Looking for ways to generate passive income while maintaining your regular job? Here’s five options to consider.
In a time of rising living costs, creating a sustainable passive income stream could improve your financial wellbeing and alleviate financial stress.
Better still, passive income strategies cannot only help to add to your regular income, they could also provide a first step towards replacing the income from a job altogether.
Aside from growing money in super, we discuss five ideas that could generate passive income.
Buying an investment property probably means borrowing money. But depending on your type of loan, over time the debt is likely to be paid down. The rental income may also go up so you will eventually have a property that generates surplus cash.
If you hold the property long enough, the debt is likely to be repaid. You can then enjoy the full benefits of a passive income source.
Of course, there are downsides to owning property like council rates, insurance, repairs, and upkeep. There can also be issues with tenants, some of whom may not treat the property well. And you can’t sell a bathroom if you need to access part of your investment.
For those who don’t want the hassles associated with direct property ownership, there’s the option of investing in listed property funds — also known as A-REITs — which provide exposure to commercial property. This may provide another source of passive income.
In the case of A-REITs, property management, tenancies, and sourcing of new properties are the responsibility of the manager of the A-REIT. It’s also diversified across lots of different property sectors, and regions.
But values of A-REITs do fluctuate more because they’re listed on the share market. Investors are constantly buying and selling A-REITs every day and in doing so they’re revaluing them constantly. Unlike investment properties, which are not bought and sold so frequently.
Shares can provide another good passive income source as companies generally pay income in the form of dividends.
You can also diversify your share investments, especially if you own managed funds, giving you exposure to Australian as well as global companies.
Another way to invest in shares is through Exchange Traded Funds (ETFs). These are listed on the stock exchange and offer exposure to many industries, companies, and countries.
Shares, whether directly owned, or indirectly owned through managed funds and ETFs, are generally liquid. This means you can usually buy and sell them quickly, and generally it doesn’t require a lot of money to start investing in them.
Governments, as well as companies, borrow money from investors. Those borrowings are known as ‘bonds.’ In exchange for those borrowings, governments and companies make interest payments.
It’s because of the interest payments made by bonds that they are also referred to as ‘fixed income’ investments.
Government bonds, especially those associated with the governments of advanced economies like Australia and the UK, are generally considered to be less risky than bonds issued by companies.
Bonds are typically regarded as being less risky than shares. That said, bond values can go up as well as down, so they’re not risk-free.
There are many types of bonds with different structures and time horizons. Bonds are issued to institutional investors, like super funds, and minimum investments are generally measured in millions of dollars.
However, bonds are made accessible to everyday investors through managed funds as well as bond ETFs. They may therefore provide a good source of passive income.
Starting a business on the side, especially one that doesn’t require a huge amount of your time, could potentially be a way of generating passive income.
The possibilities for side hustles are endless. There are people doing everything from creating their own TikTok1 and YouTube2 content, to blogging, building and selling websites, and being online reviewers for products ranging from food to cars, and much more.
To set yourself up for success, you’ll need to conduct thorough market research to identify side hustle ideas that have the potential to generate passive income.
Consider factors such as market demand to ensure there is a large audience for your chosen niche. Evaluate the level of competition and assess the income long-term potential too.
You’ll also need to be prepared to invest time and effort upfront to set up systems and establish a strong foundation.
If you have an investment property, rather than renting it out for long-term tenancy, you could make it available for shorter stays through Airbnb as a passive income source.
Of course, you don’t even need an investment property to be an Airbnb host. Some people rent out a spare room in their house or apartment.
Generating passive income requires dedication, patience, and ongoing monitoring. But the rewards could be substantial. Consider obtaining tax advice to ensure these strategies pay off.
* Based on KPMG Super Insights 2023 Report as at May 2023 KPMG Super Insights 2023 Report
1 Tik Tok is a registered trademark of TikTok Ltd
2 YouTube is a registered trademark of Google LLC
3 Airbnb is a registered trademark of Airbnb Inc
The information in this article is current as at October 2024 and may be subject to change.
As one of the largest super providers in Australia,* we’re focused on delivering competitive returns, so your money continues to grow. When it comes to support, we go the extra mile— providing general super advice at no additional cost.
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This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the Insignia Financial group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. It is recommended that you consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) before you make any decisions about your superannuation. You can obtain the latest copy of the PDS (or other disclosure documents) and TMD by calling us on 132 652 or by searching for the applicable product at mlc.com.au. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.
