Passive income is a great financial tool that multiplies your earnings without consuming much time and effort. Thus, to achieve financial freedom, one needs to build sustainable sources of passive income that can contribute to growing your wealth over the years. For this, it is of utmost importance to imbibe financial discipline through a set of habits that can ultimately reach your goal of ‘Financial Freedom’. In this article, we have put together 7 tried and tested habits that can up your passive income game. All you need to do is to start implementing them slowly and steadily until they become a part of your being.
Building wealth has been one of the topmost priorities of many millennials. The deadly virus just helped strengthen the priority of passive wealth in lockdowns. The restrictions imposed by the Covid pandemic forced a majority of people to stop their occupations or work remotely. With few sources of income, people were left to ponder on their financial stability in such trying times. The toughest lesson taught by nature is ‘DON’T SOLELY RELY ON YOUR OCCUPATION’. The creation of a passive income portfolio is the need of the times. And for that, investors must employ their knowledge and time to build a sustainable portfolio to cover their financial needs in uncertain times.
Top 8 Habits to Master Your Passive Income Game
Plan ahead of your expenses
Most people have an impulsive nature. Well, this type of nature is helpful in some aspects of our life but not in handling our finances. It is certainly not advisable to expend on valuable purchases without putting much thought into it. Thus, ‘PLAN AHEAD OF YOUR EXPENSES’. Devise a plan prioritizing which expenditures are worthful and through what sources of income the expenditure can be taken care of. With this habit, you would be in full control of your expenses and thus eliminate any unwanted purchases.
The worst financial condition a person can be in is living paycheck to paycheck. The urge to spend all your income on buying expensive things is natural. But saving a portion of your income is a must to plan for future expenses as well as to cater for emergencies like the Covid-19 pandemic. So, before making any big purchase, start separating some amount of your monthly income. This will not only make you aware of your expenses but also channel money towards important things. An ideal savings ratio for an Indian could be 40%. It means you need to put aside 40% of your salary towards investments and contingency savings. This will take care of your requirements of emergency funds and important expenses and investments.
Create Passive streams of Income
Passive income is a golden basket that keeps multiplying money once you put the initial effort in the form of an investment of time or money. To build long-term wealth, the creation of passive income streams is essential. The most common ways of earning passive income can be from Mutual Funds, Bonds, Real Estate Rental Yields, Real Estate Crowdfunding, Fractional Ownership, REITs, and so on. These additional sources of income can be reinvested to attract the power of compounding. The power of compounding helps to gain additional interest on the income when the earnings are reinvested. Using this formula, long-term wealth can be successfully created.
Conduct thoughtful Asset Allocation
The most important aspect of portfolio planning is Asset Allocation. There are tons of passive investment options available. However, making the right choices at the start will prove to be impactful in the long run. To choose the best options, one must take complete knowledge about the passive investment options.
The key things to check before buying an investment are:
- Liquidity
- Investment Type
- Expected Returns
- Risks
- Lock-in Period
- Investment Tenure
- Taxability.
With a due understanding of these concepts, the investors must align their investment objectives to choose the best suitable option.
This habit is as important as building streams of passive income. The costly mistake most investors make is to forget about their investments once the money is put in. Investments require constant due diligence in the form of checking the market sentiments, economic conditions, valuations, and so on. Along with that, make sure that your investments are put in the right companies or properties with a high potential of return. If the capacity of generating returns lowers then be quick enough to exit at a right time and invest in something better. This will ensure no blockage of funds in dead investments.
Long-term passive investments are proven to be more profitable compared to short-term returns. For earning consistent passive income and building wealth, investing for a long-term horizon of say ten, twenty, or even thirty years can prove to be a great wealth multiplier. Even the stalwarts like Warren Buffet and Charlie Munger have advocated long-term investing as their greatest asset in building such huge wealth. Thus, the longer the period of your investment, the lesser you pay and the more you earn. Real estate properties, Mutual Funds, and Stocks are some of the best assets for long-term investment.
In today’s times, debt-financing options are available for almost any purchase whether big or small. But, indulging in more and more debt is a sign of intoxication which can lead to debt traps and collapsing the tower of your wealth. Thus, it is important to learn the right way of using the leverage tool to grow your wealth. The best way to use leverage is where you can avail tax deductions on your income. The best option for that is purchasing real estate through a home loan. Interest on Home Loan can be claimed as a tax deduction under Sec 24b of the Income Tax Act. Along with that, principal repayment of up to 1.5 Lakhs can be claimed as a deduction under 80C of the Income Tax Act. Thus, this provides a two-fold benefit.
Paying taxes is surely a painful act for many people. Sure, every earning citizen must pay their taxes duly, but what if you can lawfully save your taxes? Yes, managing your income in the right manner can help you to save taxes as per the provisions of the Income Tax Act. Under section 80C, several investment options are listed which can be claimed as deductions from your total income. Along with that, payments to Life Insurance and Health Insurance can also be claimed under deductions. Thus, with careful financial planning, one can save taxes and in turn invest more to build wealth
The above-listed habits are the gateway to building passive income and wealth. Every person needs to be financially disciplined to become successful in life. Mastering passive income is a sure-shot way to build wealth. These habits may be hard to adopt at first. But by setting a system for yourself, you can slowly and steadily inculcate these habits into your daily routine. One thing to remember, small steps in the right direction are always better than losing your path. Start putting efforts into creating multiple streams of Passive Income. Several opportunities in the market can help you create passive income. For knowing more about passive income options, give a quick read on the 10 Best Sources of Passive Income in India.
For starting your passive investment journey, Assetmonk is the right place to be.
Assetmonk is a smart real estate investment platform that offers multiple investing options through Growth, Growth Plus, and Yield Models with an expected IRR of 21% per annum.
