Most people earn money by offering their time, effort, and expertise to someone or some organisation that needs it, in exchange for money. Passive income, on the other hand, is all about removing yourself from the picture and using an asset, such as money or property, to make more money.
Though there’s no limit to the number of ways you can earn passive income, let’s start by talking about three relatively straightforward approaches:
Owning stocks is one of the most common ways you can create passive income. A stock is a piece of ownership in a company, and many of the world’s largest and most successful companies will allow anyone to buy their stock. You can earn passive income in the stock market through dividends (profit sharing – in the form of cash or stock shares – that a company gives its stock owners when the company is doing well) or by selling your stock at a higher price than what you paid.
Owning real estate is another popular way of generating passive income. There are many ways to invest in real estate, but one of the preferred strategies for earning passive income is to rent a property that you own, to someone else. Any money you receive from the tenant’s rent payments that exceeds your cost to own and maintain the home (e.g., there may be mortgage payments and home maintenance costs) will be passive income for you.
That’s just one of the ways you can make money when you buy a home and hold on to it for several years. Over time, real estate tends to increase in value, known as home appreciation. If you decide to sell the house, the money you earn from the sale of the property over what you paid for it, is your net gain. You can use this cash to generate even more passive income if you invest it wisely.
Even if you can’t afford to buy and maintain a home right now, there are other opportunities for passive income through real estate. One example is by purchasing shares in a company that owns and manages properties, with the goal of generating income or a fund which invests in a number of companies that manage properties (also known as a real estate investment trust, or REIT).
Investing in a business is a great way for you to earn passive income. You can earn dividends from a company’s success, even if you aren’t directly involved in the day-to-day operations. Let’s say you invest in a restaurant and you go away on vacation – you’ll still earn a passive income as long as your business turns a profit while you’re away.
While these are all great ways to generate passive income, they’re certainly not the only ways you can earn money without working. As always, it’s important to remember that there are no guarantees with investing or other passive income strategies, and you should always do your own research before trying something new. Always consult with tax, legal and financial advisors before making complicated investment decisions.
The views shared in this podcast are for general information and educational purposes only and do not constitute financial, investment, legal or tax advice. Listeners should seek independent advice from a qualified professional before making any financial decisions. Emirates NBD Bank PJSC accepts no liability for any loss arising from reliance on the content discussed.