Passive Income for Beginners
As Australia faces a cost of living crisis where Australian’s biggest financial worries are how much more grocery prices will rise, it’s no wonder people are looking at ways to increase their income, after all reducing expenses can only go so far.
But if you’re already working at your capacity from a time perspective, simply working more isn’t feasible. What if I told you there was an alternative way. A way where you could make money passively with an initial investment of time and effort but then it continues to pay you long after that!
Passive income is also the key to unlocking more choice, freedom and independence in your life. Imagine getting to a point where your passive income covers your basic expenses.
First of all, what is passive income?
Passive income is income earned without active involvement. It’s a regular flow of money that doesn’t require a significant commitment of time, money or energy to earn. It does require some initial capital and/or an upfront time commitment.
Imagine how different your life would look if you had enough passive income coming in to cover your basic living expenses.
You can start earning passive income in a number of different ways:
- interest earned from bank accounts
- dividends from shares
- distributions from Exchange Traded Funds or managed funds (your share of the dividends received)
- rental income from property
- staking cryptocurrency
- passive income from businesses - although unless they are managed by others they are not truly passive
- creating and selling digital products like e-books, courses or printables on platforms like Etsy
Now each of these has pros and cons and have different levels of risk. For example, earning interest from a bank account has a low risk however you need to have the capital to put in the bank in the first place. You also risk it not keeping pace with inflation.
Purchasing a property for you to rent out requires a deposit, an understanding of the real estate market, researching locations and properties and understanding the tax implications. There is also a risk you could lose some or all of your capital.
Creating and selling digital products requires an initial investment of time to create the product, however what a lot of people don’t realise is the amount of time they need to dedicate to marketing it so it sells.
When deciding what area you would like to focus on when it comes to earning passive income, it’s important to consider the risks, challenges and consequences as well as the benefits.
So what options allow you to start small?
It depends on your situation, however either creating digital products or investing in shares or Exchange Traded Funds are the easiest to start with a small amount of money.
Micro-investing platforms enable you to invest in either a portfolio of shares through robo advice or a diversifiedExchange Traded Fund (ETF) with as little as $5. Now I know $5 isn’t going to create you a whole lot of passive income, however consistently investing over time will add up. For more information about micro-investing platforms read here.
Remember, you can’t have $100,000 per year of passive income before first having $50,000 per year, $10,000 per year, $1,000 per year and $100 per year. Small investments made consistently and then increasing investments can make a big difference.
You may wish to invest your time and energy into creating a digital product in an area that you are knowledgeable in. This is a way to start with a small amount of outlay, however you may need to spend money on advertising or promoting your digital product.
What risks are associated with passive income?
Whilst passive income doesn’t require you to trade your time for money, it does require a level of time and effort to maintain. You need to monitor your investments and ensure you have sufficient cashflow to meet your obligations. If you’re investing in direct property you will still need to make decisions about the property and either provide instructions to your property manager or resolve the maintenance issues on the property yourself. These things are usually time sensitive and may not come at an opportune time.
All investing comes with risk, some more risk than others. Growth assets tend to have more volatile returns over the shorter term, the higher the volatility the higher the risk but also the potential for higher returns over the longer term. Volatility means the value of the asset fluctuates and increases and decreases depending on market events.
Defensive assets are considered lower risk and are less volatile, they don’t move up and down as much but generally don’t have the same potential for higher returns over the longer term.
If you’re ready to have a paradigm shift around abundance, upgrade your money beliefs and create true wealth and passive income, sign up to my newsletter to transform your relationship with money and have access to financial education.
