Recently, there have been talks of ‘financial independence’. What does this mean to you? Most people live in the cycle of active income, which ties their time to their income – the salary you get from the work you do is a direct result of your efforts at work. Active income can be earned only by investing time and effort directly in return for money. This means that if you don’t work, you don’t earn. Whether you are a teacher, a builder, a banker, a software developer, an athlete, an actor, or a doctor, you have to work to earn a living.
On the other hand, people are able to detach the time spent from the money that they earn – their money is working for them with little extra effort on their part, apart from the initial act of active investing. They earn passive income from various sources, including investment property, dividend income from owning stocks, interest income, royalties from publishing books, music, from business interests and so on.
Financial independence comes when your passive income streams far surpass your expenses. That is what we must all aim for because with this, you have the freedom of choice and flexibility. Here are some sources of passive income:
Interest Income
Interest is the most basic form of passive income. Interest earned on savings account balances, fixed deposits, money market funds or bonds is a relatively risk-free source of passive income. However, do note that interest rates hardly keep pace with inflation, so it can be a challenge to earn or grow capital in any significant way.
Investment Property
Investing in residential or commercial property for investment purposes is a time-tested way of enjoying passive income alongside capital appreciation. The location and condition of the property are of significant importance for you to realize stable rental income far into the future. Seeking appropriate advice from reputable real estate companies will give you the best chance at success.
Dividend-Yielding Stocks
Another effective way of earning passive income is to buy shares in a publicly quoted company that regularly pays dividends to its shareholders. You need to seek professional guidance. A reputable stockbroking house will select stocks for you but it is also important for you to develop your knowledge of investing so that you understand what is being done with your money.
Whilst investing provides one of the most accessible forms of passive income, in discussing its advantages, one cannot afford to overlook the issue of risk, which is an integral part of investing. There is always the very real possibility of loss as markets can be volatile and prices will go up and down. A diversified portfolio will help to mitigate this.
Business Interests
If you are considering investing in an interesting business opportunity, seek professional advice. Some of the greatest sources of passive income have come from people taking a chance on an entrepreneur with a great idea, only after doing their due diligence.
Rent Out a Room
Do you have an extra room that you don’t need but don’t want a full-time tenant or flatmate? If you make some effort to make it presentable and functional, you may be able to rent it out through Airbnb or other companies. This is fast becoming a serious option for short-term city dwellers alongside small guesthouses and hotels.
Can you Blog?
Is there an area that you are passionate and knowledgeable about? Is your lifestyle of interest to others? You may find that there is a large audience out there that is interested. As you build traffic and a following, you should be able to monetize the blog by selling advert space.
Starting a blog is one of the most effective side hustles as you can do it in your spare time and wherever you are in the world. However, it takes time and much effort to build content and credibility and to consistently present it in a way that appeals and adds value to your audience.
Stock Photos
Is photography your hobby? Do you take awesome photographs? If so, you can put them up in a gallery of stock photos and sell your photos. There is a huge market for stock photography that is more relevant for local use.
Create an Online Course
Consider creating an online course. This is a wonderful way to share your knowledge with your audience, build a strong following and earn passive income. What is your area of expertise? What are you passionate about? Can you teach it? Are you prepared to put in the time to create valuable content?
What does your audience want to learn about? To create an online course, like other passive income sources, requires upfront efforts in creating the course and tweaking it from time to time. Initially, your course may be available for free, but as you continue to give value over time and the quality and standard of your content are evident, you can charge for your courses and start creating a passive income stream by making it available online for sale to an audience.
Write a Book
Can you write? Do you have a passion for something that you can turn into knowledge for others? Creating a book takes time and sleepless nights but that effort, once executed, can turn into repeated sales. Once a good book is published, it can continue to generate income far into the future. Get that book that has been in your mind out there in 2020.
Deal with your Debt
If with all the effort put into creating multiple sources of income, you don’t deal with your overwhelming debt, attaining financial independence will be a challenge.
Debt is simply a tool and for most people, it is necessary to borrow at some time or the other, especially if you are purchasing a long-term asset, such as a property. However, when your debt begins to control you, it is important to make every effort to regain control of your finances.
As far as possible, avoid borrowing to buy depreciating assets and make efforts to pay back the most expensive urgent debt. Don’t ignore or wish away your debt. Put in place a disciplined payback schedule, otherwise, you are simply creating passive income for lenders.
If you are middle-aged, close to retirement and have been living solely on your salary, your goal should be to use your remaining peak earning years to create sources of passive income, which is often the main source of funds in retirement. Your pension will just not be enough.
When you work because you wish to and not because you have to, you can engage in work that you love. We all have things that we’re passionate about but we often have to defer them or put them off altogether. Uncover your talent, uncover your passion and see how you can begin to monetize it this year.
Whilst earning passive income is important and tempting, this does not mean that you should quit your full-time job before you are ready. It is not always smart to drop everything to follow your passion – most people simply cannot afford to do this with the financial obligations that they face. The time must be right and if you enjoy what you do, there is absolutely no reason why you shouldn’t continue doing it.
The prospect of creating and generating passive income can sound glamorous and easy. Do remember that whilst passive income can build that important financial momentum, you must be willing to invest time – and this could be years of putting in the effort to build something viable; it doesn’t just happen. Like any new business, creating passive income requires focus, discipline, commitment, and consistency.
Have you tried to envision your life in 2020 and beyond? What do you want to spend your time doing? Where do you want to live? It is rare to find people achieving their financial goals and dreams solely from their salaries and subsequent pensions. True financial freedom requires alternative sources of income and passive income. Building such sources of income is the foundation for sustained wealth and financial independence.
Written by Nimi Akinkugbe
Source: BellaNaija
