Why is it important to create a passive income source, and why P2P lending is ideal09 December, 2017
Passive income is income that you generate, as they say, on the side. The effort on the recipient's part is minimal, and yet there’s a continuous flow of money. Broadly, there can be two kinds of passive income:
- — Income received from rental property;
- — Income generated from some kind of professional service, or investment
Why passive income?Our economy today has evolved to an extent that there are plenty of sources to make money. People do prefer to choose safer options - such as saving in a bank. Some people even invest in the share market and mutual funds. Although in India, the number of investors is only about 1.5% of the total population (2015 - Bloomberg). There are others of course, who invest their money in fixed deposits (FD). They’re not earning large returns either. So what are they missing out on? Passive income can be generated through many ways
- — Writing books
- — Renting your property
- — Creating a product through which you keep getting royalty
- — Investing in dividend paying stocks, and even becoming a YouTuber!
Why You Need Passive Income
- — Passive income means lots of free time! All the relaxing and rest you’d rather do? Passive income enables it! Passive income doesn’t require too much recurring work to be put in. If you’re not working to generate this extra money, you’re obviously freeing up time for yourself while earning a decent amount. You might even be involved in a tiring full day job and still be earning less than you can with right passive income sources. There are many people out there who work tirelessly day and night to make both ends meet, and are able to spend neither time nor money on things they or their families enjoy.
- — Passive income gives you stability and security. No job ever comes with a never ending 100% warranty card! The future is always uncertain and your business, your company, or whatever it is that you’re involved in might suddenly shut down or face huge debts. Passive income has a huge role to play here. It can act as your contingency plan in unfortunate events. Your passive income would come to your rescue, and you’ll always have the safety net to make ends meet.
- — Passive income helps make life stress free. At some point or the other, many don’t have a job that pays well, or sometimes they don’t even pay on time. If you are involved in such an atmosphere, more often than not, you’re tensed about your next paycheque. Needless to say, this can be frustrating. It can take a toll on your personal life and even health. If you’re generating passive income, budgets are easier to manage, and life isn’t a never ending countdown to the end of the month. You’ll always have money!
- — Passive income is your stepping stone to financial freedom and flexibility. With income levels sustaining you well, they open up the possibility of letting you pursue what you want, and plan for short term happiness without causing a dent in long term plans and stability!
Why P2P lending?Peer to Peer lending, also called social lending at times, is another example of the multiple ‘shared economies’ we’re seeing spring up lately. An Uber involves sharing cars to generate income. An Airbnb or an Oyo involves sharing accommodation to generate income. Similarly, P2P lending involves sharing your wealth to generate more income. The concept originally began with the aim of connecting lenders to borrowers. It has now gained a wider recognition and become quite popular among small investors and businesses. P2P lending eliminates the financial intermediaries, so there’s minimal paperwork to be completed before getting a loan, which is quite often the bottleneck before loans are approved by banks. In a P2P lending setup, we have a free market between lenders and verified borrowers. Lenders are free to lend money, at attractive interest rates, to multiple borrowers. It’s the classic free market, with lenders competing to fund the best borrowers, and borrowers seeking to offer the highest returns to attract lenders. Let’s find out the reason behind the popularity of P2P lending, and why is it important.
- We know how difficult it gets for the Small and Medium Enterprises (SMEs) to get loans from banks. They have to sign a thousand papers, submit many documents for verification and even then, banks take a lot of time to verify the borrower’s profile. In P2P lending, the background verification process is way faster and easier. And once the profile is verified, there’s no waiting to receive the money. Consequently, there’s plenty of borrowers who’d rather take a loan this way.
- A lot of lenders are jumping on the P2P bandwagon because it generates passive income for them. With the right amounts invested, your returns - coming in the form of EMIs by borrowers - can rival your monthly income.
- The rates beat many other investments! At Monexo - lenders can make anywhere between 13% to as high as 30%!
- Unlike many other sources of passive incomes, the returns from P2P lending are fixed, and you know how much you’re going to generate every month, and for how long. The lack of ambiguity is a big plus for many.
- These fixed monthly returns also make P2P lending a unique form of investment. Other asset classes - such as mutual funds, equity markets and others - involve keeping your principal invested to generate returns. If you’re lending via P2P models, you’re getting your principal back every month as well!