All of us grew up hearing phrases like ‘you need to work hard to get ahead in life’ and ‘you get what you work for’. In simple words, if you want to earn and succeed in life, you have to work hard. While true in essence, as a modern investor, you know that you don’t always have to work hard to earn the extra buck. Instead, you need to make your money work hard to build passive income and wealth. This article outlines how you can make an extra buck without working too hard to top up your income and manage cash flow requirements.

• Renting out your property can help you generate regular passive income.
• Eliminating debt and investing in dividend-paying stocks can ensure extra income.
• You can grow your wealth by investing in mutual funds that align with your goals, risk tolerance, and investment horizon.

Renting a property

Renting out a property may be the easiest way to make an extra buck without working too hard. If you own two properties, whether residential or commercial, you can consider renting one out to earn regular passive income. You can even enlist the property as an AirBnB and earn passive income. In fact, today, you can even consider fractional real estate ownership. Fractional real estate ownership presents a unique opportunity for investors with limited resources to benefit from rental income. It allows you to co-own the property with multiple other investors. The rental income generated from the property is split among investors according to their ownership percentage.

Eliminating debt

If you wish to make an extra buck without working too hard and become financially stable, becoming debt-free may be the best possible route. Having high-interest debt like credit card dues can eat away at your earnings. While clearing debt is not technically earning, it does produce the same passive income effect on your wallet. Once you eliminate expenses like EMIs, mortgage payments, and credit card bills, the money you save can be equivalent to securing a pay raise. In simple words, becoming debt-free instantly boosts your income even if your salary remains the same. Instead of dedicating a sizable amount to servicing debt, you can use these funds to save and invest.

Own dividend-paying stocks

If you have adequate stock market knowledge, you can consider investing in dividend-paying stocks. Dividend-paying stocks are equity stocks of a company that confer partial ownership rights on the stockholder and entitle them to a share in the company’s profits. Therefore, by owning dividend-paying stocks, you can earn regular dividends as passive income.

However, there are certain caveats associated with this strategy of making an extra buck without working too hard. Firstly, investing in equities directly requires market knowledge and expertise. Secondly, the amount of a dividend payment is not guaranteed for equity shareholders since it depends on the company’s performance. The company’s Board of Directors decides the dividend rate unless the company has a stable dividend policy. Companies can slash or trim dividend rates, making dividend-paying stocks an unreliable passive income source. Lastly, investing in the equity markets also means investment risk and the possibility of capital loss.

Mutual funds help you invest in equities indirectly, tackling the expertise issue associated with individual stock selection and management. Since mutual funds are managed by experienced professional fund managers, you can remain assured about your investment. That’s why mutual funds have gained immense popularity in India, especially among investors who wish to gain from the capital market, but with caution.

There are various categories of MFs available on the market that are tailored to suit the needs of different investors. You can pick MF schemes that best align with your investment goals, time horizon, and risk tolerance to get started. For instance, if you are a risk-averse investor, you can consider debt funds, while if you can tolerate higher risk, you can choose equity funds. You can even diversify your investment within the broad categories. For instance, you can choose liquid and overnight debt funds to park your emergency expenses, while short-term debt funds can be leveraged for your short-term goals, which are due in a few years.

Similarly, if you’re considering equity funds, you can tailor your approach as per your risk-return profile. Small and mid-cap funds work best for those with a high risk-return requirement, while large-cap and balanced funds work better for conservative investors looking to capitalise on equity gains without significant exposure. Multi-cap and flexi-cap funds are ideal for moderate risk investors.

Here are a few things you should remember when investing in MFs for passive income:

• Opt for the growth plan over the dividend plan to ensure your returns get reinvested and maximise growth under the power of compounding.
• Stay invested for the long term, ideally 10-15 years, to see the magic of compounding.
• Avoid the temptation of withdrawals when faced with short-term market fluctuations. Markets tend to correct themselves over time.
• Lastly, pick direct plans to avoid brokerage costs associated with regular plans.