When it comes to maintaining your financial health, it’s important to understand how you acquire money before you can heave a sigh of relief. One of the most basic concepts about finances one has to master is income.
Depending on your financial situation, adding to your current income may be one of your goals. Finding additional sources of income can be tricky, but a sure way to do so is through passive income streams.
What is passive income?
Passive income is money earned from activities where you’re not directly involved or active. These could be investments made from work done in the past that continues to pay dividends today. Simply put, passive income is money earned in a manner that doesn’t require much effort. So your money’s working for you.
Passive income can include dividends from stocks, earnings from rental properties, selling online courses and other projects where you’re not involved in the continued generation of income. Although, you’re still required to put money, effort and time into starting this venture. Don’t worry; you’ll eventually collect income passively.
What’s the difference between active income and passive income?
Most people talk about passive and active income together since both can generate streams of wealth. Active income is a form of income that requires your active involvement for it to be earned, hence its name. Unlike passive income, it requires more time and effort to generate money, but it still offers many rewards in the long run.
Although both types of income can play a significant role in your financial plan, there are differences between them, which include the following:
- How each income affects your lifestyle: Passive income allows for more time since it requires less effort and labor. Active income, on the other hand, requires constant work.
- How they’re taxed. Active income taxes are often higher than passive income taxes. For example, qualified dividends and long-term capital gains receive better tax treatment than wages and salaries.
- The risks involved. Active income is more stable when it comes to risks, which makes it more reliable and predictable compared to the uncertain returns of passive investments.
Despite their differences, both incomes are interconnected. The more you earn from your active income streams, the more you can invest in passive opportunities. You can also invest more aggressively in passive investments if your active sources of income can cover your regular expenses. On the other hand, the more you earn from your passive income, the more you can afford to take risks with your career.
With that being said, understanding the differences between active and passive income can help you chart out your financial plans. If you’ve considered their differences and are still leaning towards passive income ideas, it’s time to start brainstorming.
Passive income ideas for beginners
The money from passive income sources still requires work, but once established, takes little to no time to maintain. Some ventures might take more effort and time to see them pay off, but patience is always rewarding.
If you’re considering this route of financial investment, here are some passive income ideas to consider.
Government savings programs
Investing in government savings programs, like PERA and Pag-IBIG MP2, offers potentially higher dividend yields and generous tax incentives. MP2, in particular, offers higher dividends compared to a regular Pab-IBIG savings account. You can also withdraw your earnings annually or once it matures after five years.
PERA, on the other hand, provides a more diverse investment portfolio with contributions that can be converted into a lump sum or pension for when you retire. It’s a safe way to plan for the future.
High-yield savings account
The rise of digital banking is paving the way for the popularity of high-yield savings accounts. These offer higher interest rates compared to regular savings accounts, making them an attractive source of passive income.
Pro-tip: go for banks that offer the best terms and rates that suit your financial goals. Always check the ease of account management, fees, and minimum balance requirements.
Dive into franchising
Investing in a franchise, especially if it’s food or beverage, guarantees steady income – as long as you invest in the right place and establish a stable management system.
For your security, partner with a well-known brand to reduce your risks. Before you invest in a franchise, do your research. Look for a brand that aligns with your interests and market demands. Capital requirements differ from one franchise to another, so choosing a franchise that suits your budget is important.
Affiliate marketing with local brands
Partner with local brands or online retailers to earn commissions on sales made via your referrals. Popular companies that offer affiliate marketing programs are Shopee, Lazada, Zalora, Amazon Associates and more.
Affiliate marketing involves promoting services or products through digital platforms like social media and blogs. Every sale earns you commissions!
Start this business venture by working with brands that align with your interests. Get in touch with them to learn more about their program.
Earn money with less effort
Whichever method you choose, keep in mind that passive income will not make you wealthy overnight. They can help you earn money, but the amount you receive depends on how well you set them up.
So invest a little time, strategy and money into the passive income stream of your choice. Doing so will earn you the most and sustain your earnings in the long run.
More helpful tips to boost your business:
10 Essential Business Tools for Ecommerce
Effective Strategies for Scaling a Business
8 Government Programs for Micro-Businesses and SMEs
