Passive Income 101

Let’s talk about passive income in Australia. What does it actually mean? And, what are my best strategies to start building passive income?

As a finance blogger, this is a topic that I love. I am all about making money while you sleep.

In fact, my passive income stream currently pays for my water, electricity, wifi, Spotify and mobile bills.

Let me teach you what I know, put your money to work!

The Money Marketer Blog, Ruba Khan, Ruba Khan Blog
Hello, I am your passive income guide!

How I learned about passive income

You must be wondering, how did I learn about passive income and all things money-related. In short, I studied finance (and marketing!) at university which included studies around financial markets and investment. One of my subjects was personal wealth management which taught me all the personal finance building blocks that I know today.

In this subject, we learned about how to create retirement portfolios based on an individual’s current assets and government welfare.

The Money Marketer Blog, Passive Income

There’s where I had an eureka moment.

These people were generating income from assets, rather than from a job. I wanted to do the same!

Okay fine, it was literal retirement age people who worked their entire lives. However, I wasn’t necessarily after all my expenses to be paid – I still wanted to work full-time. I wondered if there was a way I could start building a small passive income stream now, and then grow it over time.

What does passive income mean?

Okay, I probably should start by explaining what passive income actually is.

It essentially is income that doesn’t require active work such as job. A full-time job that requires a large time investment would be active income for example.

The reason passive income is excellent is it allows you to earn more money, while investing less of your time. This means your ability to create an income is not based on the hours of your labour but rather the performance of your investments.

There’s also so much money you can make with active income. For example, I am a digital marketing manager. There is a ceiling for how much I can earn, even if I work 80 hours a week.

Active income has a limit, while passive income can scale exponentially.

How to create passive income

Now, there are many ways to do so.

There is rent from investment or commercial properties, royalties, bank interest, stock market dividends and more.

While being a landlord is an excellent way to make money without having a job, it requires substantial capital which I don’t have. And, I haven’t really had any opportunities to make royalty income. Banks offer very low interest rates on savings accounts (these days) so it’s hard to make a meaningful income stream just with bank interest.

This leaves stock market dividends and distributions; that is where my passive income comes from.

Many of the stocks I purchase go up in value over time and give a pay out – some twice a year, some quarterly. It is essentially money that appears in your bank account, simply for owning the stock. It can happen for many reasons. Sometimes it’s the company sharing its profit with investors or a fund sharing capital gain profits after it did some re-balancing.

I love when I forget the payment date of when I am supposed to receive a stock market dividend or distribution. It’s nice to have money land in your account when you weren’t expecting it!

The Money Marketer Blog, Passive Income

As an investor, I actually focus on capital gains (stock price going up over time) rather than the pay out. If I focused on investing just for dividends, I could increase my passive income stream substantially. This is personal preference but I as I am still in my 20s, I can make more money over time focusing on capital gains.

For now, I am continuing to regularly invest a large percentage of my income every month to grow this passive income stream bigger and bigger!

How much do I make through passive income?

One of the biggest passive income pay outs I received was over $2,000.

This was for a fund that pays four times a year so this was an excellent return. Since I am all about that frugal life, constantly saving, investing and never making a bad money decision – I allowed myself to “be an idiot” with the money.

I wanted to remember this big investing milestone with something special so I bought a pair of second-hand diamond earrings from a police auction with the money. With investing, it’s sometimes hard to materialise all the work you have put in. I wear the earrings everyday and never take them off, and it’s nice to have a physical reminder of my investing efforts.

The Money Marketer Blog, Passive Income

Whenever I look at the earrings, I always feel good that I bought them through passive income and didn’t use any of my salary.

But, after that I whipped myself back into shape to continue making good financial moves!

I also post regularly on my passive income pay outs on my Instagram with exact numbers. You can check it out by clicking here.

Passive Income, The Money Marketer Blog
If you like seeing actual numbers, check out my Instagram!

Rental passive income

As mentioned, an excellent way to build a large passive income stream is rental property.

This is my next goal and I am currently in the process of saving up for my first investment property deposit. It is also my first property ever so it’s a milestone I’ve been wanting to hit for a while.

However, it won’t be easy. I’m doing it on my own, only have my emergency fund in cash and won’t receive any first home buyer concessions as it is an investment property. So, it will take up to 2 years of aggressive saving – investing will take a backseat. I’ve written an article all about this that you can check out here:

My top passive income tips

1. Start early, start small

If you want to build passive income, start now and start small.

I believe that passive income isn’t just for rich people. You can start investing $500 to start and contribute any spare cash when you can. Starting early will allow your money to compound and grow in the market.

Many drops make a shower, so invest when you can even if it is $5!

The Money Marketer Blog, Passive Income

2. Assign bills to passive income

I remember being ecstatic when I made $14 in bank interest one month while I was at university.

Excitedly telling my friend, they quickly shut me down saying that an extra $14 a month was nothing. To that I said, I can buy 3 bubble teas a month with that money. Seems more powerful, that way right?

My strategy of assigning bills to passive income

From that point on, I never saw passive income as an extra $50 or $100 a month – I saw it is an extra bill being paid. I urge you to do the same as it makes a small passive income stream a lot more powerful.

Caring about building my $14/month passive income, meant a couple of years later my passive income paid for a pair of diamond earrings.

It is not always realistic that our passive income can pay all our expenses – that is hard and takes a lot of money and time. However, passive income can easily make you enough to pay many of your recurring bills or even a trip every year.

There you go! That is everything I know about passive income. I hope this inspires you to start building your own stream and start paying your bills, without working!

%d bloggers like this: