The Best Ideas to Earn Passive Income
Earning passive income is a time consuming endeavor that requires diligence. The best ideas to earn passive income begins with identifying the possible opportunities for ordinary people.
What is Passive Income and How to EARN Passive Income?
Passive income is a type of income we earn from the proceeds of our investment. This type of income is usually fixed and is realized annually when some portion of profit is not reinvested and is given to investor after a financial cycle depending on the kind of investment.
Passive income is called so because it is earned without much active participation of the money holder. Unlike the usual type of income in which we need to work for money, passive income does not require hard work. In passive income, it is our money that works for us.
The Different Ways to Make & Earn Passive Income
There are many ways to earn passive income. The most common and traditional way to earn passive income is from the interest we earn from our bank deposit. Such is also a good investment in terms of safety. But the profit potential is not so attractive because the ratio between the average interest rate and inflation is very little. Interest earned from a bank deposit is just enough to cover the devaluation of the money invested and deposited.
Earn Passive Income via Interest
On top of that, interest rate fluctuates according to the changing market condition. The best time to invest in any bank instrument is when an economy’s inflation is high and the condition for a central bank’s decision for a rate hike is present. Nevertheless, earnings generated from bank interest are significant only in large amount of deposit.
Earnings Passive Income Through Real Estate
Another conventional way to earn passive income is by investing in real estate. Anyone who has bought land can earn passive income in the form of capital gains. Normally, the value of land increases overtime. The longer we hold the land, the more valuable it becomes. However, this type of investment is not liquid and therefore we could not realize our passive income until we sell it.
Even so, we earn passive income significantly especially after a long period of time. The easiest and the most effective way, to earn passive income in real estate, is to have the land leased. It is like hitting two birds in one stone because you could earn passive income from the price valuation of the land and at the same time earn passive income directly from the tenant’s lease payment.
Can Mutual Funds be a Source to Make Passive Income?
One of the safest investments to earn passive income is investment mutual fund. A mutual fund is an investment entity that pools smaller individual investments to form a single fund. The fund invests or is invested in some speculative markets such as stocks or bonds. When the fund earns from its investment portfolios, the profit is distributed to the fund holders or reinvested in order to expand the size of exposure. Investment in mutual fund is safe and liquid.
It is safe because your money invested is spread to many different portfolios. It means that one losing portfolio is offset by another winning one or so. It is also liquid because it is like a bank where you can invest or withdraw anytime you decide to. There are two kinds of mutual fund, open-ended and close-ended. Open-ended mutual fund is exactly like the above mentioned.
On the other hand, close-ended mutual fund acts as a company being listed in stock exchange and traded like shares of stocks. So, there are two ways to earn passive income from mutual fund. You can invest your money directly to the fund as a fund holder or buy some shares of the fund and become a stockholder.
Another Idea to Earn Passive Income – The Stock Market
So, how do stockholders earn passive income from investing in stock market? And what is stock market by the way? Stock market is a place where you can buy and sell company shares or popularly known as stocks. In this type of investment, you can earn passive income by becoming a part owner of a company listed in stock exchange through buying some shares of stocks.
Once you buy some stocks, you will be entitled to annual dividends given to all shareholders. Dividends are gains incurred when a company’s operations for the entire year have resulted to net profit which is declared to be distributed if not reinvested. Not all companies do well.
Before buying any stocks, you must identify those that could give you passive income. Stocks are classified as blue chips, speculative stocks, growth stocks, and income stocks. Growth stocks and income stocks are companies that are proven to give higher dividends and are a good choice to earn passive income.
Selecting the Right Stocks to Make Passive Income
The problem only occurs when selecting stocks. There is no permanent list of growth and income stocks. You need some more research on the fundamentals of certain companies whether or not they are growth and income stocks. If you are a beginner, you need to seek some expert advice about which is speculative or stable.
There are many ways to make money out of the stock market and passive income is only one of them. And to earn passive income in stock market, you should select a more stable and promising company because the style of investment that fits passive income is a long term stock position. Unstable companies can ruin your long position and are not recommended for long term trading.
Another Passive Income Idea – Small Business
Some types of small businesses can also give us regular passive income. Vending machines can also work for us. You can put them anywhere you want. The benefit of this is that you can earn daily, so you don’t need to wait for a year to get your dividend. An average person can afford to begin with this. But there are also some disadvantages. Vending machines depreciate overtime. On top of that, they might be stolen or broken by some notorious thieves.
Franchising – A Possible Source of Earning Passive Income
We can also earn passive income through franchising. Many big chain store companies franchise their business to those who have no experience. They provide training and support. Most of them are also in charge of the back office such as the hiring of employees, payroll, and so on. Examples of franchise businesses are fast food chain and convenience stores.
Final Idea to Earn Passive Income – Owning Your Own Farm
Long time ago, people earned passive income from growing trees, raising cattle, and poultry farming. Trees supplied them fruits to sell. They were the sources of lumber as well. Raising cattle, on the other hand, required very little effort. What the owners did was only to check whether their cattle were still there.
They had no worries about what and where their cattle ate. Poultry farming before was not as sophisticated as it is today. In the past, a poultry farm was like an old Mac Donald farm where chickens just lingered and laid eggs anywhere.
These animals were not the source of headache but the source of passive income. The biggest earners of passive income in the past were the feudal landlords. Because of the vast land they possessed they could get shares from the output of the farmers. Owning a parcel of land was the only way to earn passive income before.
Earn Passive Income Online
Nowadays, there are many new ways to earn passive income. As the internet becomes more and more complex, new concepts are being introduced which were unimaginable before. Blogging, article marketing, SEO and the like are just some of the numerous concepts that can also give us passive income.
As time goes by, each evolves into a separate field of study. These new types of income generation are hardly considered to be investments but we could earn passive income.
Traditionally, we invest and our money works for us. But today, we don’t have to invest as much as we usually did in the past and it is not necessarily our money that will work for us. It is our computer which will now work for us. Before, we spent so much time working in front of the computer. But now, even software robots work for us. Thus, technology offers the science of passive income.