Ten years back, the concept of passive income was new to me. But I wanted to explore more about it. Within India I suppose, there were less people who could share passive income ideas with the world.
Meanwhile, outside in Europe and US, I could find more people practising the art of passive income generation, and was also sharing their knowledge of passive income. In my whereabouts, I could see more people who were experts in earning money from job and business.
These were so called “successful” people, sitting on positions of prominence in companies etc. But surprisingly, they had so less idea about passive income.
At a point in time, I was almost giving up hope on passive income. Reliable ideas were just not available. That was the time of “inward solicitation”. I asked two very basic questions to my self:
- Q1: What is passive income?
- Q2: Why I want to collect ideas about passive income?
Things changed from here…
At some stage in our life, we all start to think about the alternative source of income. But that enthusiasm is soon overtaken by the struggles of daily life.
Our daily life is all cramped-up for time. After we return back from office, we have virtually no time and energy left to do more.
We are drained, and all we can do is slouch on the sofa and watch TV. At that time, who cares for alternative income….
If it happens its ok, but for that moment, all we need is a cup of tea and live streaming IPL match. Does this sound familiar to you? I am sure it does.
In weekends we can work. But even on those days, other priority takes its toll. After completing five-day job, working for another two days (for self) looks impossible.
So what we can do?
Is there a way one can generate alternative source of income without killing self? Yes, there is a way.
Start generating passive income. Let this passive income become the alternative to your “income from job”.
Will it be easy? Yes, it will be easier than the other options.
Let’s begin by asking a simple question….
What is your alternative to the “income from job”?
What is the alternative to our salary income? Let me rephrase my question. How dependent we are on our salary income?
Do we ask these questions to ourselves? Have we ever done our maths to quantify our dependency on salary income? Probably no. Why?
Because somewhere we already know the answer. The dependency is 100%. This is what is most frightening, right?
What happens if we loose our job? How to run the family? Money will come from where?
These questions creates stress. And there are no easy answers. Why? Because becoming financially independent has no shortcuts.
What is financial independence? That stage of life where you are no more dependent on your job to manage your living.
Your passive income generates enough cash, which in turn will take care of your daily expenses. You are free.
How passive income makes one free? After all, this is also a form of income. People must work to generate passive income as well? No, passive income yields on its own.
We will read more about “what is passive income” later. But for the moment, lets take this pledge:
“No matter how difficult it will be to face the reality, but I will try to quantify my dependency on job”. How to do it?
Approximately ten years back, I did this exercise for myself. The result was only expected:
- Total Monthly Expense: 100%.
- Income from Job: 115%.
- Passive Income: 1%.
I had virtually zero passive income. Means, I was almost completely (99%) dependent on my salary income to manage my living.
Had I lost job at that time, I would have been on the road.
But that day, I decided to start building an “alternative income” for myself. Today after almost 10 years, I am free from my job.
So is this an example of “getting financially independent” in 10 years? No, because I am not financially independent. I still have to work to earn my living. But I have taken the first step.
What was the first step? Getting myself rid of the job.
Today I make my living by doing something I love to do. These days, my passion makes money for me. This is the first step.
Identify your passion, and convert this passion into a money making machine.
- Idea is to first identify the “passion”.
- Then start investing in ones passion.
- Then start generating income from passion.
- Divert a part of this income to buy assets.
- Passive income generated from assets, will ultimately make one financially independent.
First invest in your passion…
Ones passion is also an asset. This should be the first asset one must invest in.
How to go about it? Save a part of your income from job for investing. Where to invest? In your passion.
What it means by investing in passion?
Converting passion into a money making machine.
Let’s take an example. I was somebody who likes “thinking and writing”. As a result I discovered that my passion is towards “blogging”. Hence I built a small business around my blog, which makes me money.
But this can also be done by being in job, right? Yes. But it will not be the same. Why? See the below infographic:
What is shown in this infographic is this, to generate 100% income, “effort” applied between Job, Passion and Asset is:
- Job: 100%
- Passion: 100%
- Asset: Negligible.
Though, effort that is required to put-in in job and passion are same, but how it “feels like” to the person makes the difference:
- Job: +100%
- Passion: 20%
- Asset: Negligible.
What does it mean?
A passionate person feels that, by putting only 20% effort he/she is able to generate the 100% of the required income.
But a person in job feel much more burdened in doing his job 100%.
What it means? For a passionate person, it is almost like he/she is generating income by doing nothing. This is passive income, right?
Though he/she is working, but he doesn’t feel the burden.
That is why, I call the transition from job to passion as the 1st step towards financial independence.
The person is getting-used-to generating “more income by doing less work“.
Now we are ready to know more about passive income. So let’s start with the most basic question.
What is passive income?
Income generated by applying “negligible” effort.
Income generated by not getting actively involved in any work/job, is termed as passive income.
Few ideas of passive income that we will also discuss in this article are as below:
I am sure the above list of passive income ideas are not new to you. Internet is full of online contents, which can boast of even bigger list.
But the bigger issue is, how to use the list…
I will tell you how I read this list. The way one reads this list will make a lot of difference.
Out of the list of all passive income ideas in internet, segregate them into two parts:
- Part 1 (Passion).
- Part 2 (Assets).
For me, my segregation between “passion” and “asset” is like this:
- I earn money from my passion.
- Use a part of this income to buy assets.
- Assets in turn generate passive income.
One day the income generated from the accumulated assets will become big enough to ensure financial independence.
Income from assets…
It is the income from assets that is the real passive income. Income from job, business, passion, etc are not passive income. Why?
Because an effort is required to generate income. While passive income generation requires negligible effort.
Looks like a dream, right? No involvement, no effort…is this a scam?
No it is not a scam. It is real. But there is a bad side of it as well.
Passive income is very “asset intensive”.
What it means by asset intensive? Passive income will be “more”, only if the following conditions are met:
- Asset quality is high.
- The weight of the accumulated asset is also high.
What are quality assets? High and consistent income yielding assets.
What it means by high weight of accumulated assets? Example: 1gm of gold is not enough. But 10 kg of gold will be great.
The more are the “quality assets” in portfolio, the better.
This is why it takes time to achieve financial independence.
- Quality assets are not easily located.
- Accumulating assets one after the other needs lot of funds.
Asset building needs a different frame of mind…
I have written a separate blog post on how to build assets from little money. I will request you to read this blog post as well. It helps the cause of financial independence.
It is said that Warren Buffett earns billions of dollars in dividends alone. Sounds amazing, right?
Some will say that how easy is the life of Warren Buffett because he earn those billion dollars.
But some will also appreciate the other side of the story. How Warren Buffett accumulated those stock, which today are earning him billions?
Let me tell you, asset accumulation is not easy. Not that locating an asset, or purchase of asset is difficult. The problem lies in our head. Yes.
Our psychology is not trained well to handle passive income flow. Why?
Because passive income drips only slowly.
We have a habit of handling money in a lump-sum. Example: How we earn money?
- Salary gets dumped into our savings account on a specific day.
- When we sell investment, lump sum amount gets unloaded in our bank account.
- At the end of the year, company pay us bonus. This also comes in heaps.
Did you see the point? Our mind is trained to handle money in bulk. But passive income drips only slowly.
It is much harder for us to manage passive income than we can imagine. Let me give you a quick hint.
You have two investment alternative available in front of you:
- Stocks : Which yields 15% p.a., but holding time is 5 years.
- Bank Deposit: Which yields 7% p.a. every month.
You are more likely to choose which alternative? Majority picks stocks. Why? Because focus is more on returns than on income generation.
But when it comes to passive income generation, focus cannot be only on returns.
Here the priority must be on “stability of income generation”. This is where the problem is, “income” based investment options yield low returns.
Hence people choose to skip-it, thinking that they are a bad option. But this thought process is not correct.
What is the point?
Investment options which cater to monthly income generation are different.
People who invest in growth stocks, gold, art, futures & options etc cannot expect these investment options to generate stable monthly income.
If one wants to generate passive income, only certain types of assets can be accumulated.
But I personally think that, even if one knows about those investment options which are suitable for passive income generation, they will still not like it. Why?
Because people who like passive income, think psychologically differently.
Who likes passive income?
Passive income lovers are those people who believes in financial independence. These are people who seek early retirement from their jobs.
But before adopting passive income ideas, two points of caution:
- Passive income is not like a lottery.
- Passive income will not bring a tsunami of money in your life.
Instead, passive income will begin like a light drizzle. This slow, pleasant drizzling will continue till eternity. Unless you cut the source, passive income drizzling will not stop.
If you want more drizzles, increase the number of source-points.
To really like passive income, it is necessary to understand this aspect of it very well.
How to start earning passive income?
Start by giving oneself a target. The target can be like this:
“Generate your first passive income of Rs.1 in next 30 days”.
Yes, I am talking about Rs.1. Is it too small? But this first Rs.1 of passive income will teach you a lot about financial independence.
Generating even Rs.1 as passive income (consistently) is not easy. So even if the start is slow, do not get somber. Give yourself the breathing space.
Focus should be on the following:
- Identify quality asset.
Not all assets are good investment.
- Buy them at undervalued price.
Buying assets at any available price is not good.
- Keep accumulating such assets all life.
Target should be, “to only buy and never sell”.
This should be the mind-set during the starting phase. Once this is set, you will be on the course to financial independence.
List of 6 Passive Income Ideas in India:
In this article we will discuss few common ways of generating passive income in India. These are such ideas which are already proven.
Each idea suggested in this article will guide you towards an asset. Investing in these assets will start a stream of passive income. Though the initial yield will be low, but it will eventually increase.
This is another beauty of these assets which generate passive income. But for the moment, focus should be more on the quantum of assets accumulated. Forget about the “volume of passive income” generated.
I personally dream of having an investment portfolio full of such assets, whose passive income yield is sufficient to fund all my expense each passing month.
#1. Rental Income
Rental income is the best form of passive income. It can be generated from property purchase. But problem is, property purchase requires high capital investment. Nevertheless, it’s still worth it.
One can buy two types of property:
- Residential Property.
- Commercial Property.
Depending on ones affordability, one can buy any size of property. By putting this property on rent, passive income can be earned each month.
But to buy a real estate property, a big lump-sum investment is always necessary? Not at all.
One need not always buy a duplex bungalow of R.1 Crore. If my affordability is only Rupee 5 lakhs, I will buy a property matching this limitation.
Important here is to start generating the first streams of passive income. No matter how low is the investment amount, what an investor must focus is on its “yield”. Example:
- Property value : Rs.5 Lakhs
- Rental yield @4% per annum.
- It means, it will earn Rs.1,666 per month (4% x 5,00,000).
Rs.1,666 may look like a small amount initially, but suppose, in a period of next 10 years, one is able to buy 5 such properties. In this case, the total passive income will substantially increase.
Moreover with time, the yield will also improve from 4% to say 7% per annum. Yield improvement will happen every year. This will further boost the rental income year after year.
[P.Note: The rental income from a real estate property can increase at the rate of inflation.]
Source: Real Estate
#2. Dividend Income
Dividend income can be generated from stocks. Dividends are as good as rental income. For me, both are equally desirable. But identifying a good dividend stock is slightly tougher.
Like real estate property yields rent, stocks yield dividends. In term of reliability, dividends are not as certain as rent, but good stocks can pay it consistently.
Like location & quality of property yields good rent, a mature and established companies will pay good dividends. You can read more about dividend paying stocks here…
The control points in both the cases (property & stocks) is same. The purchase must be made at undervalued price levels.
At overvalued price levels the generated passive income yield will be too low. To earn high dividends, one must focus on buying good stocks at undervalued price levels.
Blue chip stocks bought at undervalued price levels generally yield high and consistent dividend income.
For me, dividend income is one of the best form of passive income. More dividend stocks one has in portfolio, higher will be the passive income earned.
The trick is to keep a list of dividend paying stocks. Whenever the price of these stocks fall appreciably (more than 3-4%), buy them.
#3. Interest Income
If one cannot think of anything, bank deposits can generate passive income instantly. Bank deposits can be created from the comfort of home.
Less people look at bank deposits as a way to generate interest income (passive way). But it can be an excellent source, which can start generating passive income instantly. How?
It’s very simple. Create a fixed deposit (FD) using your bank account. White creating this FD, ask the bank to pay the interest monthly.
This interest payment gets credited to ones bank account on a specific day each month. This step of passive income generation is so easy that it often gets ignored.
Suppose you have Rs.100,000 as spare cash. If this cash is used to create a FD, interest @7.5% p.a. will be be credited each month.
- FD Amount: Rs.1,00,000.
- Interest Income: Rs.625 / month.
Source of: Deposit
#4. Royalty Income
One of the better ways to generate passive income is through royalties. I know few people who have written books and published it on Amazon. Such contents can generate decent income.
Earlier, writing and publishing a book used to be a big task. But today with availability of laptops, internet and online publishing-services, generation of royalty income is easy.
If you have a concept on which you can write about 10,000 words, I strongly suggest you to put those words in form of a book.
Take your time, write slowly each day. If you are a first timer, it may take somewhere from 1-6 months to write the whole book.
Once the writing is done, get it proof-read. Ask your close friends and family to do it for you.
If you are able to get a publisher, its ok else you can publish it as an E-book on Amazon, Notionpress etc.
Similarly like E-book, people can also earn royalty through photography.
These days many people have digital SLR Cameras. One can use their camera to generate passive income. There are two websites that can monetise high quality photos.
- iStock and
Click quality photos & upload them on these websites. Anything can be uploaded on these websites. But what photos one can click so that it can be monetised?
- Travel photos are most popular.
- Food photos are also liked.
- Photos of unique people.
- Car photos..etc
If the photos are unique and interesting it will attract traffic.
Source: Books, Photos
#5. Online Income
These days it has become easier to generate online passive income. One straight way is to build your own “online real estate property” and earn “advertisement” income.
What I mean by online real estate property? Website or a blog. Why I am referring it as an online real estate property? Because such a reference gives a sense of clarity. How?
Like we build brick-and-mortar properties on ground, we can also build website/blog online.
Imagine your website and blog like a traditional residential property. Both can earn rent. How?
Like people borrow a physical space for residential or commercial purpose, advertisers borrow space online.
Who lends space to the advertisers? Websites, blogs like Flipkart, Rediff, Quora to name a few biggies. Getmoneyrich is also an example of blog which can be treated as an “online real estate property”.
If I rent out an ad space on my blog to an advertiser, I can earn a steady income. The bigger and popular is the online property, the higher will be the income.
If you do not want to indulge into the development of such an online portals, invest your money on a Start-up as a partner. These start-up websites and blogs, can eventually becomes big, and can earn one decent income.
#6. Paid Subscription
Become an expert on a topic, and start a paid subscription service. What does it mean? It means, people can subscribe for your services/advice by making payment.
It may not be as easy as it sounds, but it works. How I say so? The answer is hidden in the word “expert”. Let me give an example.
Rakesh Jhunjhunwala is an expert of stock market investment. He is even referred as a Warren Buffett of India.
Suppose he starts a paid subscription service, wherein he will publish names of couple of stock each month for investing. What do you think, how many people will subscribe to this service? Tens and thousands if not less.
Do you know why? Because he is Rakesh Jhunjhunwala, and people know that he knows his job. He is an expert of stocks.
Even if that subscription service is not cheap, yet people will subscribe to it. Why? Because people love to hear from an expert.
The income that Rakesh Jhunjhunwala will make out of this subscription services will be his passive income.
But how this income is a passive income? Jhunjhunwala will actually have to work to provide stock advice, right? Yes and No.
Yes, because Jhunjhunwala will have to work to screen best stocks. But he will do it anyways. He is a stock investor and this is a task that he does anyways for self.
What additionally he has to do to manage this paid subscription service is that he will have to share it with the subscribers. It means, this income is almost like a passive income for him.
The point is, experts can start a side freelancing-business and earn income. Trick lies in the way how the expert can make this income, a passive income.
Income: Paid Subscription