Firstly we must understand that Income can be classified into 2 categories: Active Income and Passive Income. It is very important to understand the difference between the two. Active Income is the income earned by undertaking a business activity or by providing services, here the individual is actively involved and it consumes most of one’s time.
On the other hand Passive Income is the income generated by putting in little to no efforts, here neither is the individual actively involved nor does it consume much of his time. Examples of passive income are interest income,royalty,e-books,rent.
In order to achieve financial freedom one must concentrate to increase his passive income.
WHY IS PASSIVE INCOME NEEDED?
1. ACCELERATES ONE’S GOAL OF FINANCIAL FREEDOM-
We all have dreamt of a time when we can sit on a beach peacefully holding a bottle of beer in one hand and enjoy the beauty around without having to worry about our bills and our next paycheck, guess what passive income has the ability to convert your dreams into reality because here money works harder to generate more money all around-the-clock(even when you are sleeping)
2. ONE CAN OPT FOR EARLY RETIREMENT-
Since passive income redeems you of the rat race one can opt for early retirement for pursuing hobbies and interest. Active income trades time for money while passive income does quite the opposite, one can continue to work because he wants to and not because he has to.
3. GENERATING PASSIVE INCOME IS NOT TIME-INTENSIVE-
As mentioned earlier, to generate passive income one does not need to put in much time and effort. It can be managed with a full time job or business and if carried out with a proper plan it can reap immense benefits. You can also hire a professional to do the job on your behalf, that is the reason for the growing popularity of financial planners.
4. AN OPPORTUNITY TO DO SOCIAL GOOD-
Passive income provides a person with peace of mind and financial stability which may in turn result in undertaking activities that are good for the society as a whole. The power of giving is truly immense and the satisfaction derived is unmatched.
The key to financial freedom and great wealth is a person’s ability to convert earned income into passive
The one common trait shared by all the wealthy people around the world is that they try to increase their passive income because it is the only way they can earn money even while sleeping.
HOW CAN I GENERATE PASSIVE INCOME?
There are end number of ways to generate passive income. Passive Income can be broadly classified into the following categories:
- Investment Activities
- Investing in high paying dividend stocks
- Peer to Peer lending (lending money to your friends & relatives)
- Investing in growth and dividend mutual funds
- Investing in the stock market
- Investing in debt instruments like FDs, PPF, NSC, Bonds
- Investing in short term and money market instruments like commercial paper, certificates of deposit, treasury bills
- Funding a start-up
- Investing in Annuities
- Investing in low cost index funds
- Investing in Gold
- Part time Activities
- Look out for freelancing opportunities
- Selling E-books
- Selling online courses
- Affiliate Marketing
- Create an app
- Creating websites for companies
- Influencer marketing
- Being a fitness trainer
- Giving motivational speeches
- Create a youtube channel
- Renting Activities
- Renting your car
- Renting your house
- Renting your phone (if you have an extra one)
- Renting unused space as storage area.
- Renting a warehouse
Generating passive income requires patience and discipline and if coupled with the magic of compounding it can lead to results one never imagined. If you are in your 20s the best thing you can do is live a modest life and try focusing on investing a major part of your money. At the start one may have to manage his expenses from active income but as time passes by passive income will take care of that.
To conclude I would like to say that money is the most hardworking employee that any individual can hire to make more money. Money will work overtime for you without complaining, all you got to do is respect it and allocate it to earning more money. We at Mitra money believe in increasing our clients passive income by making investments which suits their needs. Feel free to contact us if you want to increase your passive income.