Friday, December 5, 2008

My thoughts on Passive Income

Why create passive income?
Creating a passive income source helps us leverage our earnings per unit time better. It also contributes an additional stream of income for us.

Passive income is generated when you are earning an income without having to do much work for it. There are a few types of passive income.

1) Private Business
If you own a business that you have setup to run completely on its own, or perhaps a piece of real estate that generates capital or rental returns, it is a good source of passive income.

2) Investments
Shares of companies that pay annual dividends (like Singapore Press Holdings), or shares of REITS, are sources of passive income.

Capital appreciation can also be considered a form of passive income, but until you sell the stocks and lock in your profits, the money is still not yours.

3) Fixed Deposits / Money Market Fund
Guaranteed zero risks low rates way to grow the numerical value of your money. You lose out to inflation.

4) Blogs
Placing advertisements or affliate marketing is a great way for blogs or websites to generate passive income. Wonderful examples include Yaro Starak and John Chow.

5) Intellectual Property
Write a book or an ebook. Everytime it is sold, you get paid. Great source of income that recurs even though you had only spent the time to write it just once.

For me, I have applied 2), 3), and 4) in my quest for financial freedom. An example would be my dividends coming from SPH (total of $760) this december, and looking at a possible 6~7% yearly dividend rate for my average purchase price in 2009.

I have quite an amount in Fixed Deposits and MMFs. Blogs wise, I have ExamWorld and WealthBuch, with ExamWorld earning a few bucks monthly at the moment.

I would love to have 5) in my portfolio as well, but what I would really really really want to have is number 1). Guess it's time to whip myself up further to generate some new ideas to startup for 1).

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