How to get money without working? Instructions on how to create passive income from experts

For many people in the modern world, financial stability plays a key role in planning for the future. It is hard to imagine buying property, studying, going on vacation without it. One of the ways to achieve a cherished goal is passive income. Let’s understand what it is.

Passive income is a cash flow that keeps on coming regardless of your employment, age and health. Imagine a situation where money starts working for you, not the other way around. That is what passive income is.

The first and perhaps the most important benefit of it is achieving financial freedom and independence. It allows you to control your time and achieve the necessary goals without being tied to a certain place or occupation.

The next benefit is the ability to earn extra money without increasing the amount of time you spend working. Passive sources of income continue to come in even when you are busy with other things or on vacation.

Dependence on a single source of income can be a risky idea. Passive income creates a reserve that makes life easier when the economy fluctuates or personal problems arise. In other words, when money comes from multiple sources, you are more resilient to hardship. This acts as a reliable financial cushion to help you survive stress. Unforeseen expenses and sudden job loss are less scary if you have a steady stream of passive income.

The concept has been dealt with, now the main question is where can it come from? Types of passive income are diverse: securities, real estate, creation of works of authorship. For each person, the choice depends on personal goals, interests and the level of potential risk.

Investing in securities

Speaking of securities, we should immediately emphasize the key concept – investment portfolio. It can be thought of as a collection of all your investments. It is similar to a backpack in which you put different types of assets located on the stock market – stocks, bonds, funds, sometimes even precious metals. The purpose of creating an investment portfolio is not just to store your savings, but to multiply them.

Financial expert, investor and entrepreneur

“Usually the biggest and most important goal in passive securities investing is to build capital. It is a strategic approach that requires thoughtful planning and patience.”

It’s important to realize that securities investing can be divided into three main categories: long-term, medium-term and short-term. They depend on the investor’s time horizon and strategy.

Securities investing goals

With a long-term objective, the portfolio is purchased gradually. Over the course of a lifetime, the shares of good securities in it increase. This type of passive income is ideal when a person is saving money for a child’s education or future retirement. Here, it is important for investors to focus on gradual and consistent accumulation of assets rather than short-term market fluctuations.

Medium-term investments involve a more aggressive approach to risk. These passive income strategies are suitable for goals for the next five years. For example, a man dreams of owning his own car or saving up for a down payment on a mortgage. Investors who choose this type of passive income often look for assets with higher growth potential. But they also carry a higher risk. With a medium-term goal, you need to be able to set a precise time frame and have a clear plan of action to get results.

Short-term investing most often involves higher risks. Of course, the return potential is also higher. Investors in this category usually engage in active trading – buying and selling securities in short periods of time.

The principle is simple: buy shares at a low price and sell them when the price rises. At the same time, trading requires a thorough study of the market and understanding of the factors affecting the value of securities. Investors should react to changes as quickly as possible to optimize their chances of profit.

Another short-term strategy is leveraged trading. A person borrows shares from a broker to sell them at the current price. But he expects their value to fall. When the price does fall, the investor buys them back cheaper, returns them to the broker and keeps the difference as profit. This approach is also considered more risky. If the forecast turns out to be wrong and the stock price rises, the investor will have to buy it back at a higher value to pay the broker back. This will lead to losses.

How to choose an investment strategy?

Choosing an appropriate investment strategy requires careful consideration of your personal circumstances, including your risk appetite and personal financial situation. You also need to consider what your goal and timeframe is.

For long-term goals, such as retirement savings or children’s education, a conservative strategy is recommended. This means investing in low-risk financial instruments. These include government bonds, index funds or dividend stocks. Conservative investing is good because it focuses on steady capital growth, offering greater security and predictability.

If you have medium-term goals, such as financial plans for two to five years, more aggressive strategies are appropriate. These often include investing in stocks of companies with high growth potential or in investment funds. A medium-term strategy involves more risk. However, the possible returns are higher than with a conservative strategy.

When you are looking to earn income on a monthly basis, trading is suitable. That is a short-term strategy. This is active trading in stocks, currencies or other financial instruments. The goal is to make a profit quickly. However, trading requires a lot of time, constant attention to the market, quick decision-making and a deep understanding of market trends. It will be hard for a beginner to get on this path right away.

Where to start when you are going to invest?

In order to receive passive income from securities, first of all, you need to open a brokerage account or IIS. The second one is especially good for those who are employed. It offers tax benefits and strengthens your investment strategy. This means that regardless of your income, you will receive a 13% tax deduction.

An important point: you can no longer open A and B type IIS now. Since January 1, 2024, there have been changes in Russia. Now we have a new type of individual investment account – IIS-3. At the moment, you can open it for five years.

Next, start analyzing different companies and learning how to properly diversify your investments. What does “diversification” mean? This is investing money in different types of assets. For example, in stocks of different companies, bonds, and currencies. If one type of investment performs poorly, losses can be offset by gains from others. This protects your finances and reduces your overall risk of loss.

There is a lot of information being disseminated on the web and investing can seem like a complicated endeavor. For this reason, some people don’t even start anything. However, many brokers offer tutorials to help sort out the difficulties. This is a good way to get started and understand the basics for passive income. You can read years of information and not start your journey. But knowledge only comes with practice. Until you hand start investing the first small amounts, unfortunately, nothing will work.

Success in investing also largely depends on the ability to keep cool even in stressful situations. Emotions, panic, rash sales of assets temporarily reduced in price lead to losses. The psychology of investing plays a key role in our business. No one is able to protect a person from rash decisions except himself.

How much of the income to invest?

There is no strict rule as to what percentage of earnings should be set aside for passive income. Invest as much as you can afford. Everyone has different financial obligations and expenses. For example, if you have a mortgage, loans, or other fixed costs, these are all things to consider. You can start with a small amount. For example, 5% of your monthly income. This is better than putting off starting an investment, waiting for an opportunity to invest a larger percentage.

The approach to determining the amount should be individualized. In an ideal situation, you should base it on your personal financial plan. That is, make sure that after investing you have enough money left over to cover your basic needs and mandatory expenses. Lowering your standard of living for the sake of investing can create tremendous stress and demotivation. You may simply no longer have the desire to invest.

What is the right way to diversify a portfolio?

You should not invest all your money in just one type of stock. Your investments should be competently distributed. This reduces the risk of losing your invested finances. What is the right way to work with a portfolio?

There should be several stocks in it, but not too many or too few. For example, having only two is too risky. If one of them falls in price, it will affect the whole portfolio. But if you have 25 of them, it’s hard to keep track of all of them. It is better to keep the golden mean. Also, the portfolio must contain both dividend and non-dividend growth stocks.

It is important to distribute assets by currency. You should not have a ruble-only portfolio. Yuan is something that is safe to include right now. Accordingly, you can buy substitute bonds (issued by Russian companies to replace European ones) in this currency.

You still need to diversify by industries and sectors. This is also important for portfolio protection. If your investments are allocated correctly, then in case of difficulties in one of the industries, the others will remain stable or continue to grow. Precious metals, gold, silver are very important. They should be inside your portfolio, in addition to the currency basket.

Funds, stocks and bonds are also included for purchase. The percentage of the latter should be equal to your age. The older you get, the larger the percentage of bonds you should have in your portfolio. Because it is a conservative instrument. If you are 30 years old and 30% is bonds, the remaining 70% can be divided as follows: 40% is equities, while funds, pure currency and precious metals are allocated 10% each respectively.

Real estate investing

Diversifying your portfolio is not only about having a variety of investments, but also making sure each one fits your financial goals, risk level and overall strategy. You can consider including other types of investments in your portfolio as well. For example, investing in cryptocurrencies or real estate. These options increase your portfolio’s returns, broaden your portfolio and make it more resilient to market fluctuations.

Real estate investing strategies

When investing in real estate, it is important to comprehensively analyze the market and consider various factors. There are a total of three real estate investment strategies – resale, renting, and saving.

In the first case, the object is purchased for subsequent sale at a higher price. The investor does not expect to own the property for a long time, but wants to make a quick profit. In this case, he can buy, for example, an old apartment in poor condition in a historic house and a prestigious neighborhood. Then he makes repairs in it and sells it for a higher price.

It is also possible to invest in objects under construction. When the future house is still a pit, apartments in it are sold 20-30% cheaper. The investor buys an apartment, waits until the construction is finished (usually one to three years) and resells it.

Rariteco development director

“Sometimes, six months before the realization of a project, apartments in a building under construction can become significantly more expensive. After that, the investor sells them under a contract of assignment of the shareholder’s rights. This is called a short-term investment. In Russia, this is considered the most popular way to make quick investments in real estate”.

The second investment strategy is renting out real estate. This is a type of passive income. An investor buys an apartment or a house and then rents it out. Usually in 8-10 years, the rental income covers the initial purchase costs. After the payback period, the property can be sold and receive a net profit. It will be equal to its market value at that time.

Another option is to use a mortgage to minimize the initial investment. The investor takes the property on credit and rents it out. Here, the rent should cover the monthly mortgage payments. This allows the investor to start with a smaller investment while earning rental income.

The third strategy focuses on saving capital. Over the long term (usually 10 years), real estate often appreciates in value. Or it retains its real value, meaning its price rises at the rate of inflation in the country. This makes real estate a reliable means of preserving and increasing capital in the long run.

Mutual funds are also worth mentioning. They are an alternative way to invest and receive passive income. In this case, an investor acquires a unit or share in a fund that deals with real estate investments. In this way, the person shares the risks and returns with other participants in the fund. This is considered indirect investing because the investment is managed by professionals.

How to choose an investment strategy?

When choosing a real estate investing strategy, it is important to consider your goal and budget. If you are looking to make a relatively quick buck, buying an apartment in a new building may be a good option. Investing in the initial, middle or even final stages of construction is particularly promising. Usually, apartments in such buildings become more expensive by 5-10% at the late stage, just before the building is commissioned.

Long-term renting is the best way to get passive income and save capital. In this case, it is recommended to choose small apartments. They are usually in demand among singles and young couples. It is desirable that such an apartment is located near key transportation hubs, not far from the city center and near major business centers.

If your goal is to save, you should consider buying more expensive apartments in the high price segment. Usually these are large premises with several bedrooms, a separate living room, two bathrooms, dressing rooms and other amenities. This option is suitable for those who consider real estate as a long-term investment to preserve and multiply capital.

Where to start when investing in real estate?

First of all, it is necessary to understand what amount of money is at the disposal of the investor. Sometimes a simple investment in a bank deposit can be more profitable than buying and renting an apartment.

The next step is to calculate what kind of return investing in real estate will bring. To do this, you can look at rental rates for similar apartments on a classifieds website. Then the potential amount of rental income for 12 months should be divided by the cost of the apartment. This will be the potential yield. But it is important to take into account that the figure will turn out without taking into account property tax and other payments.

If this amount exceeds the deposit rates, the investment makes sense. During the period of relatively low mortgage rates, you can buy an apartment on credit. Thus, the investor’s profitability increases dramatically, because he will spend only 20-30% of his money. But in this case, the monthly mortgage payment should be noticeably lower than the monthly rental income. All income should not go to servicing the loan.

The difficulties of investing in real estate

commercial director of Optima Development

“The main disadvantage of investing in apartments is the high entry threshold. However, those wishing to invest in residential real estate have good, relatively inexpensive alternatives – parking spaces and storage space (keller). They can also be profitably resold or rented out.

In the pursuit of passive income from real estate investors face difficulties in management. This is the search for tenants, the need to take care of paying taxes, utilities, routine maintenance. And to maintain the object in an attractive condition, you need to replace furniture and appliances in time.

More profitable, but also more “demanding” type of real estate is a short-term rental. It needs even more attention. If the owner has a lot of rental properties, all this will have to be delegated to a management company. This leads to additional costs. It is also important to realize that from time to time the apartment will be idle, not generating income.

The rental market is quite competitive and unstable. Prices for objects can fluctuate. Accordingly, there is always a risk that there will be more attractive or affordable offers for tenants.

Copyrights and license agreements

Of course, investments in real estate, stocks and deposits are the most popular and widespread ways to generate passive income. However, there are other methods as well. One of them is copyrights and license agreements. What are these?

Copyrights arise when a person has created their original work. This can be a book, music, movie, photograph. The author can then grant others the right to use his work under certain conditions. For example, licensing. This is where the author is remunerated each time his or her work is used.

A musician gets money when his songs are played on the radio or in stores. A writer earns money from the sales of his books, including electronic and audio sales, and when his work is adapted.

An artist can sell the rights to use his work. For example, in advertisements or on book covers. A photographer has the option of uploading his pictures to stockists. This way he can get money for each download.

This type of passive income income can grow over the years, if the work will gain popularity. But an understanding of the legal aspects is required here. In some cases, it is recommended to register a copyright for additional protection. This helps in resolving legal disputes about the ownership and use of the work.

Remember, choosing the right way to generate passive income depends on personal case, skills, resources and goals. The right approach is an important step towards financial well-being and achieving your long-term plans. It is important to explore different options and choose the one that best fits your circumstances.

Passive income is not just an additional source of finances, but a strategy for financial success that allows everyone to achieve greater independence and stability. In this case, the key to success is patience, planning and a willingness to adapt to changing circumstances.