money planning to secure their first home, mortgage, and more.
What is passive income?
Passive income is money that comes from an activity or asset you put time and money into upfront but aren’t continuously involved with going forward. It’s the opposite of money earned through a job or an activity that needs your ongoing input 24-7.
Earning extra money this way is ideal because it gives you more financial freedom, flexibility, and a consistent cash flow. Unlike your job it’s also scalable, meaning your earning potential isn’t limited by how many hours you can work in a day. Plus, it means you’re less reliant on your boss or clients for income that could always fall through.
Whether you’re a beginner or pro, here are some of the best ways to earn passive income.
- High yield savings account
A high yield savings account involves little to no risk and usually only requires a low deposit. The concept is simple: put your savings in a bank account and you’ll be rewarded with interest.
However, because interest rates haven’t kept in line with inflation, this method isn’t realistically going to bring in meaningful income unless you have a large sum saved, even in the long-term. But that’s just the nature of low-risk, low-return investments.
- Rental income
If you have the cash or finance, buying a second house or commercial unit to rent is a guaranteed source of steady, passive income.
Being a landlord does come with its fair share of work though (think tenants complaining about the toilet not flushing) so unless you’re prepared to pay a property management company, you’ll have to sacrifice your spare time. You may also need to review your finances with a financial advisor to see if you can afford it – something we offer.
Don’t have that kind of money? Instead, get resourceful and utilise your existing assets: rent out a room in your house, or even your whole place, on a short-term basis.
I personally know families who rent out their homes during the school summer holidays and take the kids to stay at their parent’s place. You earn easy money for your family’s future: whilst the kids get to spend more time with the grandparents. A win-win situation. You could also rent out your place when on extended holidays yourself.
- Dividends
This one is riskier but can be lucrative if you invest wisely.
When a company makes a cash payment to their investors (shareholders), that’s what’s known as a dividend. To generate income from owning shares in a company, you’ll probably want to invest a decent sum: anywhere from $5,000 to $10,000 minimum.
Inevitably dividends are a gamble because share prices wax and wane depending on how profitable the company is at any given time. Seek financial advice before investing. One tip is to spread the risk across a portfolio of dividend-paying companies.
- Digital content
Do you live for health and fitness? Or maybe you’re a digital marketing whizz? Whatever it is, if there’s an audience for it, there’s an opportunity to create an online business with a website, blog or social media channel.
You can make money two ways. Firstly, through affiliate marketing where you earn a fee when a follower clicks on a link or advert for a brand you promote. Or secondly, by creating and selling digital products like courses, e-books and templates.
To achieve any income, you’ll have to dedicate some serious time and creativity, because without inspiring content you won’t attract traffic; and without lots of eyeballs on your site, you won’t win ads, or sell your content. The influencer life isn’t for everyone!
- Buy, and/or grow a business.
Lastly, buying an existing business or growing a new business from scratch could be a more achievable way to earn passive income.
Now some businesses and their set up is more ‘passive’ than others. For an example, a lawn mowing business requires the owner operator to physically mow the lawns to earn the income. Though an aspirational lawn mowing business owner will build a team of lawn mowers generating income. Having someone manage the business on a day-to-day basis could involve little involvement from the owner and if profitable, produce a handy passive income.
Get in touch to explore your options regarding lending, helping create a future for you and your loved ones.