wealth management

1 August 2021

Accumulating Wealth: Building Passive Income

In order to accumulate wealth, one has to not only work for an income but to also reach a stage where one earns income without working. This kind of income is what is known as passive income. In this post we will give some examples of passive income investments and how you can get started making money with them.

Passive income can be classified into two general categories – income generated from a business which needs a relatively small amount of attention and income generated from investing in financial instruments. We will start with some examples of passive income from business before we discuss the financial instruments.

1. Real Estate

Although this may seem out of reach for most people, there are creative ways to generate passive income from real estate without requiring a huge amount of capital. For example, you can rent out one room of your apartment on a regular basis using an app like Airbnb. There are also tourists who would pay for an apartment over holiday periods. This could be a great idea to try if you are going to be away from your apartment for holidays. Instead of leaving your place abandoned, you can rent it out for some extra income.

2. Transport Services

Do you come to work, leave your car at the parking lot and only pick it up again when you’re going home? If you do that then you should consider giving your car out to a driver to use for ride-hailing services such as Uber, Bolt or Yango. This way your car can generate passive income for you while you focus on your main job.

3. Content Creation

Is there a particular subject matter that you are good at? If so you can start a blog, podcast or YouTube channel and start building an audience. With enough time and dedication, you can develop a big enough following to monetise your content using Google Adsense, Amazon Affiliates, or ad placements from sponsors.

Now let’s take a look at some of the financial instruments that offer a decent return without a significant level of risk.

4. Treasury Bills

These are government securities which can be purchased from financial institutions. You can purchase a 91-day, 182-day or 364-day treasury bill with interest currently ranging from 14%-17% per year. They have the benefit of being low risk and highly liquid, meaning it is easy to get your money back when you want to disinvest. Treasury bills are popular investments because of the low barrier to entry. It is possible to invest with as low as GH¢100.00.

5. Government Bonds

Government bonds are securities which pay interest semi-annually until the bond matures at which time the face value of the bond is paid to the investor. Bonds usually require a higher minimum capital to invest than treasury bills.

6. Fixed Deposits

Fixed deposits are similar to treasury bills except that the investment involves lending to financial institutions instead of the government. A fixed rate of interest is paid for the term of the investment and the interest rate and minimum amount required to invest differ by institution.

7. Mutual Funds

These are investments that allow you to indirectly own a diversified range of securities by purchasing shares in the mutual fund. Mutual funds hold assets including bonds, stocks and notes financed by the payments made by the fund’s shareholders. The returns a mutual fund shareholder will make therefore depend on the performance of the assets the fund holds.

8. Pension Funds

Voluntary contributions to retail products from pension funds is another investment option to generate passive income. Many pension funds offer products that allow individuals to save with minimal capital requirements. The return on investment varies from fund to fund.

9. Stocks

When you purchase stocks (also known as shares or equities) you are purchasing a part ownership of a company. The returns one generates from shares come in the form of dividends (a portion of the company’s profit that may be distributed to shareholders) and the rise in the share price that allows one to sell the shares for a higher price than they were purchased for. Shares have a relatively higher risk and lower liquidity than the other passive financial investments mentioned but the potential returns are unlimited.

If you are interested in starting to build passive income via the financial instrument route, why don’t you start by talking to IC? With just a call to +233 (0) 308250051, you will be guided by a professional on the best way you can start building passive income to accumulate wealth.

Thank you for reading.