Why is passive income important?

Passive income, its importance and how to generate it?

When the moment of retirement arrives, the quality of life will depend on the savings that have been earmarked for the pension or the income that will be available to live on. For this reason it is so important that during working life people are aware of this and begin to plan for their retirement and draw the means to achieve these goals.

From the economic shock caused in large part by the health crisis around the world, including Mexico, many people have had to seek multiple sources of income, as these economic events regularly disrupt the employment situation of companies. However, passive income can be one of the resources that help to cope with times of crisis.

What is passive income?

The concept is simple and refers to income that is generated in a way that requires little or no daily effort to earn. Unlike active earnings, for example, via payroll, these require active participation in the form of a full-time job.

To generate passive income, you must be willing to invest a little time in the present to set up an income stream and generate money from it in the future.

How to start?

The key is to set a long-term goal by aligning concrete expectations. Passive income will make no one rich overnight, so you have to diversify the capital you have, efficiently looking for the best alternatives to invest in to find the one that offers a better future projection. Some options that can help you achieve passive income are:

Investment Funds. These vehicles and collective investment offer professional management with optimal liquidity. Although a long-term strategy can be structured, one of the great advantages is that they do not limit the liquidity of the resources.

Retirement Fund Administrator. In addition to individual contributions, it is possible to make voluntary contributions.

Investment in shares. For the more sophisticated investors, this market allows the investor to own a stake in the company and in turn receive benefits from it, such as the distribution of profits to its shareholders through the dividend. This translates into receiving an income for the good performance of the company in which it is invested.

Real estate. You can invest in properties that allow you to generate a monthly income, such as a vacation rental. There are collective investments platforms that allow participation in operations from the development plan, purchase and sale in these real estate investments or through instruments listed in the Mexican Stock Exchange, which are the mortgage certificates that receive benefits from the income of the leasing companies of shopping centers, offices and logistics centers.

Debt settlement. Canceling a debt is an investment in reverse, although it is not an investment in the strict sense, it produces a similar return. For example, supposing that a person has a credit card debt of 100,000 pesos with an annual interest rate of 40%, when liquidating it, the interest to a 40% disappears. This operation equates a 40% return on an investment of 100,000 pesos in something more conventional. But what makes debt repayment even better is that you'll achieve that equivalent high rate of return with virtually zero risk. Not only is there no risk of loss of principal, but the "return" is guaranteed at 40 percent. If you are looking for passive investments that generate income, it is advisable to pay off any high interest debt before making other investments.

While searching for the best option, keep an eye out for passive income alternatives that show a positive long-term track record and don't be fooled by ones that promise a quick return or require large amounts of money up front as they will sabotage some other goals. Financial you have to look for ideas that are stable, profitable and reliable, trying to do a little research and trying, as far as possible, not to go into debt.