Hi My name is Muthu Solaiappan.
There are a lot of ways to create passive income. But we will see 6 tried and tested methods which are being followed by people all over the world.
Today we are going to cover the topic of how you can generate passive income through Finance. In last four videos we discussed about Passive income through Real estate, Share Market & Mutual Funds & Gold. To watch it click the link above. There is a very interesting & important tip at the end of the video for people who watch it till the end.
Before going into the topic do u know what is the 8th wonder of the world? None of the 7 wonders of the world can grow. Only this can grow exponentially. And guess what? Its called compound Interest. Lets first understand the difference between simple interest & compound interest. Simple interest means u have 1 lakh. When I give u 10% interest it becomes 1,10,000 at the end of 1 yr. for next year also it will give u interest on the 1 lakh and u earn another 10,000. At the end of 20 years, you would have made 10,000 x 20 times = 2 lakhs earnings plus ur principal amount which 1 lakh. But if u had financed ur money for 10% compound interest, at the end of first yr it is still 110,000 but in 2nd yr we add 10% interest to the cumulative amount of 110000 it becomes 121,000. U might ask me what is the big difference. U have earned only 21,000 in total compared to simple interest which is 20,000. Only 1000 difference. But wait. U are wrong. Take a pen and paper and write it till 20 yrs. U know how much your 1 lakh would have become?? Any guesses?? 6.75 lakhs. So if u invest ur money and get simple interest ur 1 lakhs becomes 3 lakhs at the end of 20 yrs compared to compound interest where ur 1 lakhs becomes 6.75 lakhs. That’s why we call the compound interest the 8th wonder of the world.
I will explain it with a simple game as an example to make u understand the magic. I give you two options. Either I will give you 1 rupee on day one and it will double itself every day for the next 30 days or you can take 1 crore money from me on day 1 and enjoy life. What will u choose? If u want u can pause my video and think about the answer. If u have chosen option 2 to take 1 crore. Very good u have chosen wrongly. This 1 rupee if it gets doubled every day at the end of 30 days it become 53.50 crores. So what Im trying to say is don’t do the calculation mentally for the first few years. Do it completely till the full term and then u don’t even have to analyse it. The answer will be easily visible and u will be surprised.
Now the fact here is when u invest money in ur own business or finance somebodies business like ur friends for compound interest, then u will be surprised to see how ur money grows in multiples. As long as u don’t pull out the interest and spend it. So financing the principal amount will earn u interest and this interest if it is not spent, it will again earn u more interest so on and so forth like an apple tree. U sow an apple seed. It becomes a tree and gives u more apples. Each apple will have 5 to 8 seeds. And when u sow those the magic of multiplication starts.
So its always better to invest ur money in ur business and take a good compound interest between 12 – 24%. If you don’t have a business of ur own, then fund ur money to the persons business like a friend or family members whom u can trust or become a sleeping partner in their business and earn the compound interest. Or finance it to individuals if u have the capability and capacity to collect the money and interest properly. So if u don’t want to take a risk, invest ur money in recurring deposit or fixed deposit or post office schemes which will give u between 4 – 8.5% CAGR. But still ur money will grow safely.
If u want to multiply rapidly invest in businesses which gives u atleast 12% CAGR or if don’t want to take the risk then invest in ur business and take 24 – 36% how much ever u see fit according to ur business margins. Or worst case scenario invest in low risk investments like RD,FD or PO schemes.
The moment u do ur math, u will know that multiplying the money by way of compound interest is way better than any other passive income source provided u have a trusted business or person u can finance. When money is multiplied with money u get more money. Keep this in mind throughout ur life.
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