Master these 7 Passive Income Habits for Building Wealth in India
A famous adage says, ‘Rome was not built in a day. This holds true in building and growing your wealth. Wealth creation is a continuous process of following a set of financial habits and making profound choices to earn passive income. 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 you to 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.
Top 7 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 definitely 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.
- Start Saving
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 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.
- Monitor your investments
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.
- Invest for Long term
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, Stocks are some of the best assets for long-term investment.
- Leverage Carefully
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.
- Manage your taxes wisely
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.
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Top Passive Income Habits for Building Wealth in India FAQ's:
There are multiple ways to generate passive income in India. The most common ones are Real estate rental properties, Mutual Funds, Stocks, Bonds, Gold ETFs, and so on.
Yes, long-term yielding passive income holds the ability to make you rich. Some phenomenal examples of the same are Warren Buffet, Charlie Munger, Robert Kiyosaki, Rakesh Jhunjhunwala, Ramdeo Agarwal, and many more.
Quick sources of income could be liquid Mutual Funds which have a tenure of 45 days to 3 months on an average, Intraday stock market investments.
Best passive income investments are mutual funds, real estate, gold ETFs, stocks, and so on.
Real estate rental investments are the best source of consistent monthly income.