Blossom's Guide to Passive Income
Blossom's Guide to Passive Income
9 March 2023
We all dream of working less and earning more, right?
One of the ways to do that is to create a passive income stream, which means that you don’t have to trade your time for money. Freeing up your time and energy to do other things.
Passive income is a great way to help boost income, build wealth and create financial freedom. And often it can be simpler than you may think to get started.
To help you, Blossom has put together this beginner’s guide to creating passive income streams, which is full of income ideas for getting started to build wealth and generate extra cash flow.
But before we start, please note that this guide contains general information only and does not take into account your personal circumstances, financial situation or needs. Before making a financial decision, you should read the read the relevant Product Disclosure Statement and Target Market Determination of the specific financial product and consider whether the product is right for you and whether you should obtain advice from a financial adviser.
Why create passive income?
Passive income helps to build residual income. Residual income is the amount of money an individual has remaining after paying for living expenses. For instance, if you have monthly income of $5,000 from all sources, and $4,000 in living expenses, then your residual income will be $1,000 per month.
The higher your residual income, the more you can invest and use to grow your wealth.
Increasing residual income often involves generating more money from other sources and may mean reducing expenses as well. With living costs and inflation on the rise it is becoming increasingly more difficult for people to save money.
Passive income, or money generated without much effort or ongoing investment of time and attention can be a great strategy to boost your income allowing you to save more money, to invest and to build wealth.
With passive income you generate extra cashflow from multiple sources of income, in addition to your job or business. Whether it’s affiliate marketing, selling a course, promoting a product, or renting a room or equipment you own, there are so many ways to think how you might be able to generate a little more income every month.
In time your passive income might be able to replace some or all of your active income (and money from your career or job), which will give you increased financial independence, and more flexibility in whether you choose to work, retire, or explore being financially free for awhile. Either way, passive income helps to build wealth and gives you extra financial security.
And if you’re worried about being able to save enough of your earning to meet your financial goals or retirement goals, building wealth through passive income is a strategy that might be a good for you.
What is passive income?
We know the word “passive” makes it sound like you don’t have to do anything to create an income stream, that isn’t actually true. Passive income streams will typically require at least one of the following two elements:
1) An upfront financial investment, and
2) An upfront time investment
What is passive about this income, is that once the income stream is established it generally requires little or low maintenance to provide extra cash flow.
Put simply, passive income is doing something once, then receiving consistent income from it into the future.
What isn’t passive income?
Your employment income. Because you have to invest your time, energy, attention and skills to earn wages from your job, it’s generally considered Active Income, not Passive Income.
A second job. Getting a second job isn’t going to qualify as a passive income stream because you’ll still need to show up and do the work to get paid.
Non-income producing assets. Investing creates passive income only if the assets you own pay you income in the form of interest or dividends. Non-dividend-paying stocks or assets like crypto, might be exciting to invest in, but they don’t generally generate passive income.
What is one of the easier passive income streams to start?
Generating passive income doesn’t have to be complicated. Sometimes it’s as simple as choosing where to invest your cash to maximise a better return. During times of rising interest rates and high inflation (like we are experiencing right now), a high-interest savings account can provide a reliable source of passive income on your cash funds.
It might sound counter-intuitive but a good idea to start creating passive income is to repay your debt, credit cards, personal loans and home loans. The sooner you free yourself from financial commitment of ongoing regular loan repayments, the sooner you can redirect that income towards investing in other income-producing assets. Not only does repaying debt boost your credit score, but it gets more cash flowing to you sooner which you can use to build wealth.
There is a myriad of investment strategies available to a person who is looking for passive income stream. Depending on personal circumstances, this may include investing in term deposits, government bonds, shares, exchange traded funds, property, purchasing a residential property, commercial property or rental property. Investment in these types of assets will result in earned passive income from interest, yields, dividend income, distribution income and rental income.
Investing in shares or exchange traded funds, property funds, real estate investment trusts, managed funds or mutual funds are also great ways to create a passive income stream. This typically involves selecting a professional fund manager or property managers who will manage your money on your behalf or choosing to invest in index funds.
Each investment option has a varying degree of risks. We strongly suggest that you do your research, ask questions, and seek professional financial advice when choosing a financial product to invest in.
On the other hand, active investing or trading shares and stocks via a trading portfolio (i.e. share trading) does not generate passive income as when buy shares or actively buy and sell shares on a regular basis. It requires active participation and attention.
Remember, passive income is about investing in something where you earn extra cash and extra money passively.
How do I get Started?
First things first, make an inventory on where you’re at and what you might be able to leverage to create passive income. You might like to consider the following questions:
- What surplus time do I have?
- What surplus resources do I have?
- What personal and financial assets do I have that I could use?
- Do I have any unused spaces or things?
- What Intellectual Property do I own that I could share or create resources from?
- What are my talents?
- What skills and knowledge do I have that I could share?
- What community or network do I have that I could leverage?
- What business ideas do I have?
Once you have this list, check out our list of passive income generating ideas to get inspired, or, when you are ready, get started!
What are some passive income ideas?
- Invest money in a money market, high yield bank or savings accounts
- Invest in term deposits
- Invest in fixed income
- Become a Peer to Peer Lender (P2P)
- Loan money to start ups and small businesses
Create A Product or Service
- Create digital products to sell online
- Create e-books
- Create a blog and sell advertising space
- Create a podcast
- Create an online-course
- Create webinars
- Create a subscription model or community
- Create a product on Etsy or Amazon
- Create an affiliate program, using affiliate marketers and affiliate links
- Become an affiliate marketer for other programs and services
- Create products using a print on demand store
Sell Things to Make Money Online
- Create an online business
- Create an online store
- Sell digital products
- Sell digital designs
- Sell photos and videos you create
- Sell stock images
- Sell stock that can be dropshipped
- Sell your expertise
- Become an influencer
- Share sponsored posts on social media
- Sell your time and opinion to complete online surveys
Rent Out Your Possessions
- Rent out your spare room
- Rent out your garage
- Rent out your car
- Rent out your parking space
- Rent out your caravan
- Rent out your boat
- Rent out your jet ski
- Rent out your motorbike
- Rent out your backyard for events
- Rent out your tools
- Rent out your investment property
Is passive income taxed in Australia?
You should always seek financial advice, or professional tax advice before making a financial decision.
Any final thoughts or suggestions?
Remember it doesn’t have to be complicated. We hope we have been helpful so far to get you inspired or started on this journey in creating a passive income stream.
Oh, and don’t forget – you can make passive income on your earned passive income!
The Blossom App
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The Blossom Fund is issued by Gleneagle Asset Management Limited. Please consider the PDS and the TMD before you apply. All information is general advice only. All investments carry risks.
The information in this article has been compiled from sources we believe are reliable. We make no warranty regarding the accuracy or completeness of the information given and provide the information on an ‘as is’ basis. Information can also become out of date quickly.