The Hindu Business Line : Generating passive income

Economics is about how you realise your dreams and achieve financial freedom. Can you get up in the morning, decide not to go for work and yet generate income? One of my friends in his thirties has already retired from active employment. He travels around Canada, educates teenagers on how to live life, enjoys his time on the beaches and leads a rich life-style. You can do so too, if you can generate what economists call "passive income". What is it?

Passive income is income generated without you sweating for it! If you invest wisely in stocks or mutual funds, you can expect to generate income periodically. Income from Internet-related businesses is passive. Writing books and receiving royalty is another example of such income.

Why should you generate passive income? If you want to improve your life-style, you need to generate more income. This would mean asking your boss for a raise, which you are unlikely to get.

The alternative is to look for other ways of generating income. With a full-time job, you will have to generate such income without spending much time on it. Setting up streams of passive income is the most effective way to improve life-style.

Robert Kiyosaki, author of the best-selling book Rich Dad Poor Dad advocates buying house properties and generating positive cash flows. That is, the rent that you earn from the property should be more than the mortgage and other expenses that incur on the property every year.

You should have three-four different streams of income other than your salary. That way, you can achieve your financial freedom faster — just as my friend did at a young age of 35.

(The author is a Chennai-based financial analyst.)

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