What is passive income? Learn ways to secure your passive income

Income is simply money earned. So any income is active income, a result of my hard work at my job or business. Right? No, not really! There is a whole new source of income that you can earn which does not require your active work. And that’s broadly referred to by the term – passive income. Let’s take a couple of examples to understand the difference.

The monthly pay cheque is active income. No confusion there. But if I can invest a part of my pay cheque in a Mutual Fund through the SIP route, then I am able to generate a corpus of money over a period of time. After a while, I can start withdrawing from my Mutual Fund corpus on a regular basis. This is passive income.

I work as a cab driver, and earn money. That’s active income. However, if I lease my car to a private driver, and he pays me a fixed amount as rental every day/week, that’s passive income.

So the emphasis is on the fact that you as an individual do not have to perform any active work in order to earn this source of income. All such income categories can be broadly classified as passive income. FD interest, dividend amounts from stocks and Mutual Funds, property lease and rentals, licence fees for leasing any of your resources, pension – these are all common categories of passive income.

Warren Buffett says, “If you don’t find a way to make money while you sleep, you will work until you die.” This statement sums up the importance of having constant sources of passive income to bolster our finances. Otherwise, our entire lifetime will be spent in just securing our financial needs – working non-stop.

When there is no alternate source of income apart from what we earn, then the pressure increases on us to retain that job at all costs. We tend to get stressed out, suffer from job insecurities. And due to some unfortunate situations, if there is a threat to our job, then it immediately affects our living standards.

Now that we have emphasized the importance of securing your passive income sources, let’s try and put together some important tips on how to do the same.

1. Consolidate your assets that can generate passive income.

Many categories of assets can act as a source of passive income. A simple example being a Fixed Deposit. Set aside money in a Bank, FD. You can then get monthly interest, without a single bother. Similarly, rental income from house property is a safe source of passive income. So identify assets which can act as income generators. Divert a part of your salary or active earnings towards accumulating these assets. Over a period of time, they will start generating a considerable income back-up for you.

2. Periodically assess the passive income generated and realign your portfolio.

Income from an FD would have been a great income source 10 years back, but in today’s low interest rate regime, the interest income has dropped drastically. So you cannot follow the “Fill it and Forget it” maxim in such cases. You must constantly evaluate the asset that you have, the passive income it is generating. And see if there are better methods to put that asset to use. For instance, you may choose to put some of your surplus FD funds into Chit Funds which may yield better earnings, and at the same time give you easy access to your money, during an emergency.

3. Aim to match your passive income with your monthly mandatory expenses.

Let’s say your monthly household expenses fall in the range of Rs30-40K per month. Your salaried income is around Rs 50000. So when things are going good, it’s all fine. You are making a surplus every month. But during the eventuality of a job loss, your entire active income is wiped out for a few months, until you get back to active employment. Reasons for this scenario could be plenty – health issues, general economic downturn, skill sets becoming obsolete, age related factors and so on. If over the years, you were able to build a parallel stream of passive income of say Rs30K per month, then your base is covered. You don’t have to worry about life coming to a stand still! Even better, you can voluntarily take a break from work and explore other possibilities, think of an alternate career, or learn a new skill. Then get back to work without the stress, and with a great deal of pleasure and enthusiasm, not just to make ends meet.

To cut a long story short, if you want to improve the quality of your life and minimize work related stress, you must be able to minimize your dependence on salary income (or any other active income). Arranging for a steady stream of passive income is the best way forward for this.

About Us:

Shanthala Chits is a Government approved chit fund company with a 25-year successful track record and thousands of satisfied customers. Shanthala Chits is registered under the Chit Fund Act of 1982, the Government of Karnataka. We are one of the most popular chit fund houses in Bengaluru, known for our prompt customer support and secure investments. Get in touch with us and start with an investment scheme. We will be glad to help you out with the right scheme that matches your needs.

Anuradha C

Anuradha is a freelance writer cum corporate trainer in the IT/telecom domain with over 18 years experience. She served in senior technical and management positions in Huawei and TCS for 10+ years. Then gave up the traditional corporate ladder to go solo - in order to escape horrendous city traffic and to be at her own boss!
Anuradha C

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