Earning Passive Income

Like what I previously mentioned in my last blog, I will share to you ways on how to earn passive income. As a disclaimer, some of these may entail huge amounts of capital that neither you or I can afford at the moment (keywords are “at the moment”). Hence, if you take care of your financial health, you will afford them someday.

The first on my list is what all of us can afford and do. We can all have our savings accounts. Even though savings accounts only return 1% per annum (or even less), you can still consider that income as passive income. Going back to our definition, passive income is earning something, even though you are passive and not working for it at all. I believe you see that in all savings accounts, granted that your savings accounts meet the respective maintaining balance of the bank.

A little improvement for savings accounts are Time Deposit accounts. The difference between time deposit accounts and savings accounts is that Time Deposit accounts have higher returns. For instance, most 1 year time deposit accounts earn 2-3% per annum. The catch is that time deposits require you to lock them away for a specific amount of time. Hence, for that specific amount of time, depending on your agreement with the bank, even you cannot withdraw it or risk penalties.

Moving on, we now go on to products with higher returns. We now turn to investment products.
The first types of investment products I would like to discuss are trust funds and mutual funds. In countries outside the Philippines there is clear distinction between a trust fund and a mutual fund. However, due to the advent of Unit Investment Trust Funds (UTIF), there is not much difference between the two here in the Philippines. I find UTIF’s and mutual funds here in the Philippines similar because both gives you a unit of the fund as your own, depending on how much money you invest. Both allow for subsequent deposits, and both has fees. The difference is the control that you have with the fund. People say that there is more control for the investor in mutual funds, as investors can literally fire or change their fund managers at any given time. For instance, if the investors are no longer happy with the performance of the fund, they can just vote to oust or remove the fund manager. As for trust funds, as soon as the investor puts in his or her money to the fund, it will now be up to the fund manager to ensure financial growth and stability of the fund. If for whatever reason the fund performance is not going well, the investors cannot do anything about it. They cannot change their fund managers. Hence, that is why they call it a “trust” fund, because it will revolve   around trust. Fund managers market their funds as for long-term investment. Hence, if you have income that you are willing to invest for 1 or more years, then these product is for you. A good investment fund (trust or mutual) can yield 10-20% return per annum.

The next product I would like to discuss are Stocks.
I am not surprised if there was suddenly a red flag in your minds when I mentioned stocks. Setting aside what you’ve heard about stocks, stocks are actually a good way to grow your money and earn passive income. Just for one day of trading, some stocks can yield 50% return. Yes! One day! However, there goes that problem you’ve been hearing. Aside from the fact that people have gained a lot of money through stocks, people have also lost a big amount of money because of stocks. The reason? Because they were TRADING. How would I define trading? For me, trading is when you decide to sell the stock even though you’ve only got hold of it for less than 3 months. If you’ve been buying and selling stocks on a daily basis (or even on an hourly basis), then in my vocabulary, you are a stock trader. If you’re the type who has been taking advantage of the little gains and losses of stocks, then you are a trader. However, for most people who are not adept with the technical analysis of stocks, try to be the other type. Try to be a stock INVESTOR. Meaning to say, invest in stocks with a long term plan in mind. For instance, if you are the type of person who has been buying stocks for the same company for more than 3 months, then you are an investor. You are not looking to take advantage of the little fluctuations, you are looking at the long term growth of your money. In this way, after one year, depending on the performance of the stock, you can actually double your initial investment.

A little related to stock trading/investing, is foreign exchange.
When I was young (early in the 90′s), I still remember my aunts and uncles from the US giving out dollars and telling us to keep it because it will grow. Fast forward to 10-15 years after, my relatives were correct. Back in the 90′s, the USD-PHP conversion rate was 1:20. Now, it is around 1:43. Hence, foreign exchange or investing in a foreign currency like Japanese Yen, Great Britain Pound Sterling, Australian Dollars, and the like can be a good way of earning passive income. Likewise, in the same scenario as stocks, you can also have TRADERS not just INVESTOR in the foreign exchange market. These are the people who take advantage of the small fluctuations in prices to either buy or sell a currency. The small profit they gain by doing so will add up on a daily basis, and that is where they get the income that they want. But then again, that is reserve for people who are technically capable or knowledgeable with trading.

Amazingly, and often taken for granted, another way to earn passive income is to invest in one’s hobby. Yes! You heard me right. As what Louis De Los Angeles would say in his blog, try investing in your hobby. What do I mean by this? If you love watching the NBA, PBA, or even the Azkals, then chances are, you have seen people who have invested in their hobbies, and that is sports. It’s amazing that these people earn thousands or millions of money just by playing sports, which as all of them would agree, is just a hobby for them. Yes of course, not all of us are gifted athletes as these guys are, but that doesn’t mean we cannot invest in our hobby. For instance, according to Louis’ blog, if you are a good photographer and like taking pictures, then you can start your mini photography business. Charge a small fee every time you take pictures of family weddings, birthday celebrations, or milestones. Or volunteer yourself to be the photographer instead of your parents, family or friends hire professional ones. You can do this on a daily basis, or this can just be a sideline business you can do on weekends. Once you’ve grown your portfolio, you can now target bigger fishes, as they say. You can now advertise yourself to the friends of your friends, and so on and so forth.

Coach Rio Dela Cruz just really loved running, and was actually good at it. But he didn’t stop there. He tried to promote running through various ways by holding clinics, talks, and fun runs. Now, his fun runs are highly anticipated and he gets loads of money just by doing something he would consider not a job, but a hobby. These are just some ways. I am sure you can think of other ways.
A little something similar to investing in one’s hobby is investing in a business. You know those food carts you see inside the MRT station; those Siomai King or Waffles Express? For a price, you can franchise a cart or two, and make monthly income out of it. If you have larger capital, you can franchise established restaurants or businesses like Chic Boy, Generics Pharmacy, or even McDonald’s.
The next type of passive income is something that might entail a big amount of capital. These are land and real estate.

For those of you who did not know, profit can be earned by just buying and selling lands or condominiums/apartments/houses. Like stocks and forex, you can do this on a short term basis (TRADING) or you can do this on a long term basis (INVESTING). For instance, 30 years ago, if you bought a land somewhere in the Makati Central Business District, chances are, when you sell it now, it would be worth millions of pesos. Also, if you decide to buy the last available condominium unit of MEGAWORLD in McKinley Hill, and decide to sell it to somebody else within a few weeks, you can earn yourself a few hundred thousands. I guess the challenge here is getting the capital to invest for these products. That is why I suggest that you grow your money first with the products that I have shared with you above.

I am pretty sure that you have other ideas in mind that I failed to mention, and that is good. That means there is an infinite amount of possibilities awaiting you. What is important is that you start young, and focus on your priorities.

If there is a will, there is a way.
- The Street Smart Investor (some parts were taken from HSBC’s Guide to Wealth and “Invest in your hobby” by Louis De los Angeles)

Share this: