Passive Income: The Ultimate Guide to Financial Freedom & Master Investment Techniques
Passive income is any income that is earned with little effort. Some of the most common investment options to earn passive income include rental property, mutual funds, crowdfunding options, equity dividends, fixed deposits, etc. Like active income, passive incomes are taxable as well. However, does passive income mean no effort? The answer to this is ‘no’. For building a channel of passive income efficiently, you must take necessary caution and do your research. You should evaluate the merits and demerits of your investment before finalizing your option. Let’s understand passive income in detail with everything you need to know about it.
Active income vs. Passive income from real estate assets
Income requiring a lot of effort from the investors is referred to as Active income. An investor should take the necessary steps to ensure that they have all the necessary amenities and also a perfect location for investment. It is also important that the interior and exterior are up to date to match the taste of the tenants. Managing the tenants and the property requires some effort from the investor.
On the other hand, passive income refers to the investment which requires little effort from the investors. The traditional method to earn passive income in real estate is to lease out your property. However, even leasing requires some effort on the behalf of investors in terms of maintenance, tenant search, and so on. Passive income can be earned from real estate assets without actually owning them. Investing in crowdfunding options of Assetmonk is an example of how passive income is generated from real estate.
Passive income habits to build your wealth in India
Wealth is not created in a day and continuous efforts are required. You are required to develop certain financial habits and also make some profound choices to earn passive income. Passive income is a great tool to maximize your profit without spending much time and effort. Thus here are some of the financial habits for you to build your wealth.
- Plan ahead of your expenses
- Start Saving
- Create Passive streams of Income
- Monitor your investments
- Invest for Long term
- Leverage Carefully
- Manage your taxes wisely
How To Make Passive Income Through Rental Income?
Rental income is traditionally considered to be one of the most profitable sources of passive income. Purchasing a property and then letting it out to earn rent is considered passive but is the rental income passive? This has been a debate among most investors for over years and the main reason for this is that an investor needs to put in a lot of effort in proper due diligence, calculations, and management to earn profit out of the investment. However, by partnering with investment management platforms like Assetmonk or any other asset management company, you can earn truly passive income on your rental investment. Here are some tips to earn a good passive income and to make the best investment choice.
- Research your market very well
- Do the math and calculate the income and expenses, including tax
- Invest through Leverage
- Advertise your space
- Be a good landlord
How much passive income do I need to retire? Passive income to retire in the 40s – How to strategize?
Retirement in India is something that takes place when you are around 58-60 years old. People generally start planning their retirement post 50 to ensure that they have sufficient sources of income to support themselves post-retirement. However, is it possible to retire early? The answer to this is yes. With proper planning and making investments in the right passive income options, you can earn a good stream of passive income which is sufficient enough to enable you to retire early. Here are some efficient strategies to plan your early retirement efficiently and to earn regularly using passive income options.
Strategy I: Evaluate your current financial situation
Strategy II: Create retirement goals
Strategy III: Focus on Assets that create Income
Strategy IV: Understand the Main Assets That Generate Passive Income
Strategy V: Start As Early As Possible with a Sound Plan to Maximize Power of Compounding
Tax implications of passive income
Passive income as an investment option is gaining immense popularity in recent times. However, apart from knowing the benefits of passive income, it is also important that you understand the tax implications of this type of income. Here are some of the lawful tax implications on different passive income options under the Income Tax Act, 1961.
- Rental yield- Taxable under the head ‘Income from House Property
- REITs- Taxable under the head ‘Income from Other Sources
- Real Estate Crowdfunding- Taxable under the head ‘Income from Other Sources
- Dividend Income- Taxable under the head ‘Income from Other Sources
- Interest Income- Taxable under the head ‘Income from Other Sources
- PPF Interest and Maturity- Not taxable
- NPS- Partially Taxable on maturity
How to save tax on your passive income
Everybody is looking for methods to avoid tax. So is passive income taxable? The answer to this is yes, passive income is taxable just like Active income. However, here are some tips for you to lawfully avoid or reduce your tax burden while investing in passive income options.
- Maintenance Charges
- Deduction on Municipal Tax
- Standard deduction
- Deductions on Home Loan interest under sections 24 and 80 EEA
- Deduction on Principal Repayment
- Deduction on TDS
- Deduction for joint owners & fractional owners, etc.
Passive income ideas with smaller investments?
As already stated, passive income is the income generated without much effort from the landlord. The concept of passive income is quite attractive as it provides the investors with the ability to earn profit with minimal or no effort. One of the most searched questions on passive income is the different methods to earn passive income. Passive income can be earned from different sources based on your income and the capital present at hand at the time of investment. Here are some of the passive income ideas for you.
- Rental Income
- Bank Fixed Deposit
- Mutual funds and bonds
- Affiliate Marketing
- Starting your course
Real estate and rental property is the most common and often most profitable passive income option. By investing in real estate through Assetmonk, you can also get the benefits of liquidity which real estate assets generally lack.
Techniques to build a passive income portfolio
The building of wealth has been a top priority for many. The pandemic has further strengthened the desires of the investors to diversify portfolios and to invest in different passive income options to build their wealth and to be financially independent. With the advent of the pandemic, many started investing and looking for different techniques to invest as they faced uncertainty in their regular jobs. Here are eight efficient passive income building techniques for you:
- Know your finances
- Set your Objectives
- Determine your Risk Capacity
- Conduct thoughtful Asset Allocation
- Direct your Earnings to Investments
- Check your taxes
- Create an emergency fund
- Monitor and Evaluate your Portfolio
Residual income vs. passive income – Difference, How to earn both
The concept of passive income and residual income are interrelated and both options are attractive for the investors. Passive income is the income that is earned on investment options wherein much effort of the investor is not required and on the other hand, residual income is the income that is generated on the completion of an income-producing project. The key point of their difference arises from the objective of the investors. In residual income, active participation of the investor is required while in the case of passive income only little effort is required from the investor. Rental income is considered to be passive as well as residual income as it fits both definitions.
You can earn residual income from options such as royalties, interest, and dividend income, and income from the ongoing sale of consumer goods (such as music, digital art, or books), etc. while you can earn passive income from options such as Crowdfunding, Rental Income, Cryptocurrency, Bank Fixed Deposit, Dropshipping, Affiliate Marketing, etc. Your risk appetite, financial position, and objective as an investor are the key determining factors while choosing to invest in either of the options.
Portfolio income vs. passive income – Difference, Importance, Types
Portfolio income is the income that is generated from interests, dividends, and capital gains. Mostly the portfolio income options are merged with the passive income options with a slight difference between them. Investing in stocks, ETFs, Mutual Funds of dividend-paying companies can be a great stream of portfolio income. The main feature of portfolio investment is that it is easily accessible to all the investors and it provides them with equal opportunities.
The major difference between the two are:
- Capital investment is required to invest in qualified portfolio income while capital investment along with time and skills are required to set up a passive source of income.
- The returns or income from portfolio sources are in the form of interests, dividends, capital gains, etc. while returns on passive income are in the form of Rent / Lease, Passive business profits, Ad income, Royalties, Interests, etc.
However, both are great sources to build your wealth in the long run.
How to earn passive income through Assetmonk?
Assetmonk is a smart real estate investment platform offering investment opportunities in top Indian cities like Hyderabad, Chennai, and Bangalore. The properties offered by us are usually in the fractional ownership model and hence eliminating the high-risk barrier. Our properties are categorized as Growth, Growth Plus, and Yield. We offer properties with an IRR of 14-21%. Thus Assetmonk is your ideal investment partner to earn passive income.
Passive Income: The Ultimate Guide to Financial Freedom FAQ's:
Passive income is any income that is earned with little effort. Some of the most common investment options to earn passive income include rental property, mutual funds, crowdfunding options, equity dividend, fixed deposit, etc.
Some strategies to generate passive income include the evaluation of your current financial situation, creating goals, focusing on assets that create income, understanding the main assets that generate passive income and starting your investments with a sound plan to maximize your profit.
Passive income can be generated from sources such as crowdfunding, rental income, cryptocurrency, bank fixed deposit, stocks, mutual funds, and bonds, dropshipping, affiliate marketing, blogging, fixed deposits, etc.
Rental investments are traditionally considered the best way to generate passive income due to the stability it provides and also due to their lower volatile nature. However, the high capital requirement was a huge entry barrier for the investors. With the growth in technology and improved communication mediums, real estate is now accessible at much lower rates through crowdfunding platforms such as Assetmonk.
Rental investment can be a good source of income to generate passive income on a monthly basis.