What is passive income?

What is Passive Income?

Imagine waking up to find extra cash in your bank account that you didn't have to "work" for. That is the power of passive income. It is a regular flow of money that requires little ongoing time and effort, giving you the financial freedom to pursue your passions or even retire early.

1. Passive Income from Dividend Shares

This is the most common method in Australia. High-quality companies pay out a portion of their profits to shareholders, usually twice a year. By reinvesting these dividends, you can compound your wealth until the income stream is large enough to live on. Plus, you get those "franking credits" which can significantly reduce your tax bill at the end of the year.

2. Passive Income from Bonds

When you buy a bond, you are essentially lending money to a government or a company. In return, they pay you regular interest (coupons). It’s more predictable than shares and offers a steady defensive income stream for your portfolio.

3. Real Estate and REITs

Direct investment property provides rental income, but it isn't truly "passive" (think of the repairs and the tenant management). A Real Estate Investment Trust (REIT) allows you to earn a share of the rent from major commercial or industrial properties on the ASX, without ever having to fix a leaky tap.

4. Outside the Box: Licensing and Content

If you are creative, you can generate passive income by writing a book, licensing photography, or building an online presence that earns through affiliate programs. These require a lot of "front-end" work, but once established, they can pay off for years.

The Key is Starting Early

Passive income isn't a "get rich quick" scheme; it’s a "build wealth slowly" strategy. The goal is to grow your passive income from a trickle into a raging river that eventually replaces your salary.

As your Adelaide financial planners, we help you build the "engine" that produces this income, ensuring your future is secure regardless of your day-to-day work.

Source: https://www.fool.com.au/definitions/passive-income/

Start building a reliable stream of passive income and secure your financial future by speaking with your Adelaide financial planners today. We invite you to give us a call on 08 7477 8252 or email planning@hgfp.com.au to book an appointment.

General Advice Warning:

The information on this website is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making an investment decision in relation to a financial product.