Passive income

The fundamental question on the table is how to make passive income apart from your salary income.

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I urgently need an alternative source of income, I earn Sh30,000

Hi Patrick,Q. I am a high school teacher at a private school in Nairobi. Since Covid-19 happened, it has become necessary to think about alternative sources of income. My net salary is about Sh30,000 after tax, I spend nearly two thirds of this on rent, bus fare and household expenses. I am in my early 30s. What would you advise between buying a government infrastructure bond and shares on the NSE? If shares, what stocks would you advise I consider and why? Are there other alternatives?JustinFinancial literacy is about having the knowledge, skills, and confidence to make responsible financial choices, and this includes also knowing how to make it. The fundamental question on the table is how to make passive income apart from your salary income. Infrastructure bonds and shares (stock) are just some of the options available to you. By spending two thirds of your income and keeping one third, you have achieved the first steps towards building wealth.First, pay attention to the fundamental law of investment which says you should never put your money in an asset unless you know how it will make or lose money. Passive income can be earned from a variety of sources. The difference is fundamentally the amount of money required to make the smallest investment. Shares require just a few thousands to buy a stock of 100 shares. You need a few millions to acquire property.A few hundred thousand Kenya shillings can acquire for you a long-term lease long enough to pick Airbnb rent without owning the property. You can also put money in business, but that requires additional entrepreneurship skills. All these options and a long list of many others could bring you passive income.Fundamentally, the risk of loss of your investment in all options increases exponentially as your level of ignorance increases. You should therefore seek to know how the asset works before buying it.Infrastructure is just any other government bond other than the fact the money you invested will be used to build long-term projects such as roads. The bond is expected to be long-term to match the returns the project will bring to the economy. Ordinary bonds are not linked directly to a specific project.Both categories of bonds pay in the same way. A bond interest indicated at 12 percent will pay 6 percent at the end of the first six months, and the other 6 percent at the end of the second six months to bring your earnings to 12 per cent bond equivalent at the end of 12 months. The returns on a bond will be smooth throughout the term of the bond, which makes it ideal for retirees. A young investor should choose an asset that pays much more into the future, although such asset returns also face more uncertainty. You need a minimum of Sh50,000 to participate in regular bond investment.Shares is the acquisition of a portion of the business. You should have enough money to buy a minimum of 100 shares. For example, you need Sh4,000 to buy 100 shares of Safaricom when the day’s trading price is Sh40. Shares are a good investment vehicle for young people like you because your share is growing over time but can afford some investment today. The key is to know which share (company) is aligned to your return objective and is promising a good future in the long-term.Patrick Wameyo is a financial literacy coach at Financial Academy and Technologies, and an entrepreneurship coach at The Entrepreneurship Center EA. [email protected]


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