How to Build Passive Income with 5 Practical Strategies
Have you ever imagined waking up every day knowing that money is flowing into your account without relying on long working hours? This is the essence of passive income, a strategy that can transform your financial life and free you from the limitations of a fixed salary.
The importance of passive income goes far beyond money. It is about building stability, security, and, above all, freedom: of time, choices, and possibilities. Whether it is to ensure a comfortable retirement, explore new projects, or simply live with more peace of mind, passive income is one of the pillars for achieving the long-dreamed financial independence.
In this article, we will delve into the relevance of passive income and present five practical examples to help you start building it. Get ready to take the first step towards a more secure, flexible financial life with much less stress.
What is passive income, and why is it important?
Passive income is the money you earn with little or no active involvement. Unlike active income (such as a conventional job), passive income does not require continuous effort. Instead, it is the result of initial investments of time, money, or both, which generate continuous returns.
For instance, if you own a rental property, the rent you receive monthly is a form of passive income. Similarly, dividends from shares, royalties from digital products, or staking rewards from cryptocurrencies are other forms of passive income.
Five practical ideas for passive income
Building passive income may seem like a challenge, but with the right approach and dedication, it is entirely possible to implement strategies that yield consistent results. Below, we explore five practical ideas for creating sources of passive income, with real-world examples for each.
1. Invest in Dividend-Paying Stocks or ETFs
Investing in dividend-paying stocks or ETFs is a classic way to build passive income. Some well-established companies distribute a portion of their profits to shareholders as dividends, providing regular income. Investors can also opt for ETFs, which offer a way to gain exposure to multiple dividend-paying stocks through a single investment and are created and managed by major financial institutions.
An interesting example to illustrate the impact of dividends is Stellantis NV, a giant in the automotive sector, which currently offers a yield of 12,62% per year. Let’s imagine you invest €10,000 in Stellantis shares, with each share priced at €50. This allows you to buy 200 shares initially. With this dividend yield, you would receive €1,262 annually in dividends.
Now, let us analyse two scenarios:
- Simply receiving dividends:
In this case, you withdraw the dividends received every year and do not reinvest them. After 20 years, you would have accumulated €25,240 just from dividends, without any growth in the number of shares. - Reinvesting the dividends:
Here, each dividend received is used to purchase more Stellantis shares. For example, with €1,262 from the first year, you would buy approximately 25 more shares, increasing your total shares to 225. The following year, your dividends would grow as they are based on the total accumulated shares.
After 20 years, your portfolio and total dividend would have grown significantly.
To get started, open an account with a brokerage that allows you to invest in shares and research companies with attractive yields and consistent payment histories. Even small investments can grow significantly over time, especially when combined with the power of reinvestment, making it one of the most effective strategies for building a robust passive income and steadily progressing toward financial freedom.
2. Invest in Real Estate or Real Estate Investment Trusts (REITs)
Real estate investments are another traditional way of generating passive income. Purchasing a property to rent out can provide a steady revenue stream through monthly rental payments. However, managing physical properties requires more effort and significant upfront capital.
For instance, in October 2024, the average price per square metre for an apartment in Paris was €11,033 and the rental value per square metre was €55, meaning the payback period would be approximately 200 months, assuming a tenant from the first month and excluding additional costs such as maintenance.
A practical alternative to these challenges is Real Estate Investment Trusts (REITs), which allow you to invest in the real estate market with accessible amounts. By acquiring shares in a REIT, you receive periodic income proportional to the trust’s profits. For example, Kimco Realty Corporation, a shopping centre REIT listed on NASDAQ, offers a dividend yield of 4.06% .
Start by researching REITs in sectors such as shopping centres, logistics warehouses, or office buildings, and focus on those with strong management and a good history of distributing income.
3. Government Bonds
You can also create your passive income by investing in government bonds, which are debt securities issued by governments to fund public spending. Backed by the government, they are considered low-risk investments.
In many countries, the current yield on these bonds ranges between 3% and 4% . However, in markets like Brazil and Russia, yields can be significantly higher, reaching 13.9% and 16.41%, respectively. These returns are influenced by factors such as inflation, economic stability, and the perceived risk of the issuing government.
Source: Trading Economics
You can start by purchasing government bonds through the Treasury website, brokerage firms, or investment platforms. This is a simple and secure option for those seeking financial stability and predictable income.
4. Create an online business
The digital world has opened doors to business models requiring minimal initial time and money investment, offering excellent opportunities to generate passive income.
Models such as affiliate marketing or dropshipping can be highly profitable. In affiliate marketing, you promote third-party products or services and earn a commission for every sale made through your link. On the other side, dropshipping allows you to sell products without managing inventory or logistics.
For instance, imagine you are passionate about cooking. You could create a blog or YouTube channel with recipes and tips, monetising the content through affiliate links to kitchen utensils. This approach could also serve as a marketing strategy for your dropshipping store, allowing you to promote related products directly to your audience. Once created, the content continues to generate income as it attracts new visitors and drives traffic to your store.
Tools like WordPress, Shopify, and email automation platforms can help you set up your online business and keep it running with minimal daily intervention.
5. Decentralised Finance (DeFi)
In today’s digital age, generating passive income is no longer limited to traditional investments like the stocks mentioned earlier. Cryptocurrencies offer ways to earn income through various strategies, such as staking (read about 10 staking strategies in our previous article ), yield farming, or earning rewards from DeFi platforms.
For this reason, SwissBorg Earn stands out enabling users to create earning strategies aligned with their risk profile and financial goals. The returns, however, can vary based on factors such as the type of application, the chosen currency, and prevailing market conditions.. For example, Polkadot (DOT) staking has previously offered annual yields of up to 13%, while the latest staking strategy for SOL reached up to 8%.
SwissBorg also goes a step further by passing on additional rewards provided by protocols directly to users, something many centralised exchanges do not do, which increases earning potential, offering a clear advantage to investors. The platform also prioritises transparency, providing detailed risk reports directly in the app to ensure users understand the risks associated with each investment option.
Discover SwissBorg Earn today .
Conclusion
Building passive income is like planting a tree: it requires patience at first, but the fruits harvested over time make it worthwhile.
Whether through cryptocurrency staking, share dividends, or other strategies like real estate investments and digital businesses, the key is to start. Choose the approaches that align with your profile and goals, invest consistently, and monitor your results using spreadsheets or apps.
It is not necessary to start with large amounts. The secret lies in taking the first step, learning from the process, and adjusting your strategy as you progress.
Now, the decision is yours: continue relying on a single source of income or diversify and take control of your financial future. The opportunity is within your reach, so take the first step and start today.
