It is good for you when you have a well-paid job and your salary is big enough to provide with wealth living. However, spending all your funds on current needs is a bad idea. A better idea is to make savings. And the best idea is to make investments that allow you to get passive income which will be saved even if you lose your job or ability to work.
So below there are 3 ways that allow you to increase your passive income without being a professional in investment.
Get Passive Income by Lending Money
When you are lending money there is an interest rate you take which is difference between the sum lended and sum returned. This is what banks earn on basically, however, that doesn’t mean a regular person cannot earn on it as well. It is a good idea to borrow money enforcing reasonable interest rate as it means your money are working instead of you and you offer an aid to someone who needs that money.
Of course, there are risks related to this kind of investment, but those are the lowest if compare to other kinds of investment.
There are three ways to earn on lending money:
- government bonds
- bank certificates
- peer-to-peer lending
Government bonds are issued by government. When buy you a government bond that means you lend money to your government and there is a specific interest rate you get. Government bonds can be sold or bought on a stock market and as an investment it is one of the safest ways, though the income is usually rather low. Government issues bonds when it lack money and with AAA credit rating (the highest rating possible) it is a reliable investment.
Bank certificates are issued constantly by banks. Buying bank certificate means you lend money to the bank and then bank lends for a higher interest rate to its clients. Certificate liability depends on bank credit rating. Usually, the higher is credit rating the lower is your interest rate income, though the risk is lower as well.
When talking about banks – of course you can make a deposit in a bank and get something called income. However, that can usually be treated like a saving, but not investment. And the difference between saving and investment is huge.
Peer-to-peer lending is the most profitable way to earn on lending among listed above, though the risk is higher as well. Peer-to-peer lending means that you are an independent lender that lends money to independent borrower.
Usually, people who turn to peer-to-peer lending are not able or not willing to take borrow money for the bank. As for independent lender your risk is higher so generally the interest rate in p2p is higher.
It can look like this – a potential lender posts a request and provide personal financial information (which can vary) and on the basis of that information you can make a decision whether to lend money and on which terms.
Dividends and Rental
When you buy a share of a company on a stock market or outside of it and company gets income you get dividends. These are payments made by company to you for owning shares of the company.
It can be hard to choose the company to invest in, but you should know that it can be rewarding. Good companies and the company with capitalization of $ 300’000 can cost several millions of dollars the next year.
Buying real estate and earning on rent is also a good way to get passive income. It doesn’t demand from investor specific knowledges – all you need to do is to find a good place and set up market price for rental. So all you have to do in the future is to get checks and make sure your building is suitable for renters. Moreover, when economics is growing the real estate price is growing as well and you can rise the rental price or earn on selling this building. And this relates to the third way of making passive income.
Getting Capital Gains
Let’s consider that you have bought a piece of land. Now it has a low price because there is no demand on it – it is far away from a zone with developed infrastructure and there is many land like this available.
However, in several years the city you live and the land is located near is growing and city border constantly comes near to your land. Now the demand for this land is higher as there is a big sense in building something on it. That is how you can get capital gains – just by selling this land when price grows.
The same can be said about real estate – you can keep earning on rental or you can sell the building if its price has raised. However, it is not always a good idea as once you sell an asset you earned on, you need to find another asset to get a passive income from. Otherwise you will just lose a source of passive income.
About Passive Income
Passive income can also be gathered from patents, sales, licences you own and others. The main to know about passive income – it is an income you get from owning something valuable. Getting passive income increased you improve your financial status constantly and can leave a good option for you upon retirement or you can abandon your regular job if your passive income is high enough.