Part 1 explored passive income streams that require little or no start up capital. Part 2 explores passive income streams that can be obtained once savings have built up. The problem in today’s economy is low interest rates, average savings rates are lower than inflation which means the real value of your savings reduces year on year. I don’t know about you but I want to make the most of my savings, and have my savings increase year on year. So I have compiled a list of alternative uses of savings:
- Peer-to-Peer Lending
Peer-to-peer (P2P) lending is where individuals can borrow and lend money without the use of a financial institution. Historically you would save money with your bank and you bank would lend that money out, paying you an interest on your savings whilst charging a larger interest payment from individuals that have borrowed money. P2P lending is the same process however there is no bank involved, and therefore you are able to charge a higher rate of interest on your money. Check out RateSetter and Zopa, as well as Crowd2Fund for lending to businesses. Some of these websites have ISA accounts (known as IFISA) so that your earnings are tax free.
- Invest with a Robo-advisor
A Robo-advisor replaces a financial advisor. It uses algorithms to offer advice or automatically invest client assets. More and more people are opting for passive investment rather than actively managed investment, this is because research shows following the stock market with ETFs actually provides you with better returns on average compared to having your investments actively managed by a financial advisor. The benefits of these are low fees, easy to use, your investments are automatically re-balanced. A great option for this is Nutmeg.
- Be a Rate Tart
I know savings rates are appalling right now but some banks offer current accounts with better rates, and there is no limit on the amount of current accounts you can have. Some even have switching offers, for example I have just switched to HSBC to receive a bonus of £200, literally all I did was switch my current account. Check out www.bankaccountsavings.co.uk, just input your savings into the calculator and it tells you which accounts to open to make the most of your savings. There are some hurdles such as setting up a certain amount of direct debits or standing orders, if you don’t have enough you can set some up for giving to charity. Some also have a minimum amount you need to receive into the account each month, but you can just circulate money via standing orders through the account.
- Stock market
Now I’m not referring to day trading. Over the long term the stock market has on average returned 7% each year, this easily trumps savings accounts rates. Beware that your investments can go up as well as down, so ensure you are investing over the long term to ride out dips in the market. I am a strong advocate in having a long term investing strategy, I would recommend books such as Rich Dad, Poor Dad and Smarter Investing. You can invest in the stock market with a stocks and shares ISA, different platforms offer different services and fees can vary depending on your total investment, compare funds platforms here.
- Cashback rewards on credit cards
You don’t need any start up capital to earn cashback rewards on credit cards, however to make the most of it you do need to spend regularly. Every time you shop, whether it is the supermarket, high street, online shopping, use your credit card and you will receive cashback with certain credit cards. Moneysupermarket is a great website for comparing different credit cards so you can choose one to benefit you the most, it also tells you how likely you are to be accepted for each credit card. Just remember to pay your credit card in full each month so you do not pay interest.
- Invest in a Buy to Let Property
I wouldn’t say this is an entirely passive income. It requires a lot of leg work upfront viewing properties, obtaining a mortgage, and getting the property to a lettable condition. However once purchased and in a reasonable condition you can leave it in the hands of a letting agents for a fee of 8-15% of the rental income, the fee depends on which services the letting agents provide. This can be basic such as sourcing tenants, or comprehensive which includes general maintenance of the property. Overtime when the mortgage is paid off you will receive the full amount of rent into your bank account, this is definitely a lucrative opportunity for retirement income. Bear in the mind the many tax changes such as an increase in stamp duty, the amount you can claim as expenses. However this can still be worth your while, ensure you do your research on the area first, and take into account all ongoing expenses are well as start up expenses.
- Buy a Blog
Did you know blogs can be bought and sold? I certainly had not considered this before. They are normally valued at two years income, once bought you don’t even need to touch them since they are already bringing in a passive income. Or you could update them with fresh content, invest in more advertising, in order to increase the monthly income. Check out Flippa, a market place for blogs.