how to earn passive income in singapore

5 Ways to Earn Passive Income in Singapore in 2022

Passive income is everyone’s dream: earning a steady stream of income while idling or sleeping. It sounds impossible, but anyone can make it happen as long as you make smart investments. 

From investing prudently or exploring other modes of revenue streams, earning money with minimal effort is attainable. 

Read on and we will share with you the top 5 best ways how to earn passive income in Singapore in 2022 to create your own wonderful investment journey.  Read more on how to start your investment in Singapore.

Dividend Stocks

How It Works

You must have heard from success stories like how one man put all of his life savings into Amazon stocks back in 2008 and made a fortune once the company boomed two years later or during the early stages of Microsoft when people who invested little on it acquired financial independence in the 90s. 

You may have also read news on how so many people lost their money in stocks from day trading or the infamous 2008 US market crash.

Yes, stocks are risky, but there is a safer solution to that: dividends. 

When companies make a profit, they do not consume all their profit because they reinvest them back into the company to expand their businesses (i.e, use the profit to increase its capability to produce goods and services. 

Bluechip company bonds and local Singapore government bonds are among the high-quality types.

As companies expand their businesses, they do not have enough cash to pay themselves dividends. 

Hence, they borrow money from the bond market or outside investors to get more capital in order to generate more returns. 

However, dividends’ main source of revenue is not interest payments but the business itself. 

That means that the main source of income of companies that pay dividends are their own business activities. It’s on par with exchange-traded funds as well in terms of risks but not as active as ETF.

Benefits

  • When you invest in dividend stocks, your return depends on how fast you sell it after receiving dividends. 
  • Safer as passive income than intraday trading.
  • The more time an investor holds on to a dividend stock before selling it, the more profit you can make because dividends paid by dividends are not one-time payment like interest income (from bond, CDs). 
  • Dividend income is paid at regular intervals based on the frequency of paying out dividends (usually every 4 months).
  • Doing research and investing in the right company will help you generate passive income on a consistent basis.
  • Good long-term investment option.

Risks

  • Companies may not be able to generate enough revenue to pay dividends.
  • If a company cannot afford to pay dividends, it will likely go under or become insolvent which causes a lower price than the time you initially put your capital in (ie. you invested in stocks worth $2.19 last year but it is $1.89 in the current year).
  • Dividend stocks may not be able to pay dividends on time or even at all if the company’s earnings go down.
  • If the companies’ business goes bad, it will likely affect its ability to pay out dividends as well.
  • Generally high reward for equally high risk.

 

Interest from Your Bank

How It Works

There are many ways to make passive income from banking interest rate. For instance, you can invest your money into a bank and get paid for loaning out your money. 

Another possibility would be that you lend someone else some of your own capital (for example as a part of peer-to-peer lending) and collect the return over time. This gives you collateral to be able to borrow money from a bank.

While Singapore provides low banking interest rates, several high interest bank accounts can give you up to 2% or even more. In other words, a $50,000 deposit will earn you $1,000 as profit per year. 

From another perspective, you can invest in bonds that pay interest over time and use the proceeds from it to buy more assets. 

Finally, one of the most common ways is investing in securities that pay interest. These last two options are especially relevant for you if you want to diversify your passive income portfolio.

Banking interest rate has many benefits but also potent risks. You should always be aware of these before making any investment decisions. 

If there are accusations that the bank misuses its customers’ funds for its own benefit, this can have significant consequences for your interests as an investor.

Benefits

  • Better profits than fixed deposits
  • Interest gives you collateral to borrow money from the bank
  • You can benefit from just using a savings-type bank account

Risks

  • If you invest your money into a bank and lend out your funds as loans, this cash will only be as safe as the creditworthiness of the borrower.
  • A trustworthy bank is required. 

High-Quality Bonds

multiple cash dollars

How It Works

The upside to investing in high-quality bonds is that you get a fixed income on your investment. You can also get capital gains if you sell them for more than what you paid for them. On the other hand, there are also some risks that you should be aware of before making an investment.

For instance, if the issuer of your bonds is highly indebted, there’s a risk that they will default on their payments to you (and others). 

This can leave you with unpaid interest or part of what you originally invested. High-quality bonds are less likely to experience this because the issuer has a better credit rating.

Purchasing bonds is always the safer approach than stock shares because the borrower requires your consent to pay you back a premade amount in interest – aka the coupon rate. 

Benefits

  • Safer to buy than company shares.
  • Less active management needed to monitor your profits
  • High-quality bonds provide better more stable rates than low-quality bonds

Risks

  • What you’re basically doing is lending out your own capital without having the ability to monitor the use of it.
  • High-quality bonds are less sensitive to changes in interest rates than lower grade bonds.

Affiliate Marketing

Affiliate marketing (also called referral marketing) is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought by the affiliate’s own marketing efforts. 

It is also one of the simplest ways to generate passive income online.

Affiliate marketers are generally financially incentivized to refer business to companies by way of affiliate marketing agreements, which are similar to referral arrangements that are common in other industries, but wherein the merchant may provide additional incentives for the affiliate/publisher to generate sales its own product or service rather than simply to refer buyers.

Benefits

  • It eliminates many of the risks inherent to direct advertising, especially on product investment
  • You aren’t tied exclusively to one affiliate network, which means they can explore and find new audiences and niche markets.
  • You don’t necessarily need a website or any web traffic (although having one is more ideal.
  • More commissions equal to more money 

Risks

  • High competition.
  • You only get paid when the sale has been made.
  • Requires some general knowledge on online marketing and SEO.

Renting a Room

Renting a room is an opportunity to earn money as you can make a profit from it. 

You can rent out your spare bedroom or your accommodation if you go on holiday for example. If the room is large enough, two persons could even share with each other and split the costs. 

It’s the most ideal form to earn rental income if you don’t own a big property yet. It also works as an alternative to real estate investment trusts if you do not have the maintaining balance for such long-term savings.

Turning your place into a hotel/B&B will allow you to make rental income but is very time-consuming. 

A second option is that you rent it for two persons who pay half each. A third alternative is that they pay full price for staying with you.

This way you can make a lot of money and if you use your spare time to work additionally, the amount earned will rise. If you rent out one room in your house/apartment or even more than one, this will give you extra income as well.

Benefits

  • Not as risky as stock investments.
  • Passive rental income.
  • You are the boss; you can set the payment options for potential guests or tenants.
  • The better your property location, the more chances you attract higher-class people.
  • Lesser risk than putting your capital into company stocks as long as you own the property. 

Risks

  • Managing the room or establishment still requires active work to make sure it maintains the basic requirements for the tenants such as good plumbing, proper roofing, and an overall clean environment.
  • Make sure to only choose the right people for staying with you as some might have strange habits or disturb your privacy.
  • Choose someone who is trustworthy and can pay you on time each month.
  • If you advertise in a hotel or B&B, your advert will be seen by different people and can’t guarantee that they will not damage anything or leave without paying for everything they owe.

Final Word

It’s never impossible to live out your dreams while making a profit as you sleep or hang out with friends and family. 

Given that you know the right options to invest in and how to earn a passive income stream in Singapore, you can guarantee yourself with a steady cash flow to sustain you for a very long time. However, always stay mindful of the risks that each option carries. 

After all, great rewards can come with great risks too.

  • The higher the risk of the investment, the better the reward. Some passive investments are more volatile than others like stocks compared to bonds.
  • While passive income is possible, you still need to exert effort into managing your funds and taking profit at the right time or within the agreed tenure of the bank. 
  • Make sure to only spend what you can afford to lose and never go all-in for an investment.
  • Diversifying your passive income portfolio is the best and safest way to make passive income such as having investments in both stock dividends and renting a room.
  • Local banks will always provide various ways to help you how to earn passive income such as fixed deposits, interest rates, and credit card rewards.

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