PASSIVE INCOME $$$

We have already emphasized about the importance of financial planning, investing , mutual fund and concept of FIRE is discussed in the post :  https://financethatmatters.blogspot.com/2024/08/fire-financial-independence-retire-early.html . Having discussed basics of personal finance management, its crucial to cover more about the actual ways of implementing the lessons learnt in theory. 

FIRE - financial independence retire early concept broadly focusses on achieving the consistent cash flows in order to maintain or sustain the existing lifestyle. This consistent cash flow generation is often called passive income and in order to be able to achieve FIRE, we must be able to maximize our options and build the corpus by investing from the earnings. 

Let's dig into the different options of generating the passive income for you. 

1. Rental income:  Rental income is the monthly rent earned from the real estate properties ( residential, industrial or commercial). In order to consider rental income for FIRE, its crucial to own the properties those are debt free. Rental income should be free for your revenue expenses and not the EMI payments. Though the rental income has its fans all over the world, there are many constraints to this. Covid like situations won't give you any rent, there might be cases of reduction in rental income due to more supply of properties. Rental income can be part of your plan to achieve the monthly amount, it should not be the core of that plan and you must have alternate income sources to support rental yields. 

image courtesy: youtube.com

2. Dividends: while you are earning the monthly salary, allocate some portion of it for the investing in the stocks with higher dividend yields. In Indian stock markets, there are ample stocks which give 5-7 % dividends like coal India, ITC, Vedanta etc. (not a stock recommendation for investing right away). The accumulation of the dividend paying stocks at fair price gives double benefits of price appreciation and the yearly dividends. The dividends can be re invested into the same stock or can be used for top up SIPs when markets are giving better investment opportunities. Like rental yields, dividend income is also a tricky option as dividend is declared by company as per their performance and one can never be sure about the certain % return through dividends.

3. Interest earnings: Safest and conventional bets to earn monthly income is in the form of interest. FDRs are traditionally used by Indians to earn interest. There are sovereign guarantees for certain threshold that guarantee your principal to the extent. Again the interest should ideally not be withdrawn when you are in your investing journey so that bigger corpus can be built when you take decision to put the papers.

4. SWP:  One of the most powerful yet very underrated tool  is SWP. we have covered basics of SWP in our post : https://financethatmatters.blogspot.com/2024/08/s-w-p-systematic-withdrawal-plan.html

5. Freelancing: one of the interesting option to earn passive income is by free lancing. Though some might argue freelancing is more of a job. But still free lancing is not like traditional jobs where you are mandatorily needed for 10-5 job. Part time free lancing is a good option to utilise the free time once you quit your job. For freelancing, you must have specific skill sets that can be used after quitting job. 

6. Angel investing: The concept is well known to many thanks to Shark Tank TV series. Businesses propose their business plans and based on the analysis of the business and profitability, you may invest certain amount for fixed % ownership in the business. There are also several sites that do syndication for agreements, in which a group of people pools their resources in a firm. And guess what? You and anyone can get to partake in it too. But keep in mind it is incredible and highly risky but a high-return investment – yet it is a completely passive income source.

Writing a book, owning car rental business, YouTube videos, starting coaching institutes etc are also options to achieve passive income post quitting job. But before quitting the job, one must be assured of his basic necessities of life are met by the fixed income by means of SWP, interest, rental yields etc.  This part time hustles should be treated more of as a hobby rather than cashflow mechanisms.

As usual, kindly make sure you consult your financial advisor before taking any decision about finances as FINANCE MATTERS and it matters for everyone😇.

-- SACHIN GOSWAMI