Everyone wants more money. Whether it’s through starting your own business or working that extra hour of overtime at work, increased income is a goal for so many people in contemporary society. However, one of the most popular ways to generate that extra cash on a consistent basis is through passive income streams.
In this article, we will examine the concept of passive income in detail, defining what it is and analysing how reliable it can be. We will also discuss various passive income ideas, helping you make an informed decision when it comes to investing.
What is Passive Income?
Firstly, what is passive income? Passive income refers to money that you earn which doesn’t require an active component to generate it. One of the best ways to think about this is to imagine your money going to work for you. You put in some work initially, and then once the passive income stream is set up, you can essentially sit back and allow the cash to roll in.
In the modern era, there are thousands of methods to generate a passive income stream. These methods have become increasingly accessible due to technological advancements such as the internet and social media, which allow people to connect and build relationships that can foster passive income streams. It is now easier than ever to set up a process that produces a consistent cash flow in a cost-effective manner.
When people think of passive income, most of the time they immediately use real estate as an example. Passive income derived from real estate refers to the process of purchasing a property (such as a condo) and then renting it out to another tenant. The income received through tenants’ rent payments can therefore be classed as a source of passive income.
The above example highlights the defining factor of creating passive income – an active investment upfront which provides an avenue to generate a consistent income over time. In addition to this, many people try to build numerous passive income streams in the hope of replacing the salary they receive from their job. Through this process, people aim to achieve the ultimate end goal – financial freedom.
Is Investing a Reliable Source of Passive Income?
When discussing passive income, one of the most crucial elements to consider is reliability. There’s no point in researching and building a passive income stream, only for it to be unstable and unreliable. Thus, it’s vital to ensure the cash flow you generate will be consistent and secure when analysing your passive income options.
Investing is one method of producing a passive income stream that can offer a reliable cash flow over time. There are countless ways to earn a passive income through investing – from dividend-paying stocks to Peer-to-Peer (P2P) loans. However, each method has its own unique risk profile, and therefore different approaches will appeal to different types of people.
As mentioned, real estate investing is one way to earn a passive income stream in a reliable manner. Monthly rent payments provide a consistent cash flow from tenants and can also offer income increases over time as rent payments rise. Furthermore, you are also afforded ample legal protection in the instance that tenants refuse to pay, depending on where the property is located.
Purchasing high dividend stocks is another reliable way to produce a passive income through investing. These stocks provide a consistent cash flow through dividend payments, defined as the stock’s yield. This yield is expressed as a percentage of your initial investment. To give an example, imagine you had invested €1000 in a stock that offered an annual dividend yield of 4%. Thanks to this, you would generate €40 in passive income each year. Although it doesn’t seem like much, if you were to create a portfolio of many dividend-paying stocks, your level of passive income would become more significant.
The examples above highlight the fact that investing can be a reliable source of passive income compared to other methods. Most income streams generated through investing offer at least some legal protection for the investor, meaning payments are more dependable than in some different methodologies. Due to this, more and more companies are offering innovative ways for investors to generate passive income streams in increasingly cost-effective and straightforward manners.
How to Create a Passive Income Stream?
Now that you’ve got an idea of what passive income is and whether investing is a reliable source of passive income, it’s time to dive into the exact process of creating a passive income stream. With so many options available on the market currently, it can be challenging to decide where to start.
In this section, we will showcase three reliable methods to generate a passive income stream. These methods have been tried and tested over many years and represent some of the best options available on the market today.
Peer-to-Peer (P2P) Lending: The growing nature of the P2P lending industry has provided many avenues for people to generate passive income quickly and easily. P2P lending refers to the process of making personal loans available to consumers who require them, entirely skipping out the middleman (which usually tends to be banks).
Through the provision of these personal loans, lenders can receive monthly income through interest payments. One of the great things about P2P lending is that a lot of the time, the interest rate that you can receive is much higher than you could get from other investments such as bonds. Furthermore, with the digitalisation of today’s world, P2P lending can be set up and completed all from the comfort of your own home!
Selling an Online Course: Another popular way to create a passive income stream is by creating and selling an online course. This method has become increasingly popular due to how easy it is to market online courses through websites and social media. Furthermore, the potential target market for online courses is endless because these courses can discuss countless areas and topics.
Much like other ways of generating a passive income, online courses require an active component initially. If you create an online course, you’ll have to spend considerable time researching and developing it before making it available for purchase. However, once the initial work is completed, you can simply put it up for sale and collect the income that it generates.
Investing in Bond Funds: One of the most reliable ways to earn a passive income is through investing in bond funds. These funds essentially pool money from a range of investors and then invest in various bonds on their behalf. Through these investments, the fund can generate an income stream through bond interest payments, which is then distributed to investors.
This method is commonly thought of as one of the most reliable ways to create a passive income stream, as bonds are among the safest assets available on the marketplace, especially bond types such as US Treasuries. As these bonds are backed by large entities such as governments or corporations, the chances of them defaulting on interest payments is extremely low. This translates into consistent and reliable passive income payments for bond fund investors.
Passive Income – The Verdict
To wrap up, this article has examined the concept of a passive income stream and touched on the reliability of passive income investing as a way to generate cash flow. Furthermore, multiple passive income stream ideas were provided, offering you various potential avenues that you can explore.
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