Lately, my wife has been asking me what does passive income mean and how to create our own sources of passive income.
To most working adults, the concept of passive income can be quite alien or new, especially for those who are not financially educated. This is because most of us were brought up with the conventional thinking that we should study hard and then secure a good job that pays well. There is nothing fundamentally wrong with this traditional thinking but following this route will probably not set you on the path to financial success. In today’s context, with so many graduates (local and foreign) flooding the market, you need something special in order to be ahead of the peck.
Coming back to the main topic, passive incomes are sources of incomes which do not require you to actively work or labor in exchange for monetary rewards. Effectively, you are making money even when you are sleeping. Of course there are trade-offs to make. When we are working for a pay check, we are exchanging our labor or time in exchange for monthly salaries. Likewise for passive incomes, we are exchanging intangible commodities in return for monetary rewards. For example, in Singapore, one of the easiest way to make passive income is to sublet empty rooms in your HDB flat. In exchange for the rental fee, you sacrifice your personal space. Another example would be dividend investing. In exchange for principle capital spent on the stocks, you collect dividend every year from the companies.
The beauty of passive income is that it allows you to focus your energy to actively work for your main income and at the same time provides you additional sources of incomes. Some of my readers have lamented that “its easier said than done”. To a certain extent I do agree with them. After all, making money is never easy, let alone creating additional sources of incomes.
But if you look at a few of my fellow bloggers’ postings, a number of them had collected quite a fair bit of dividends from their stock investment portfolio. One of them even claimed he made $17,000 from his dividend for one particular month! I believed they had done much homework researching which stocks to invest and then pump in their hard-earned savings to invest in these stocks. Whatever the case, it has been proven that you can create your own sources of passive incomes if you wanted to. And it doesn’t take a financial guru to do so, everyone, including you and me, can create our own sources of passive income.
Now you may ask why creating passive income is important. If you put things into perspective, if you don’t have passive incomes, then effectively, you would have only one single income from your day job but many outgoing flow of money in the form of expense or bills to worry about.
Unless you have very high income from your job or business, then there may be times, when your single income source may not be able to settle the many bills coming your way. When that happens, you have cash-flow problem. Its’ okay to have cash-flow every now and then, because I think every one went through that at some points of our lives. But it’ not okay if cash-flow is an issue for the long run. If you have cash-flow problems over the long run, then you might have problem saving and making plans for your retirements.
I am not saying that having passive income streams is the magic bullet to your financial freedom. There are many aspects to achieving financial freedom and that having multiple streams of passive income is probably one way you might want to consider. To me, there are a few ways to create your own passive income:
1) Sublet your HDB flat to collect rental fee
2) Dividend investing
3) Create ebook
4) Create a blog and collect money from ads
If you have any ideas for passive incomes, please feel free to share.
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