What is Passive Income?
Passive income is basically what you earn even without actively participating in the earning process. Based on a local financial guru in my country,passive income is the income that we all should strive for during our retirement years as they don't require much effort but still enables us to obtain money for our day-to-day expenses. There are various ways to make passive income. The following are just some of these ways (you are free to think up more ways, just don't forget to leave me a note if you have thought of one):
Rental from Real Property
According to Robert Kiyosaki, this is one way to ensure big earnings and early retirement. From renting out a room in your home, to renting out apartments, or a building complex or even a condominium, this is one sure way to earn passive income. However, one has to take note that, prior and even during the time you are getting income from this, setting up the property to be rented and maintaining it in good condition are some of the things you will have to contend to.
One of the basic ways to earn passive income (or interest income) is through placing your savings in time deposits. Although they have holding periods (30 days to 1 year or even 5 years), they earn higher interest than ordinary savings account. Plus, if you don't withdraw your interest, it also earns interest. There are, however, restrictions in terms of withdrawals and minimum balances.
Treasury Bonds / Treasury Bills
Another way to earn passive (interest) income is through investing in treasury bonds (T-bonds) or treasury bills (T-bills). These are long-term investment vehicles where you earn interest income up to their maturity dates. If you are into trading bonds or T-bills, you can also get income from selling them at a gain. They, however, require higher minimum investments than ordinary bank accounts. But, if you invest in government bonds or bills, these are virtually risk-free (unless the government itself is not stable) so you don't have to worry that the value of the bonds will go down or that you will not get paid by their issuer.
Invest in the Stock Market
Okay, investing in the stock market is not really something anybody can do. For sure, the stock market is not for the faint of heart, especially during these trying times. But, hey, if you have the guts (not to mention the money) and the time to wait everything out, then this is one of the ways where you can get passive income. You can buy low then wait for the prices to go up and sell high. Or you can wait for the company to declare dividends so that you can get some returns from your investment (while you wait for the price to go up). Some financial experts have said, that in the long run, stock market outperforms other investment vehicles (such as bonds). Not sure though if this case is still true with the credit crunch we are experiencing right now. However, please take note that once you actively participate in investing in the stock market (read: you don't depend on your broker, you're the one who does the legwork all the time in terms of studying your investment portfolio), it ceases to be a passive income. It becomes a trading investment income.
Investing in Mutual Funds or Trust Funds
If you cannot stomach directly investing in the stock market or even in bonds, then mutual funds or other trust funds may be for you. These funds basically combine various investments (stock A plus stock B plus stock C) or investment vehicles (stock plus bonds). Of course, the returns depend on how well these investments perform but then, there are advantages to investing in these funds. The amount of start-up investment is quite low (here you can invest with just 10,000 pesos or $200), the holding period can be short (30 days), the risks are spread over various investments and you can add on to the fund anytime you want. Plus, you have available at your disposal fund managers who should know about the products you are investing in.
Investing in Real Property
This can be a very lucrative passive income (gain from sale of the property) but at the same time, it can also make one lose a lot of money. One must know how to go about investing in real properties to earn the highest amount of income possible. Learning the ins and outs of the real estate industry is also a must for this type of investment.
Sell Online eBooks or Software Products
Got an idea for an e-Book or a software product? Then write it or develop it and then sell it online.There are already hundreds or even thousands of e-books that are sold online and yours may become one of it.
If you have an idea or a concept that you think will sell well online, then put up a website featuring this concept. You can fill up the website with your chosen content plus items for sale and watch the traffic (and the sales) come in. Or you can create a website that will target viewers who will pay a certain amount of money just to access your website.
If you have a really great idea for a website and it gets lots of hits, you can attract advertisers who will want to advertise on your website for a fee. You can also advertise your e-books or software product on your website (free advertising!) so that you'll hit two birds (or two income streams) with one stone.
Honestly, I don't really know how this one works. According to some sources, this can be done by linking your website to companies that sell products that are in line with your website's theme. Anyway, the passive income here are the commissions that you earn from the sale of these products.
So there you have it. My "10 ways to earn passive income". But really when you think about it and when you look at the list, there's is no "real" passive passive income. You still have to do a lot of things (put up a website, write an e-book, develop a software, earn / save lots of money, scout around for a bank or a broker, study the company you are going to invest in, etc. etc.) before you finally hit paydirt and earn that passive income. But then, if you are successful in the end, the returns are quite high and, if I believe the books that I read about personal finances, will enable you to live the rest of your life in comfort. To sum it up "NO PAIN, NO GAIN!"