Doing nothing and earning money at the same time: How to build up a passive income!

What is passive income anyway?

First of all, the term is misleading. Because it doesn't work completely without your own intervention, because work and time had to be spent at least once in the past to create a new stream of revenue. This source must then also be kept running and - as in the case of stocks, for example - adjusted regularly. For this reason, many prefer the term “scalable” or “convenient” income, which has the following benefits and risks:

advantages:

• Regularity: Passive income sources regularly bring cash into the account — with little, minimal, or no consideration at all.
• Safety: A second, third or fourth passive income mainstay reduces risks and enables financial freedom.
• Perspective: Anyone who reinvests their income over and over again benefits from compound interest and steadily increases passive income.
• Free time: Sources of passive income make it possible to reduce working hours or retire earlier.

Risks:

• Advance payment: If you want to build up wealth passively, you have to make advance payments and invest a lot of time, energy and possibly money in your project first.
• Unpredictability: Stocks can crash, residents of real estate can no longer pay their monthly rent or the income from a book sale breaks away: Passive income is difficult to plan. It is therefore advisable to rely on several pillars and to calculate potential losses in advance.

Investors should also ask themselves the question of “how, how much and when.” We'll look at the various options for building up passive income in more detail later. First of all, however, it is important what amount of “passively” generated money you want to have available on a regular basis and when. A blanket answer is of course not possible, as every life situation and future planning requires different sums of money. In other words, a single emigrant who is satisfied with a tiny house in Thailand requires less passive income than a family man who plans to live in an expensive metropolis and may have to take care of his partner, children or even grandchildren.

In order to determine an individual amount that should be available monthly in the future, a Calculation tool be very helpful. As an example, a 30-year-old who, at the age of 50, wants 2000 euros net available per month, would have to set aside 2300 euros per month and own 10,000 euros of share capital. This would amount to 813,000 euros in 20 years. With an average return of five percent per year, 2,000 euros of passive income could flow in at 50 years of age.

Three rules for more financial freedom

Of course, there are many who are able to set aside relatively little money, especially in inflationary times like these. But even with a low income and/or reductions in the desired monthly passive income, one or the other stable source of revenue can be developed in the long term. Some good advice on this in parables can be found in the “Standard Work” for Financial Freedom.”The richest man in Babylon“.

1. Save (at least) 10% of earnings

Arkad, apparently the richest man in Babylon, tells how he achieved his wealth: He set aside a tenth of his income as a scribe and invested the savings.

2. Plan spending

The more we earn, the more we'll spend. That is human nature. To counteract this, we need to write down all the things we want to spend money on and create a monthly financial plan. All necessary things should be able to be paid from the remaining nine tenths of income.

3. (Re-) invest the savings

To get rich, it is not enough to save money and spend little. Savings must also be invested in order to generate returns. The return in turn should be reinvested. If you do this, the fortune will slowly grow and eventually earn money for its owner.

What can be used to generate passive income?

But what options are there actually to make money or property work for you? In this post, we do not deal with Tips such as renting tools, writing a book, or affiliate marketing, but focus on (tangible) investments that offer investment opportunities for everyone.

However, it should be said in advance: What is guaranteed not to lead to passive income is passive behavior. Because only personal initiative, a little patience and a certain amount of capital can ensure that long-term cash flows are achieved. The following options - which should definitely complement each other - can be used to generate a regular income:

• stocks

Stocks are particularly suitable for passive income, but require a certain amount of equity. It is also important that even relatively defensive company shares can be subject to fluctuations. Be it due to business difficulties or a general crisis in market sentiment. In the long term, however, diversified equity portfolios, funds or ETFs rely on indices attractive return opportunities.

• dividends

Profit sharing has a stabilizing effect on every portfolio, as dividends flow from companies even when the share price return is in zero or negative territory. Insurance companies, banks, raw materials and telecommunications companies are traditionally among the high-dividend industries. An important indicator is dividend yield, which shows the ratio of the dividend to the respective share price and the personal dividend yield, which also includes the individual share purchase date.

• Own, rented real estate

Renting out a property is attractive both for tax and investment reasons. Especially in popular cities or regions. However, real estate is associated with a risk of rent default, ongoing administrative expenses and corresponding costs - this source of income is therefore only partially passive. In addition, a large sum of equity is required for the purchase, as loans are significantly more expensive than they were a year ago due to the current rising interest rates.

• Alternative tangible assets

Although tangible assets such as real estate are the ultimate source of passive income, they are not suitable for everyone due to capital requirements and risks mentioned above. Provide an excellent alternative here digitized assets. By tokenizing (“denomination”) of apartments, houses, commercial properties or family real estate, investors can purchase shares in a property starting at just 500 euros and benefit from its return opportunities just like an owner. And that with full flexibility, as digital tangible assets can be traded on the secondary market at any time, in contrast to “concrete gold.”