Generating a Passive Income

When thinking about how you’re going to make money in the future, the go-to is get a job. However, there are many different sources of income, some of which can earn you money for less effort. A passive income is money that you don’t have to be actively involved to earn. Simply put, you aren’t paid with an hourly wage or annual salary.

Advantages of Passive Income

There are quite a few potential advantages to generating a passive income. The first of these is the potential to increase your earnings with minimal effort. Most people make money through working, which is called earned income. 

More free time

If you increase the total amount of money you earn by generating passive income, this could allow you to take more time for yourself. Depending on how you are generating this income, you could free up enough time to spend more time with family, follow a passion, or travel the world.

Financial Stability

With a passive income stream, you will have some level of security should you lose your main source of income. This can cover a wide variety of situations, from job-loss to illness. Alternatively, if your passive income is your primary source of income, you should have plenty of time to prepare for various scenarios.

Financial Independence

If you build your passive income enough, you will reach a point where you will be able to cover your expenses with only passive income. This will allow you the freedom to retire early, and live your life the way you want to. If you choose not to retire early, you will have far more disposable income.

Tax Benefits

There are a few different avenues you could explore with passive income. In some cases, it might be a good idea to set up your own company to handle your income streams. This can have various benefits, including tax breaks. Before you make this decision however, it’s worth consulting a tax advisor to see if this is a good option for you.

Disadvantages of Passive Income

It isn’t always fully passive

When generating a passive income, more often than not there is work to be done just to maintain it. So some time and effort will always be required. It can also take more effort than expected to set up a passive income, as well as more money.

Need a wide variety of passive income

In order to live solely on passive income, it is likely that you would need more than one source of income. Once you have a few streams of income, managing them all can feel like a full time job.

May need a large investment

For some passive incomes, they require quite a lot of money to get them off the ground. This could include a deposit on a rental property, or developing a business plan to sell your product.

Different sources of Passive Income

There are many different potential sources of passive income. That means trying to decide which avenue you want to pursue can be very difficult. 

One of the most popular at the moment is trying to buy a property in order to rent it out. Becoming a landlord may seem very enticing, but there are a few potential pitfalls to watch out for before you start investing. There are different ways you could rent out property, depending on how much time you want to invest. If you were to buy a property to use as an AirBnb, you would need to spend much more time managing it. However, an ongoing tenant, or using a property management company can lessen your day-to-day involvement.

To learn more about buying a buy to let property, go to the buy to let property section of this guide.

Another popular source of passive income is to simply open a high yield savings account or an ISA. This is a very easy way to build your savings, with banks and online platforms offering high yield savings accounts. However, it’s worth checking if this is the best way to get your money working for you. For more information about different types of accounts, go to the Accounts section of this guide.

There are many more ways for you to generate passive income. The important thing is to do your research to find out if your idea will actually generate income. So whether it’s buying vending machines, or investing in stocks and shares, there isn’t one golden idea, it all depends on your resources, and what you are able to do.