Showing posts with label Passive Income. Show all posts
Showing posts with label Passive Income. Show all posts

Sunday, April 8, 2018

My Passive Income Report for the Year Ended 31st March 2018

I publish my passive income report every year. Passive income is the key to financial freedom and getting rich. Investing is the only way to create passive income for a majority of us who are not gifted with special talents. I write this post to show you how small but regular monthly investments can build streams of passive income
Let me present here my passive income report for the just-ended financial year 31st March 2018.


Let's study the following bar chart. This graphic shows the growth in the passive income.

I also add the following supporting information that makes the chart more readable.



Passive Income Report: 3 Streams of Passive

We can see that there are three categories of passive income here. These three forms are as follows:
  • dividend,
  • interest and
  • profit from the sale of investments.

You can also observe from the chart and the table that the dividend income is steadily growing. This is on the back of increased investments in stocks. It is equally important to note that interest income has fallen drastically from Rs.70,512 in the year 2016 to Rs.38,846 in the year 2017. This is not because of any reduction in the investments of interest-bearing assets but owing to the steep cut in the interest rates on bank deposits. You will appreciate this from the graph showing various forms of investments.

Passive Income Report: Total Investments


We have maintained the bank fixed deposits (FDs) more or less at the level. You can see that direct investments in stocks are steadily climbing. In the financial year ending 31st March 2018, the life insurance company had pre-closed a mutual fund linked life insurance policy for an inadvertent delay in paying the premium. I do not intend to invest in life insurance policies anymore as they are beneficial for those who begin when they are young.

In the year 2018, I have added two new investment products namely public provident fund (PPF), equity-linked savings scheme (ELSS)and special, tax saver bank fixed deposits. I was primarily trying to take the tax deduction under section 80C of the 'Indian Income Tax Act'. This act allows a deduction while computing taxable income to the extent of Rs.1,50,000 a year on certain investments.

ELSS is the only equity-linked mutual fund instrument that qualifies under the section 80C. Though I made a beginning with ELSS I restricted the amount to just Rs.20,000 as the fund managers were investing only in the blue-chip companies which were very expensive. I will increase the allocation when the markets become more reasonable or depressed.

I invested Rs.10000 in PPF this year. PPF offers a higher interest compared with bank deposits and also brings certain legal protections. One limitation is a very long investment lock-in period of 15 years. This is actually not a concern for a value investor, who anyway is a long-term investor. But the real concern is that PPF does not give the kind returns that stocks can. However direct investment in stocks does not enjoy deduction under 80C. Therefore, I will slightly increase the allocation for PPF within the overall eligible investment limit of Rs.1,50,000 in the coming years.

I invested a total sum of Rs.1,05,000 in the tax saver bank fixed deposits. I also had to break and use a sum of Rs.1,00,000 from the existing, conventional fixed deposits, for replacing my old car. So the net increase in bank fixed deposits is a mere Rs.5000.

My Passive Income Report: Small but Uninterrupted Investments

My monthly investments are small but uninterrupted. Please see my investment habit monitoring table below.


The Conclusion of my Passive Income Report


I am glad to see and share with you the steady growth in the passive income in just three years (I created Portfolio 2K15 only in February 2015, virtually the very end of the financial year ending 31st March 2015). My small but regular investments could contribute such good results. You too can surely benefit the same way.

Saturday, August 12, 2017

Second Income

Investor Riding a Currency Note, happy with second income or extra income

Meaning of Second Income


Second income means the extra income or additional income that complements one's primary source of income. It could be an active income or a passive income

It is quite possible that a man who has a 9 am to 5 pm job may take up a second or part-time job as a shop assistant from 7 to 10 pm to augment his main and regular pay.

However in the context of attaining financial freedom - the situation which all of us invariably crave, whereby we do not have to work for a living - the meaning of second income always denotes passive income or residual income.

In this article henceforth I use the expression second income only to mean the passive income.

Examples of Second Income

Examples os Second Income: Share with Dividend; House with Rental Income; Bond and Interest Income
  • Interest - from savings and fixed deposits and bonds
  • Dividend from stocks, shares and mutual funds
  • Royalty on sale of a book or a music album
  • Rent from immovable properties

Importance of Second Income


A second income is beneficial in innumerable ways, including:
  • It supplements the primary/ regular/ main source of income
  • It helps to take an extra vacation without a feeling guilt
  • It boosts the capacity for savings and investment
  • If reinvested, the second income helps generate further second income, setting in motion a perpetual cycle of income, investment and more income, accelerating the path to financial freedom and getting rich and wealthy


flowchart of perpetual second income cycle

  • Usually passive second incomes accrue while you are sleeping/ resting
  • In case a person becomes incapacitated to keep-up the main job passive second income springs to the rescue
  • Only second incomes lead to financial freedom and eventually wealth and riches

Second Income Accrues When you are Asleep


Invariably passive second incomes accrue even while the individual is resting or sleeping. Interest accrues 24 hours of the day, irrespective of whether you are working, holidaying, sleeping or resting. 

Similarly if you have written a book or cut a music album a copy could be sold in any part of the world even while you are sleeping.

Rent too accrues based on time and not based on use.


investor's exuberance at 24x7 rain of second income


But the income from your regular day job will accrue only when you are able to work/ exert. If you become incapacitated to work, you will loose the job and your regular/ main stream of income. Thats why people should invest money in stocks and bonds which work for you 24 hours of the day.

Therefore it is smart to explore second income opportunities. Those who are talented - authors, musicians, actors, etc., should target royalty income. Others should maintain a simple lifestyle, save, invest and generate second incomes in the form of interest and dividends.


Related Articles:





Conclusion


Second Income/ Extra Income/ Passive Income/ Residual Income is vitally important for every person who is aspiring for a life where he or she is not bound to work for a living. Talented individuals should explore generating royalty kind of second income while for the others prudent and well considered investments is the only option. Rich and wealth have perfected the art of reinvesting second incomes for further generation of more passive incomes.


Thursday, September 15, 2016

Passive Income Definition

Meaning and Definition

Passive Income is income that accrues to a person without carrying on of active vocation or profession or the expenditure of any physical or mental labor or time. Passive income is the antonym to ‘active income’, which requires carrying the person’s active engagement and exertion.

Passive income can accrue to a person from two sources:
  1. Inheritance
  2. Investments

For a majority of us, only sustained, prudent and significant investments can result in the creation of adequate passive income to liberate us from the drudgery of the necessity to work for a living, which is called ‘financial freedom’.

Examples:

Examples of passive incomes are:
  • Rent
  • Dividend
  • Interest
  • Royalty

Related Links:


Passive Incomes Empowers Pursuit of One's Dreams and Passions

How To Generate Passive Income?

Passive Incomes of Financially Free and Not Free Compare?

Low Lifestyle Costs and High Passive Income Lead to Financial Freedom

How to Attain Financial Freedom?

How The Passive Incomes of The Financially Free and The Rich Compare?

How Will My Lifestyle Affect My Children?





Saturday, September 10, 2016

Passive Income Examples Slide


Sunday, August 21, 2016

How The Passive Incomes of The Financially Free and The Rich Compare?

How The Passive Incomes of The Financially Free and The Richest Compare? Rich and financially free enjoy high passive income streams.
The Passive Incomes of The Rich Are Many Times Their Lifestyle Costs


Based on financial means and status, people can be classified into active income dependent, those who have earned financial freedom and the rich. If we observe carefully we can discern that the passive income streams of these three categories vastly differ. This short post, a slide literally, examines how the residual incomes of the three compare and provides insights and links to profound concepts like what is passive income, what is financial freedom and how to become rich. You will find tight correlation between ideas discussed here and those found in Robert Kiyosaki’s most popular and classic work, “Rich Dad Poor Dad”.

How the Incomes Compare



How the Annual Incomes of the Three Categories of Citizens Compare
Passive Incomes
 Active Income Dependent ($)
Financially Free          ($)
 The Rich          ($)
Interest
 100
 24,000
 4,000
Dividends
 -  
 58,000
 10,00,000
Royalty
 -  
 3,500
 -  
Rent
 6,600
 -  
 2,00,000
Sum of streams of passive income
 6,700
 85,500
 12,04,000




Active, Occupational Income
 48,000
 18,000
 6,00,000




Total Income
 54,700
 1,03,500
 18,04,000




Present Lifestyle Expenses
 54,000
 78,000
 3,00,000




Surplus
 700
 25,500
 15,04,000




Investment for generation of passive incomes in future
 -  
 23,000
 14,00,000




Surplus Income lying in savings account in bank yielding low interest
 700
 2,500
 1,04,000



Following conclusions can be drawn from a study of the above table:

  1. Active, Occupational Income: The active income of the  wage earners (not financially free yet) is almost the main and only source of income. For the financially free individuals the active income constitutes a small portion of the total income. The richest individuals inspite of their riches often have large active incomes; they are not lazy.
  2. Passive Income: Passive Income of the regular wage earner is miniscule. The financially free enjoy significant passive income, that slightly exceeds their present lifestyle expenses. The rich have huge passive income streams that far exceed their lifestyle expenses.
  3. Surplus and Investment of Surplus: Common folks have small and insignificant surpluses that can be invested. The financially free fave modest investible surplus for generation of future passive incomes. The rich have and invest significant sums every year to further augment already existing high levels of residual incomes.

How to Become Rich


Becoming rich is a process involving various steps.


It is advantageous to start early. When young and strong it is better to work hard as well as smart and earn copious sums of active income, keep lifestyle costs low, avoid splurging, save and make prudent investments. These investments generate passive incomes. Once the passive incomes exceed lifestyle costs, it means one has attained financial freedom. Financial freedom is the first and major steppingstone on the path to real wealth and riches.

Suggested Further Reading:






Conclusion



There are three classes of public, namely the wage earner, the ones who have attained financial freedom and the rich showing vast differences in their passive income streams and investible surpluses. Keeping lifestyle costs low, investing to generate residual incomes leads to financial freedom and eventually to significant riches.