How Can I Earn Passive Income?

Illustration by Pratik Bhide for 1 Finance Magazine

Dear Qualified Financial Advisor,

I’m a former freelancer in my 30s, and recently took up a full-time position, thinking I could still earn some change on the side by taking up assignments in my free time. But my plate is full at work and I don’t have time to give to additional projects. I’ve heard through friends that having some sources of passive income helps, but I’m not too sure what that means or what I need to put in place for it. What are some ways I can earn passively to build on what I have and plan for a future?

Yours,
Too Busy for a Side Hustle

Dear Too Busy for a Side Hustle,

Thank you for reaching out.

Shifting from freelancing to full-time work should be good for your financial stability. But with the working culture and lifestyle today, it is understandable if you do not have much free time to take up anything in addition to your full-time job. However, generating passive income instead of having only one source of income is also important. 

To be clear, passive income is money that you don’t earn from employment — it could be the interest you earn on savings, dividends from stocks, rent from a flat you own, and so on. It refers to earnings that require minimal active involvement and allow you to earn money while focusing on other aspects of your life.

Before you begin, it is important for you to assess your present financial situation in terms of your current income, expenses and surplus available — and also the kind of lifestyle you would like to have and maintain, alongside your ongoing investments, insurance policies, liabilities and upcoming short-term and long-term milestones. 

Once this is done, you will be able to understand how much passive income you will need now, in the short term, and in the future. This will help a financial advisor  allocate current investments as well as future cashflows for developing a proper portfolio that generates tax-efficient passive income for you.

Here are some ways to increase passive income:

Invest in Real Estate

Investing in residential, commercial or vacation properties can generate rental income, which varies with the location of these properties.

Plan Stock Market and Mutual Fund Investments

Investing in equity provides opportunities for generating passive income through dividend-paying stocks and mutual funds, returns from which may be irregular and vary across companies and schemes.

Invest in Fixed Deposits and Bonds

Traditional fixed deposits and bonds make for a relatively secure passive income stream. 

Venture into E-Commerce

Starting an online business is becoming an increasingly viable option. Consider selling products online, creating a blog monetised through advertising or affiliate marketing, or developing digital products like e-books or online courses.

Earn from Royalties and Intellectual Property

If you possess creative skills, explore avenues such as writing books, composing music or licensing your artwork to earn passive income.

These options could help with growing your wealth over a period of time. Know that you will have to regularly monitor the performance of your passive income streams. Stay updated on market trends, economic conditions and regulatory changes that could affect your investments. Optimise your income by periodically reviewing your investment portfolio and making adjustments as necessary. And leverage technology and automation to streamline your investments.

For someone at your age, generating passive income is a vital step towards financial freedom. It requires careful consideration, and ideally, guidance from a qualified advisor who can help you avoid missteps. Making uninformed choices about passive income streams can be counterproductive. By evaluating your financial situation, creating a tailored financial plan, exploring the various opportunities available and investing in income-generating assets, you can build sustainable passive income streams. With dedication, perseverance and a long-term perspective, you can work towards achieving financial stability and a secure future.

Yours, 
Tivesh Shah
1 Finance Advisory Committee for Qualified Financial Advisors — Mumbai Chapter