In the modern world, where economic realities often compel us to seek additional sources of income, passive income has become an increasingly relevant topic. Imagine having your finances work for you even while you sleep, enjoy time with your family, or pursue your favorite hobbies. This approach to financial independence can transform your life, giving you more freedom to manage your time and energy. In this article, we have gathered valuable information about passive income, including various options and opportunities to earn, where to invest your money to generate returns, and where it’s best to start.
What is passive income
Passive income is the profit you earn without needing to perform ongoing work, as the money or efforts you previously invested generate a steady cash flow for you. In contrast, active income requires constant effort and daily time commitment. It includes salaries, bonuses, commissions, and is entirely dependent on the hours worked. In the event of losing the ability to work, you risk losing this income. The potential for financial growth with active income is limited by your skills and the number of hours in a day that you can dedicate to work.
If you don't want to limit your growth opportunities or be tied to specific times and workplaces, passive income can help. We will explore additional income ideas in more detail in the following sections.
Advantages of passive income
Having passive income creates additional financial opportunities and ensures a more peaceful and stable life. The benefits of having passive income include:
- Financial stability. Passive income provides a steady flow of money that is independent of your primary job or business.
- Financial independence. Over time, sufficient passive earnings can allow you to live without the need to work regularly.
- protection against unforeseen circumstances. Passive income can serve as a safety net in case of job loss or other financial difficulties.
- Increased overall income. Additional cash flow helps improve your financial situation and can be used for further investments, savings, or enhancing your quality of life.
- Reduced stress. The sense of financial security and confidence in regular income can reduce the stress associated with financial matters.
- Opportunity to pursue personal interests. Passive income allows you to live more fully and spend more time on hobbies, travel, or personal development.
Types of passive income
In Ukraine, passive income can be obtained from various sources, which are divided into two main categories: investment and intellectual.
Investment income
This category requires initial financial investments that become a source of profit. It includes:
- Deposit accounts;
- Pension funds;
- Dividend-paying stocks;
- Fixed income bonds;
- Rental properties;
- Other investment options.
Intellectual income
This type does not require financial investments. In this case, an individual creates an intellectual product using their knowledge and skills, which then generates passive income. Examples include:
- Royalties from Inventions and other industrial property;
- Royalties from created works- books, songs, paintings, photographs;
- Developing applications that generate commission by advertising products or services from other companies.
Intellectual income is quite specific, and only a few people can create an intellectual product that brings in additional income. Currently, only about 1% of the Ukrainian population earns income from copyright. Therefore, we will focus on ways to earn passive income through investment activities, which are accessible to every Ukrainian.
Deposit Accounts
Bank deposits are the simplest source of passive income for those without investment experience and who do not wish to spend time learning all the nuances. This investment method requires no effort on your part. Most deposits offer a fixed interest rate, allowing you to predict the income you will receive at the end of the term. This provides clarity and stability in financial planning. Furthermore, your funds on deposit are protected by the Deposit Guarantee Fund, even in the event of the financial institution's bankruptcy. This protection makes interest income a safe and reliable way to preserve and grow your finances.
Private pension funds
Here, you can receive passive income from scratch without significant effort. You contribute a small, convenient amount to a pension fund monthly, which gradually accumulates and earns interest. The funds and interest can only be accessed after reaching a certain age and only in parts. There is no guarantee of fund returns, and in the event of fund bankruptcy, you risk losing your savings. For more information on saving for retirement, you can read our article, "Pension in Ukraine: how to ensure a dignified old age" where we explore how every Ukrainian can increase their chances of a secure retirement.
Stocks
By purchasing stocks, you become a co-owner of a company, giving you the opportunity to participate in the distribution of its profits. Investing in stocks can be an effective way to earn passive income if done with a sound approach. Success in this area requires basic knowledge, experience, and a developed strategy. Thorough market analysis, selecting a reliable broker, creating a clear investment plan, and regularly monitoring your portfolio can help minimize risks and increase your chances of earning stable passive income.
Bonds
Bonds are issued by governments, corporations, or other organizations to raise funds. By purchasing a bond, you essentially lend money to the issuer for a specified period and, in return, receive regular interest payments and repayment of the principal amount at the end of the bond's term. To successfully invest and earn income from bonds, it is essential to understand the market, choose reliable issuers, diversify your investments, and have a clear investment plan.
Rental Properties
Real estate is an asset that typically appreciates over time, provided it is well-maintained. However, this type of activity cannot be considered entirely passive. After purchasing a property, the owner must continually care for its condition and interact with tenants. For more information on this type of investment, you can read our article, "What is more profitable: investment in real estate or a bank deposit?" where we compare these options based on profitability, risks, associated costs, and complexity.
Other Investment Options
Other less popular examples of passive income include insurance, mutual funds, cryptocurrency investments, NFTs, affiliate marketing, etc.
How to generate passive income and what to consider
It's important to understand that passive income is not a quick process and will not yield immediate results. It requires preliminary market research and certain analytical work and calculations. You should determine how much resources and time you will need and then calculate the necessary investments to achieve the desired financial results. If you aim to generate passive income from scratch without initial investments, you'll need to invest more time and acquire the necessary knowledge, or wait longer for the desired outcome.
What to consider when choosing a source of passive income:
- Minimum investment amount required to start.
- Risk level of the asset you intend to invest in.
- How quickly you can recover the invested funds without losses.
- The value of the asset, i.e., whether it will maintain its worth over time.
Investment risk
When exploring passive income ideas, it is crucial to consider their riskiness. Generally, the profitability of assets increases with the risk of potential losses from investing in these assets. Traditionally, the least risky investments include deposits and government securities.
Investments with a medium level of risk and correspondingly higher returns include stocks of large companies, municipal bonds, and bonds of well-known companies.
The most potentially profitable but also the riskiest investments are those related to financing innovative projects. Here, you could either become wealthy or end up with nothing.
Risk diversification
Diversification involves spreading your funds across different assets to reduce the impact of negative changes in a single investment on your overall profit. Diversifying income sources provides a more stable cash flow even if one source stops generating profit. This reduces financial risks and makes your income more predictable. As a result, you gain more opportunities to adapt to changing circumstances and worry less about potential financial difficulties.
Having multiple sources of additional income can better protect your finances from economic fluctuations, such as interest rate drops or stock price volatility.
How to generate passive income
Start small. Begin by opening an account that accrues interest on the balance, and place your free funds for current expenses there. Even in this way, these funds will start working for you, albeit with a small return. Simultaneously, try to set aside 10% of your monthly income, regardless of how much you earn and spend. If you're not sure you can manage without these funds, place them in a flexible deposit account, from which you can withdraw the needed amount at any time if an emergency arises.
Once you've saved a certain amount, you can open your first deposit account. Then, step by step, expand your options for generating passive income to diversify risks and maximize returns on your investments.
The simplest source of passive income - deposits
The most popular passive income options in Ukraine are bank deposits. According to recent surveys, 35% of Ukrainians have passive income, with over half of them, which is 20% of all Ukrainians, receiving income from deposits.
Earning on deposits is one of the best options for passive income for several key reasons:
- Reliability and stability: Deposits are considered a stable and reliable investment means, as the money is in a bank with a 100% guarantee that you will not only return the invested funds but also all accrued income on the deposit. Compared to other types of investments, bank deposits have the lowest risk of capital loss or issues with timely interest payments.
- Guaranteed return: You already know in advance how much you can earn on a deposit, as the interest rate is fixed at the beginning of the agreement, and at the specified time, you will receive exactly that amount to the penny, regardless of market changes.
- Ease of management and accessibility: Opening and managing a deposit is a simple process that can be done at the nearest bank branch or through online banking. To place a deposit, you do not need any additional knowledge or specialist consultations, and you simply receive income from the deposit without the need to manage investments.
As we can see, deposits provide stable and guaranteed passive income, making them an optimal choice for many Ukrainians. If you are looking for how to earn a monthly profit on deposits, choose the Classic or Online deposits at Agroprosperis Bank with monthly interest payments. If you want to accumulate the maximum amount for other investments, the Capital deposit, which combines interest capitalization and the ability to top up, will be a convenient solution, helping you to accumulate the maximum amount and receive a higher return on the deposit.
