Needless to say, everyone wants to have a source of passive income. While for some people it is an opportunity to get free from a responsibility of going to work, for others, it is a way of protecting one’s budget in the future. Indeed, having a passive income in the older age is one of the best ways to have financial security. It is also a great way to feel safer in the case of an unexpected disease which might not allow one to work anymore.
What are the major sources of passive income?
The every first association with passive income you might have is a bank deposit. It is crucial to understand there are various types of bank deposits and the income you will be able to generate with their help depends on a particular bank and a deposit programme let alone the size of the amount of money you would like to keep in the bank.
It is crucial to understand not all of the bank deposits are suitable for generating passive income. For this purpose, you might be willing to choose one of the two major options.
The first type of a bank deposit you can use is the one allowing you to take money from such a deposit and add them at any point you want. Certainly, this is very convenient, however, in such a case the amount of interest you can get from keeping your money in the bank will be smaller than it is in the case of another popular type of a bank deposit.
This is a deposit which is offered for a limited period of time unlike the first case. In practice it means you will have to keep a track of your deposit as it can be prolonged by a bank automatically, however, the programme for a deposit can be chosen with less profitable conditions.
In any case, the interest coming with a bank deposit is generally not large. It is also important to know that many countries have special taxes for profit generated with the help of such deposits. Unfortunately, sometimes this makes the final amount of money one can really get for such deposits rather small.
Shares and bonds
There are two major ways of earning money with shares and bonds. The first option is purchasing them cheaper and then selling for a higher price or generate profits with dividends. If you really count on passive income, you should choose the latter option as this one will allow you to receive passive income. Purchasing and selling shares and bonds will require active involvement from you and certainly, you will not have an opportunity to earn money once you sell your shares or bonds.
Just like it is in the case of bank deposit interest, many countries also have taxes for the income generated by dividends. This should be taken into consideration when you are planning to purchase such valuable documents.
As you can imagine, different companies have different income and, as a result, there will be different profits for different their shares. For the companies with higher interest available for their shares, you will be able to generate greater profits with smaller investment.
When it comes to using shares and bonds as a source of passive income, you should be aware of the following things.
First of all, the interest coming with shares can differ during different years. Sometimes, companies decide not to pay dividends to shareholders at all.
Finally, just like with any investment, it is not sensible to purchase shares exclusively of one single company. A good solution can be using the ETF offers which will give you a ready-to-use solution of shares of several companies.
Note that bonds are working in a bit different way, however, they are good for passive income. Purchasing bonds will give you a stable income for a particular period of time after which you will be able to receive the money spend on bonds back.