Sources of Passive Income
Nowadays, it is difficult to find sources of income. The gap between the rich and the poor is widening. Some say that if you work hard, you will always have income to survive. But what will you do if it is really hard to find a job? Actually, even the rich find it hard to keep their income. However, this is less of a problem for some who know where to find sources of passive income.
So, let us define passive income first. Passive income is a type of income earned from investment. There are two types of income – active and passive. We earn active income from the result of our labor. Salaries, commissions, and service fees are sources of active income. What are the sources of passive income? Sources of income have different forms. Some popular sources are: dividends, interest earned, rent, sales, land, equipment, and money itself.
Dividend is earned from the net profit of a company. It is a form of profit sharing and it is more common in stock market. When a company is owned by several people or more, the profit is divided in proportion to each owner’s investment. These owners are called shareholders and such a profit is known as dividend. Dividend can be cash or stock. It is a cash dividend when the profit is distributed in cash through bank checks. And it is a stock dividend when it is distributed in the form of shares or stock. As one of the sources of passive income, dividend is also attractive especially during the period of growth. Not all companies give consistent dividends. It is important to remember that stock selection determines your future income. If the company selected is proven to give higher dividends, there will be a big possibility that it will continue. Most companies that consistently give higher dividends are called income stocks. Income stocks may not be large companies. In fact, even some large companies fall short in making consistent dividends due to their high cost of operation. So, not all stocks are sure bet as one of the sources of passive income.
Among the many sources of income in the stock market is an “income stock” which is dependent on their good industry environment. For instance, if the IT industry is very attractive, any IT company can be a candidate as a source of passive income. This means that it is better to choose from those companies than to pick a very large company of which the industry has been suffering from economic turmoil. Therefore, a good source of passive income in stock market is a company from a good industry.
Interest earned is also prominent as one of the sources of passive income. When we deposit our money in a bank, our money earns interest rate. What is interest rate? Interest rate is the percentage charged when we borrow some money and it is earned when we lend. Although we are not necessarily a lender, we can also earn this because our money that we have deposited in a bank contributes to the amount that the bank has lent to borrowers. Of course, there is a condition before we consider our deposits as sources of income.
We can consider our savings to be one a source of passive income. This only happens when the interest rate is high and our deposit is in significant amount. Time deposit or bank bonds are examples of passive incomes. Savings account, too, can be one. Banks differ from one another in interest rates. So, to get an attractive income through the banks, we should choose the right bank and deposit at the right time when the interest rate is high.
Rent and Lease
Sources of passive income are numerous and complex, but the easiest one is through rent or lease. Everybody knows without any explanation that income we get from having our property rented or leased has proven to give us reliable source of income. If you have an extra house and lot or a unit of apartment, you will only need to get somebody willing to occupy the place. Your sources of passive income here is not actually your property but a reliable tenant who can pay the rent consistently and can stay longer. The only consideration here is the profile of your tenant. If your property is a commercial lot, you may have it leased to those business people putting up a restaurant, a gas station, or a warehouse. The profile of your tenant here is more credible than the household ones. Commercial lot tenants will surely stay longer. This can actually become your concern because this type of investment is not liquid. It is a long term investment. Nevertheless, many of us will consider this as one of the best source of income.
Investment in transportation service however is hardly considered to be one of the potential sources. The risk involved here is high. But if you are just an ordinary individual who owns one or two units of taxi cab, it is good to rent them out provided that you invest a little in your vehicles’ depreciation.
Buy-and-sell business can be some sources of income depending on the items or goods you trade. The bigger the things you trade, the more passive the income becomes. If we trade smaller things, that’s marketing and a good source of active income. But if what we buy and sell are cars, house and lots, stocks, and bonds, they are definitely great sources of passive income.
Land is the best source of income. It does not have to be from renting it out. Since time immemorial, it has been the most reliable source of income. In the past, fertile land could produce crops, trees, plants and grains without human intervention. Even livestock and poultry were products of fertile land. All these things that land could produce were sources of passive income. Such circumstances are still true until now, but with little intervention.
In the country, equipment has become one of the sources of passive income. Rice mill is the most popular equipment that you can live off in the farm. During harvest season, farmers line their sacks of rice to a milling station. A rice mill owner will earn a certain amount per sack. After harvest season, the cash flow of rice mill owners is a lot healthier than that of the farmers. During this post harvest season, rice mill is hardly necessary. However, some other crops and grains are in demand of other kinds of equipment. For peanuts, shelling machines and graders are in front. Other kinds of equipment in the farm are farm tractors, grinders, and dryers.
Even in the city, equipment is one of the good sources of passive income. Heavy equipment used in construction can be rented out to contractors and developers. If you are an average person, you can acquire a vending machine. A vending machine is being rented. You will actually earn from your sold products. But it is considered to be a passive income because it is your machine that works for you. The most popular and the most heavily rented equipment found in the city is the printing press. This is a business and at the same time an investment.