How to generate Passive Income for Young Adults?

How to generate Passive Income for Young Adults ?
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After completing their education, young adults start working, parallelly they’re also concerned about how to generate Passive Income along with their work. Technically and legally, one becomes an adult when he/she turns 18 but the feeling of adulthood really hits when one starts managing his/her own finances and also starts financial planning for each stage of their life, even having your own place (or share one with roommates who aren’t your parents). Investing money plays a vital role in this process. 

If we ask any financially aware young adult about their financial planning, they have a willingness to do it but not the exact idea of how to do it. They want to invest but they do not exactly know where to invest and they mostly park their money in FDs, a poor investing habit which they take into decades. Investing from a young age can really reduce your money worries in the future when you will have less or no income (referring to the retirement period). It is a smart way to create a decent corpus for that period right from the start. 

The Young population should also consider one fact that there is no way they are gonna beat the inflation if they keep their savings idle. So, not investing is not an option at all, investment is a must. Thus, here are few assets (ways to create passive income) suitable for young adults :

Nearly every financial expert will tell you that one of the most important steps that we can make is to begin investing and saving money early. The benefits of getting started early include:

1. Equity/stocks 

Even though the majority of the Indian Population is scared of putting money in stocks or equity, they should know that it is not that bad of an asset. Young adults should mostly focus on this asset after having a small portion kept as a fixed deposit. Now, the best way to invest in Equity of stocks is to directly invest in Index funds rather than studying a lot about companies and then choosing your stock portfolio. Who has the time, knowledge, and effort to do that as it’s a full-time job.

Index funds are pre-packaged bundles of stocks that track a particular segment of the market, we have Sensex and Nifty in our country. It gives novice investors the courage and confidence to invest in Equity. The dividend received from the companies you own can be treated as Passive Income.

2. Property

Those youngsters who are exploring various ways to earn passive income should know that the most common passive income is the rental income and thus acquiring property and then renting or renting your already-owned property is one of the easiest ways to earn passive income. It gives a positive cash flow each month. The choice of property could be according to your needs and preferences however commercial, warehousing and industrial score over residential in current economic times. 

3. Bonds 

Many people, mostly young adults are unable to understand how to generate Passive income from bonds and mostly discard them, however It is also one of the assets that young adults can own for tremendous passive income benefits. This type of asset possesses less risk and thus this helps to make the portfolio look more balanced. This asset usually gives a fixed interest rate and can be backed by the government (depending on which bond you choose), so is a smart choice for a low risk investment.

4. Fixed Deposits

In the name of liquidity, a certain sum of money should also be kept in fixed Deposits which can be used in cases of any emergency. Fixed Deposits as the name suggests is a deposit made for a fixed interval of time giving a fixed rate of interest on the sum. Even though it is fixed for a particular time period, an FD can be broken immediately and thus considered as a liquid.  Alternatively investing in liquid funds can also offer the same luxury at slightly higher interest rates and better taxation if held over 3 years. It is important to note that breaking an FD before maturity leads us to a loss upto the amount of penalty charged by the bank but its availability at any point of time (when needed) makes it a liquid asset. 

Final Thoughts

How to generate Passive Income especially for young adults is no more a mystery. By wisely managing your saving and investing now, passive income is the best gift that you can give to an older you. Now, this definitely does not mean that you have to cut on all your expenses and only save but you should have a decent chunk of your income to be put aside and invested in the right assets so that you do not have to worry about finances much. The mantra for youth in the current should be “Think far, invest smart”. 

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