At the start of 2023, with price increases on the horizon and interest rates on the rise, many South Africans are looking for ways to increase their income. Given that most people already juggle stressful jobs with household chores and childcare responsibilities, the notion of “passive income” has strong appeal. Passive income is generally earned with minimal labour and involvement on your part. It is not a second job or side hustle, for which you need to do ongoing work in order to receive payment.
Shafeeka Anthony, Marketing Manager of JustMoney.co.za, a site that helps educate South Africans to better manage their money, says examples of passive income include renting out a property, earning dividends from shares, writing a book that you can self-publish free on Amazon, or reselling photographs through an agency such as Shutterstock or Getty Images.
“If you have expertise in a particular sector, you could create a teaching product to pass on your knowledge,” says Anthony. “Another option, if you spot a product gap in the market, is to hire a freelance industrial designer to develop a prototype and then take it to a contract manufacturer. You can then sell this product online using automated payment options.”
Generating passive income does require an initial investment of time and money, and you may need to acquire additional assets and skills. You can, however, start off on a small scale.
Global online learning platform Coursera notes that there are three questions to consider prior to forging ahead:
- What kind of upfront investment can you afford to make, in terms of time, money and effort?
- Do you have skills or knowledge that others would find valuable and useful?
- Can you automate the process of sharing your skills or knowledge?
Once your initial planning is complete, you can apply the following tips from JustMoney to establish your venture.
Learn from the best: Research your ideas thoroughly. The classic how-to book on passive income is The 4-Hour Work Week, by Timothy Ferriss: https://fourhourworkweek.com/.
Build up an initial lump sum: Set clear financial goals and develop a budget in order to build up an initial lump sum. Automatically transfer a portion of your pay cheque into a savings account, or join a reputable stokvel. Pooled money earns better returns because of the higher capital, and shared fees are lower.
- Read a JustMoney article on the best savings vehicle for your needs.
Sublet: If you do not own property, you can sublet a room in your flat, a parking space, or even your car. Keep in mind that you will need the approval of your landlord and body corporate; and, in the case of your car, you will require your insurer’s approval. Be sure to also check for a potential increase to your excess or premium.
Invest: Rather than trying to pick individual shares, try investing in a unit trust geared at generating high dividends. The Satrix Dividend Plus Index Fund, for example, consists of 30 high dividend-yielding companies.
Rent out property: Pooling resources with friends could enable you to enter the property market, or to buy a larger property. Some financial services groups offer collective buying home loan schemes. Appoint a property manager and delegate the property management.
- Read a JustMoney article on buying property with friends.
Consult a financial adviser: Finally, discuss your plans with your bank manager or a trusted financial adviser who understands your short, medium and long term goals. It would be unwise to withdraw hard-earned funds from an investment to start a new venture, without being aware of the short-term tax and long-term retirement implications.
“Once you are committed to putting in some initial work, your efforts should pay off. You’ll enjoy extra flexibility and security when you are no longer solely dependent on a job income to cover your living expenses,” says Anthony. “Automation and other forms of technology have opened up many new avenues for generating passive income. You are unrestricted by geographical boundaries and there are enormous opportunities to scale up.”
JustMoney.co.za, established 15 years ago, is a trusted voice within the personal finance sector. The JustMoney website offers articles, money management tools and a wide range of financial products and services. Over 250,000 South Africans subscribe to the newsletter to stay informed and become financially savvy. Find the website here.