Almost every working person dreams of building passive income that gives them complete financial freedom. Who would not want that? No more going to work and no more listening to a boss who often takes out their anger on us for no reason. Financial independence offers complete freedom. We are in charge of our own time and life. We can travel and live exactly the life we want. But how do we get there? One way is to become a rentier. In this article, we explain how to become a rentier and share a few tips.
Motivation
Before we dive into advice on how to become a rentier, it is important to find out how strong our motivation for this project is. Our motivation must be strong enough to help us actually build this kind of passive income.
It is more of a test in which we answer for ourselves what we “want” and “do not want”. These two words are closely linked. Here are a few examples. I do not want to work my whole life and then wait for a meagre state pension in old age. I do not want to devote my potential to growing someone else’s company. I do not want to live a life in which I am tied only to my employer’s pay cheque.
Now let us say a few words about what I want. I want to enjoy life while I am young and healthy. I want to decide freely how I spend my time. I want to travel and embrace all the beautiful things life brings.
These are only examples. Everyone has to adapt these statements to themselves. What matters is that the statements are strong and motivating enough. Only then will they be a powerful driving force that helps us build a rentier’s passive income.
Who is a rentier?
A rentier is a person who has built a regular income from their capital. This means that part of the money they have invested comes back to them regularly without much effort. Rentiers who have built a strong enough passive income from their capital do not have to go to work. This is called financial independence. However, not everyone wants to stay at home for good and do nothing. A rentier has the freedom to do what they want, not what they have to.
How to become a rentier
Many of you are probably thinking that to build a regular passive income, you need a large sum of money to start with. Of course, that is the easiest way. But not everyone receives a large sum of money from wealthy parents or wins it in a lottery. That does not mean, however, that their path to becoming a successful rentier is closed.
There are several ways to become a rentier. But first we need to understand how money works. Money has an unlimited power to create more money. Most people see money as a way to pay bills, housing and food, and they spend the rest on consumer goods, holidays and hobbies. At the end of the month they do not have a single crown left, and the next month they work hard and wait for their next pay cheque. And so it goes on, round and round. Months, years, a whole life.
Every crown in their pocket gives them a choice of what to do with it. Unfortunately, people who do not understand how money works will never build a strong source of passive income. So if we want to be successful, we need to know how to handle our money properly. If we have no experience with investing, we cannot do without thorough preparation. We pay for courses, seminars and books. If we know someone with investment experience, we ask them for their advice and experience.
Shares
Buying shares does not require as large a sum of money as buying property. By buying shares, we become a part-owner of a company, known as a shareholder, and the price of one share ranges from a few dozen CZK to several thousand CZK per share, depending on the company.
Investing in shares can bring huge returns. However, we can also suffer big losses. Risk is part of every investment. That is why it is important to prepare properly before we start buying these securities.
Getting started with trading is very simple. From home, we open an investment account with an online broker. We fill in our personal details, scan our identity document and transfer money from our current account to the investment account. Buying shares itself takes just a few clicks. If the company whose shares we own pays dividends regularly, even better. The money flows into our account on a regular basis. The amount of the dividend and its payment are decided by the general meeting.
The American billionaire and investor Warren Buffett says: “The stock market is a device for transferring money from the impatient to the patient”.
Bonds
A bond is a security. By buying it, we lend money to a company, which guarantees the return of the investment plus interest. The company may pay this interest several times a year. The advantage of buying bonds is that we do not pay a brokerage fee, because we buy directly from the issuer.
Another advantage of bonds is that their maturity date and interest rate are fixed right from the start. However, we must keep in mind that ever-rising inflation can have a negative effect on buying bonds with a later maturity date.
Renting out property
Renting out property is considered a stable source of passive income. This can mean renting out a flat, a house, a cottage or commercial premises. Investing in property itself is a relatively safe instrument.
Its main advantage is the regular and fixed income from rent. The rent depends on the location, size, age and overall condition of the property. The rent is set in the tenancy agreement. Thanks to the fixed amount of money that flows into our account every month, this type of income is considered the most stable.
The disadvantage of investing in property is its ever-rising price.
Interest on deposits
Another possible instrument for securing a stable income is interest on term deposits and savings accounts. The money from these accounts is not very high. However, it is safe and stable.
Interest on term deposits is usually higher than on savings accounts. The disadvantage is that we can only withdraw money from a term deposit on a date set in advance. Money in a savings account can be transferred to our current account at any time.
When investing, it is important to diversify our savings. This means putting our money into different types of investment instruments to reduce the risk of their value falling. This makes the path to becoming a rentier easier.
