How to Generate Passive Income: A Complete Guide

With inflation rates hovering around 5%, working professionals are now looking for passive income sources that supplement their regular income. Moreover, generating passive income has become a crucial aspect of securing your financial future once you retire.

However, the question is how exactly you can start earning passively, and what are the things you need to know? In the blog, we will cover the basics of earning passive income to help you plan for a financially comfortable future.

Understanding Passive Income

Active income is the income that one gets from their work, such as your salary or income from a business you own. Therefore, it is dependent on your activity, i.e., you must work to keep getting the income. On the other hand, passive income is does not need any active maintenance after it has been set up.

There are many ways to earn passive income. Some of the most popular sources of passive income are guaranteed income plans, returns from ULIPs or mutual funds, dividends from stocks, real estate, fixed deposits, and earning through peer-to-peer lending. As with any other investment option, each of these passive income methods has its own set of pros and cons. However, with careful planning and strategies, it is possible to maximize passive income through these methods.

Earning More with Passive Income

There are plenty of passive income ideas that you can use to generate more monthly income. Here are some of the most popular options:

Guaranteed Income Plans

Guaranteed income plans are one of the most popular passive income options, especially in terms of earning passive income after retirement. They are true to their name, i.e. all your returns/income will be completely guaranteed. You will keep getting this guaranteed income for the entire payout duration that was agreed upon at the inception of your plan. The

premium paying period is also customizable as per your preferences. Moreover, you also get life coverage which secures your family’s financial future (in case you pass away during the policy term).

Some plans even have maturity benefits if the policyholder survives until the end of the term, ensuring that you get a lumpsum payout to fulfil your goals. Additionally, a few plans also offer optional add-on riders, including accidental death and disability rider, premium wavier rider, critical illness rider etc. These riders can enhance the financial security provided by your plan.

• Pros: Guaranteed returns, steady passive income, life coverage, extra benefits
• Cons: While returns are guaranteed, the rate of interest is generally quite modest when compared to non-guaranteed plans

Real Estate Investment Opportunities and Rental Income

Real estate is a traditional source of passive income. If you have enough capital, spend it on purchasing a property that you can give out for rent. Metro cities and places near educational institutions have high demand, but purchasing a property in such areas can be a massive financial undertaking. To get high rents, maintain your property well.

• Pros: Appreciating asset, steady rental income
• Cons: High initial investment, maintenance costs

Investing in Stocks and Dividends

Investing in dividend-paying stocks is another high-yield passive income source. Purchase stocks from well-known, reputable companies that have been paying dividends consistently. Additionally, you can reinvest your dividend income to earn even more passive income later down the line.

• Pros: Potential for high returns
• Cons: Market volatility, risk of losses, uncertainty

Fixed Deposits

For risk-averse individuals, fixed deposits offer guaranteed returns. Many banks provide competitive interest rates on FDs. Though the returns are lower, the security and predictability make FDs a popular choice.

• Pros: Low risk, guaranteed returns
• Cons: Lower returns compared to other investments, locked-in funds

Managing and Growing Passive Income

Just generating passive income is not enough. It is also important to manage passive income streams. Your passive income should grow over time to counter inflation and other factors that depreciate the value of money.

Tracking and Optimizing Your Income Streams

Regularly review your income sources to ensure that they perform as expected. Use financial tracking apps to monitor your investments. If you are opting for riskier investments in stocks or funds, keep adjusting your portfolio periodically to mitigate losses and maximize returns.

Reinvesting and Scaling Up

Reinvest your earnings to compound your wealth. If you earn dividends or any other benefits, consider reinvesting them in more wealth-growing avenues. In case you have rental income, save it for a down payment on another property. Scaling up gradually will help you maximize your passive income.

Conclusion

Passive income is a powerful tool to achieve financial freedom. By understanding different income streams, setting realistic goals, and managing your investments wisely, you can build a steady flow of income that supports your lifestyle. Start small, stay informed, and keep growing your passive income so that you can live carefree in the future. If you are looking for a guaranteed income plan that offers steady income along with life cover, consider checking out Edelweiss Tokio Life- Premier Guaranteed STAR.

 

Chirag Iyer - BFSI Enthusiast

Chirag is a writer and an avid reader who loves to drink coffee! His other interests include boxing, karate, and singing.