Passive income is a powerful tool to supplement your earnings and to build capital. In our helpful guide, we explore some great ideas that you can put to use.
What is passive income?
‘Passive income’ is a term used to describe regular earnings from an activity that involves minimal labour or upkeep or otherwise does not require ‘active’ work to accumulate.
If you were to consider ‘active’ income as money earned from a part-time or full-time job, passive income can be generated from activities such as investments, or earned indirectly from tasks such as marketing or advertising.
Passive income is useful to supplement your existing ‘active’ income, and can assist you in settling debts, building capital, or settling other expenses quickly.
5 ideas you can use to create a passive income:
Rent out your spare room
If you own a property and have a spare bedroom that you are not using, consider renting it out. This could be done as short-term holiday rental accommodation via websites such as Airbnb or by finding a suitable longer-term tenant.
When renting out your spare room, be sure to set up a legal agreement that contains the terms and conditions of the arrangement as well as the fee you expect to receive for its use.
Create a blog or YouTube channel
If you have creative talent, why not put your energy to use in creating an entertaining blog or YouTube channel?
By setting up a website or YouTube account, you can easily create content that can be readily monetized and can potentially generate revenue from advertising or sales.
Similarly, to setting up a website or blog, affiliate marketing involves creating content to market or advertise another company’s offerings, at which point you can pass over sales in exchange for a cut of the revenue.
Many platforms and companies offer affiliate marketing plans, which can make setting up a profile, account, store, or website simple. When practising affiliate marketing in South Africa, ensure that you follow the legislation as laid out in the Protection of Personal Information Act (POPIA).
Advertise on your car
If you have a car (or other real estate for that matter), why not consider using your assets to advertise? By placing billboards on property or graphics on your car, you may be able to earn a stream from income based on your asset’s visibility. Explore advertising networks close to your place of work or your home, or on your travel route to see what options are available to you.
Invest in income-producing assets
If you have an initial outlay of cash readily available, investing your money can help grow your capital in the form of interest. Selecting a level of risk and reward that is appropriate to your needs can help produce a relevant income.
If you’d like to buy into real estate but can’t afford an entire property at present, consider looking into smaller ‘democratized’ investments such as real estate funds or trusts, which can enable you to buy a percentage or ‘share’ of a property at a time.
What else should I know about passive incomes?
Ensure your taxes reflect your earnings
When building out a passive income stream, it is important to note that as your earnings inflate, you may be required to adjust your tax filings accordingly to represent your new total income. As such, your total earnings may also place you in a new income tax bracket, which would mean that your rate of taxation would increase.
To avoid penalties, be sure to accurately state your total earnings in your tax return and ensure that your financial position is up to date.
Ensure your passive income does not conflict with your profession
When considering a new source of passive income, ensure that your intended income stream does not come from an activity that your employer might term a conflict of interest – that is, that your source of passive income contradicts or would interfere with your primary course of employment.
Be sure to discuss your plans with your employer and ensure that there is no conflict with your primary source of employment – often, simply disclosing your intentions and plans upfront will be sufficient to declare your plans and avoid allegations of a conflict of interest. However, you may find you might need to adjust your plans or activities to ensure the suitability of your passive income stream.