How to Create Passive Income

passive-income-investment-propertyIn our previous blog we discussed the many benefits of passive income and how it can enhance your quality of life and help you to create wealth for yourself and your family. If the idea of earning money without working seems far-fetched to you, here are some strategies that will make the dream of passive income a reality.

Creating a surplus

There is no chance of creating any wealth without a surplus each month, or at least each year. Ideally, you should be saving between 10% and 30% of your income each month, which can be used to make investments and build up your net worth.

If these figures sound unrealistic to you, start by looking at your monthly budget and find ways to save – even if you were saving 1% of your income and you’ve pushed it up to 4% now, you’re still on the right track. If you never manage to save anything, you’ll need to take an honest look at your finances and decide what items you can live without in order to balance your budget.

Creating passive income

Passive income may come from many sources, but the most common ones are property and equities, or shares. Once you’ve gotten into the habit of saving each month, and have some cash in an emergency fund, you’ll need to decide how you are going to create passive income for yourself.

Extra bond payments

If you have a bond on your property, this may be the perfect place to start creating passive income. By making an extra bond payment each month, you’ll be able to pay off a 20 year bond in just under 7 years. During the extra years you would have been paying your bond, you can invest your full bond payment in other investments, or purchase a second property.

Paying off debts

Similarly, one of the best starts you can make is to pay off all outstanding debt you may have. Once you’re debt free and have some money in the bank, you can start to call yourself wealthy.

Balancing your passive income sources

Passive income should be balanced between rental properties and investments. Remember that passive income investments shouldn’t be too risky – when you meet with your financial advisor he or she will probably advise to buy a stable fund that pays reliable returns, or invest in a stable share with a good dividend yield.

Once you’ve got shares or properties that yield you regular passive income, you should considering reinvesting some or most of it each month to benefit from compound interest. You can also use your passive interest to supplement your normal income, or save it up to make major purchases so that you don’t run up unnecessary debt.

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