Passive income in layman terms is a constant source of income that does not require physical presence or effort. Consider for example your 9-5 job that requires you to show up at the office, every day in the morning without a break and in return you are paid a set amount of money.
This job of yours is not a passive source of income rather an active one; primarily because of the fact that if you stop showing up at the office, you will stop getting paid. SIMPLE!
What we are discussing here is not active income rather passive income. One that is more reliable, effortless and convenient. Many critics and successful people (in terms of financial stability) regard having a reliable source of passive income by the age of 35 as the true definition of financial independence and financial stability. But the all-important question remains:
How can one earn passively in Canada?
Many people are of the view that in order to achieve and secure a legitimate source of passive income you need to work hard all your life or need to have hundreds and thousands of dollars to invest.
But this is not true and is certainly not the case. In order to earn passively generally anywhere in the world and especially in Canada; you need to be smart about your work, your finances, and your investments. Look for ways that pay back better, that pay back consistently and are legitimate while being safe and reliable.
In the true essence of the scheme of things, passive income in produced only when you invest your savings or income that pays you off constantly (with very little or ZERO effort). Whether you do that by investing money you earn through your day job or you have savings; you can earn passively by investing your money.
Now the point is where and how are you supposed to invest your hard-earned money so that you receive maximum returns that are reliable, safe and effective? Here is a list of some of the ways you will be able to generate and earn passive income while living in Canada.
Some options in this list are truly effortless and stay true to the definition of passive income, while some may require a little effort from your side. Regardless of the fact that whether or not the source of income is completely passive or partially passive, one thing is for sure:
Any source of income that pays you and does not require you to be physically working 8 hours a day and 7 days a week is what defines financial freedom and stability.
So let’s get started on how you can secure and earn passive income in Canada:
Deposit your money in HISA:
HISA stands for High-Interest Savings Account and is one of the best ways to earn passively in Canada. This works on the simple principle that you keep your money in a bank account (or rather save your money) and the bank in return pays you some amount of interest.
As the name suggests these accounts are high interest-paying accounts, which means that you will be getting paid a high amount of interest as opposed to other accounts.
Another great thing about these accounts is that these are e-savings account. This fact makes them a little difficult to access and you cannot go to the ATM and withdraw your savings (it is not that easy). So your money remains saved, you are unable to splurge and the amount of compound interest also keeps on increasing.
The overall interest rates in Canada are on the rise and keeping your money in High-interest savings account means you will be earning a handsome amount of interest on your money. To give you a better explanation of how this system of passive income works and where should you be keeping your money, have a read:
- EQ Bank (Savings plus Account): I recently opened up an account with the EQ bank. This bank has absolutely no physical branches and operates completely online. EQ bank offers the highest interest rate all over Canada. With an interest rate of 2.30%, EQ bank is the highest interest-paying bank. There are no hidden fees, no strict terms, and conditions and absolutely no limitation of minimum balance. What is even great about this bank is that it offers FREE e-transfers (which is one of its kind). With a maximum level of $200,000; EQ bank is undoubtedly the best option out there for you to keep your money in.
- Alterna Bank: You can register with Alterna Bank to get a High-interest e-savings account. They offer a 2.05% interest rate and have no limitation of minimum balance.
- Tangerine Bank: If you open up a savings account with Tangerine bank, you can get an interest rate of 1.25%. They come up with offers time and again that can get you an interest rate as high as 3%. Apart from this, they also assign an orange key to each one of their customers. This orange key can be used to claim a bonus of $25 amount when you deposit $100 in your account. You can use a referral’s orange key as well. The person whose orange key is being referred also gets a bonus of $50 every time the key is used.
- Wealthsimple Bank: Wealthsimple Bank offers you to open up a smart savings account. With an interest rate of 1.70%, this is a great option to earn passive income in Canada.
- Scotiabank: Scotiabank is a renowned name in Canada and with its Momentum plus Savings account you can get a starting interest rate of 0.90% and if you leave your money untouched for 90 days (3 months approximately) you get an additional 0.75% additional interest rate and again 0.80% interest rate after another 90 days.
Usually, it is said about banks that the bigger the bank the flatter is the interest rate that they provide. This might be true to some extent but you should weight out all the options before you invest your money in a savings account.
Some banks have a longer singing period, some come with a maximum limit, some offer free and unlimited e-transfers and some provide some other bonuses. So select what suits you the best and start earning passively in Canada.
Also, make sure you read about the tax laws and regulations that are applicable to your savings account and the interest money. For reference, if you are to invest a sum amount of $10,000 in EQ bank (after the tax has been deducted) you will be earning a total amount of $230 annually.
Earn passively by collecting Dividend Income:
Among all the options that I have studied regarding earning passively in Canada, this is by far the most effective and convenient of the lot. This source of passive income is indeed truly passive and requires no effort from your side what so ever.
Dividends are basically paid out by the companies to their shareholders. They are either paid quarterly or even monthly. The total profit earned by the company is also distributed among all of its shareholders and this share is known as a dividend.
There are many companies that are known as long-term dividend-paying companies. These companies have been paying the due dividend to their shareholders for decades. What’s even great about the dividend money is that it keeps on increasing with time (often at a faster pace than that of inflation).
This process of companies paying the dividend is all preset and pre-calculated. At the time you purchase the company’s shares you are told that the company (for instance) will be paying a 4% dividend. Now if the company is trading at $100 and you have 100 shares of the company then you will be getting $400 annually or $100 quarterly. Obviously you will get a greater amount of dividend money if the company decides to increase the percentage of dividends.
This is a great way to earn money passively in Canada because suppose your initial investment was $10,000. You can possibly and potentially get an increase in your dividend money when the company grows and outperforms and raises its dividend.
Dividend money is really precious and truly passive.
If you are deciding to invest your money in dividends, you need to open up a brokerage account. Apart from this account, you need to gain knowledge about a few other aspects and technicalities of investing in dividends.
There a number of published blogs, articles and informative pieces that can guide you completely and thoroughly about how to invest in dividends, where to invest and how to earn passively (and of course efficiently and effectively).
Always remember that investing in dividends doesn’t necessarily pay off in the long run. Investing in the right place at the right time can start getting you returns in less than a month. But make sure that you do your research before you start investing. Look for risk factors such as:
- Which company pays the highest % of dividends?
- What has been the past record?
- Has there been a dip in the gross income of the company?
Always pays off to be prepared and well-read.
- Trust REITs and collect your passive income: If you are residing in Canada and are on the lookout for ways to start earning passively then it is great to trust REITs. REIT stands for Real Estate Investment Trust. There are a number of companies that own more than 75% of their assets in real estate and collect their income through rental sources.
You can also earn through rental sources by investing in REITs. You will not have to practically leave your home, deal with the hassle of paperwork or deal with irritating tenants. But still, you can invest in real estate and earn passively while living in Canada.
REITs take care of your money for you. If you are willing to invest and invest in real estate without the hassle and risks that are associated with rental income then REIT is just for you.
All you need to do is invest in REITs by purchasing shares and you will be receiving the due amount from the rental incomes.
There are however some risk factors and limitations associated with investing in REIT. It is advised to purchase the REIT ETF which is the Exchange Traded Fund. They also come with risk factors such as the REIT prices going down owing to the increase in interest rates.
I will again urge you to do your own research and study while investing money in REITs. Everyone has their own return rate and choose what works the best for you. Do your study, be prepared and invest in what suits you.
Rent out your own property and earn:
If you are scared or skeptical about investing your money in rental business through a third party (especially whose stats keep on varying) then being a landlord or landlord-as is a better option for you.
I personally know so many people who have earned passively and handsomely through being a landlord and renting out their properties or even part of their properties. My neighbor rented her complete basement after renovating it and she reportedly earned $1200 a month that too PASSIVELY!
You can register your property with Airbnb, deal with tenants, rent out a portion or room of your house and earn handsome amounts of money and that too in a completely passive way. Make sure you maintain a formal but cordial relation with your tenants. Dealing with tenants is not an easy business, so make sure you remain cordial but straightforward.
There are however a dew technical aspects of renting your property as well. You need to borrow a home loan or mortgage and profit or loss is majorly associated with the prices of real estate going up and down.
It is safe to say that investing in real estate is a risky business and your every move should be calculated.
Earn passively by getting Capital Appreciation:
Capital Appreciation means that the value of your capital appreciates. As an investor the money that you invest in different businesses gives you increased levels of profit and interest as a result of your primary investment (capital) appreciation. This happens mainly because the price of stocks increases.
According to research and estimates, in the year 2017, an approximation of 21.83% was returned as interest. If you are looking to earn passively then you should also be receiving your share in this 21.83%. There are two ways to earn passively through capital appreciation:
- You can either opt for the DIY approach
- Or you can go for the Robo-Advisor approach
One thing should be set straight before you decide to earn passively through means of investing. Investing money in stocks and shares is not for the kind-hearted. It has its fair share of risks and limitations. When there are chances of profits and success, there are equal chances of loss as well.
If you are opting for the DIY approach for investment, you need to invest in the index. To give you an idea about what is the index; take S&P500, because it is an index. An index is a huge basket of stocks and you can trade stocks by investing in index and also the exchange-traded funds.
Investing in stocks and trading in index is not an easy process. If you wish to go by the DIY approach then you need to be fully prepared about how to open, invest and rebalance your funds. Which stocks ask for a commission fees or a trading fees (to buy or sell). You can also register yourself with numerous productive courses that guide you about how to go about the investment business yourself.
A very productive course about how to achieve your financial stability goals is the e-course Young Money Bootcamp. It is very productive and explains exactly how you should go about investing.
You can buy the exchange-traded funds with Questrade. This saves you the commission fees and the new asset allocation can be handled by Vanguard (the best in the business). You do all the investment hands-off and it costs you the fraction of amount a professional stockholder will cost you. Vanguard Asset allocation of exchange-traded funds are:
Depending on your risk profile, you can choose either of the above-mentioned options. The management fee is just 0.22%.
However, if you opt for the Robo-Advisor approach, then things will be a little different for you.
The DIY investment approach is not for everyone. Not everyone can handle the stress that comes with managing the money in the form of stocks and stay up to date with the stock trading. It is indeed a tricky business.
In such a scenario when you are looking for how to earn passively in Canada and want to invest in stocks then hiring someone or some entity to look after your money is a great option. Robo-Advisor is the solution to your problems. Someone who can take care of your money, the investment and provide you returns. Exactly what you have been looking for!
In Canada, the average mutual fund fees is somewhere around 2% and Robo-Advisor will be charging you somewhere in the range of 0.75% to 1.00%. You can also confirm that you are not being over-charged in the name of mutual fund fees by calculating the fees through the fees calculator available online.
There are a number of companies registered under the Robo-Advisors. Basically you just need to funnel your money in the channel and Robo-advisors can take care of everything else. From investment to returns, you will be completely hands-off and Robo-advisors will take care of everything.
There are a number of companies registered under the Robo-Advisor label such as:
- BMO Smartfolio
- Questrade Portfolio IQ
Among all of the names mentioned here, Wealthsimple is Canada’s biggest robo-advisor company. Currently, it owns almost $1.9 billion worth of assets and manages them for hundreds of investors. Robo-advisors are great to use.
They offer numerous benefits such as no minimum balance. They also provide the option of re-investing your dividends so that your money multiplies and grows faster than any other medium. Basically they make sure you earn passively and that too handsomely.
You can always look around and do your research to find out the benefits and limitations of trusting Robo-advisors with your money.
Use the Checkout 51 app:
Moving on to other means of passive earning in Canada apart from investment is the use of apps such as Checkout 51. Many people believe that using such applications influence them to spend more than they intend to (marketing gimmicks). So instead of saving money or earning passively, then end up spending more.
But that is not how it is supposed to work. Applications such as Checkout 51 are to be used smartly and carefully so you know exactly how to earn passive income in Canada.
All you need to do is to download the Checkout 51 app and scan your products after the checkout. The trick is not to get swayed by the products being offered on the app. However, for certain products, it is really great and beneficial to take the plunge. For example, using the coupons available for diapers and again at the checkout, you can save money.
The checkout 51 app is completely free to use. Once you have done your shopping just run down your receipts to make sure if there is anything you can claim with checkout 51. It really is a very passive source of income. Once your receipts are accepted, you get a confirmation and all the collected amount is mailed to you annually in the form of a cheque.
Once you get to see this screen; all is good news for you. Your receipts are accepted and you will get the cashback.
Recently the checkout 51 app has also introduced another feature that can help you earn passively by watching small advertisements. You really don’t need to watch them as well, just let them play and you will be getting paid for playing the various ads.
Just download the app, get a free balance of $5 and refer to friends as well. You will get $10 for each successful referral.
There are so many credit card hacks that you can benefit from. First thing first and if you have any dreams or aspirations to set up a secure and consistent passive income than carrying a credit card WITH BALANCE is something you DO NOT WANT.
It is impossible to have a passive income with credit card balance because the interest rates on credit card balances are INSANE. But if you have it in you to control your spending desires and use it responsibly then you have great chances to generate passive income in Canada.
Although the credit card bonus and incentives being offered in Canada are not as great as the rest of the world but still you can take great advantage from them. Cash back is one of my favorite ways of passive income. Obviously I don’t mean to imply that you shop like crazy to achieve big cash backs but whatever you purchase you will get 2% cash back.
My favorite is the MBNA rewards World Elite MasterCard. It is owned and managed by the TD bank and provides no terms applied 2% cash back on everything that you purchase through the card.
The points accrued over the years, combined with the cash back policy of credit cards can help you land big amounts of money and this is how you earn passive income in Canada.
There are so many different kind of credit cards available that you can choose from and which will suit your needs better. Many credit cards offer even greater cash back policy such as the Aeroplan card.
Another great hack that I learned over the years is to use Paytm. This is a platform that I use to pay my taxes and bills through the credit card of course. More credit card usage means more cash back and greater passive income eventually.
If you are a Master Cardholder you will be exempted from the credit card fees and can make all of your payments through the credit card. Paytm also offers bonus points upon first transaction and many other benefits.
Use EBATES.CA (now known as the RAKUTEN):
Previously I used to think that getting cash back through online shopping is certainly not that effective and certainly not a big source of passive income. But recently I received my amount of cashback from Ebates and now I don’t think the same.
It really pays nicely to use EBATES.CA and earn money. All you need to do is to download, sign up and shop everything you were previously doing but through the platform of EBATES. Whatever you buy, you get the cashback in a few days.
This is truly easy and passive income. There are so many shopping websites and platforms that are registered with Ebates that offer a really nice cashback amount. Whether you shop from Amazon, Sephora, Best Buy or even Expedia (along with many more) – you can earn passive money in Canada.
This chart shows you how much cashback you will be receiving if you shop through the platform of Ebates. It goes up to a whopping 4.0%. It may not seem a big amount first hand but all of them stocked together gives you a pretty solid source of income (passive of course). So next you wonder how to earn passive income in Canada; here is your answer.
When it comes to summing up the pointers regarding how you can earn passively in Canada, here is a list:
- You can earn passively in Canada by keeping your money in a high-interest savings account and get up to 2.30% interest rates.
- Invest in dividend-paying companies.
- Trust your money with REITS.
- Or better off, become a landlord yourself.
- Invest your money with stock trading. Do all the bits yourself.
- Or seek help from professionals in the form of Robo-Advisors.
- Use smart applications such as checkpoint 51.
- Employ credit card hacks and gain cashback.
- Use Rakuten Canada to get even more cashback.
I talk dominantly about managing finances, saving up and becoming financially stable and independent in my blogs. Consequently, I get bombarded by questions like:
How to earn passively in Canada?
How to make passive income in Canada?
And many more. I get the idea, you are stuck with the day job because it helps you pay your bills but where do you go from here? How do you achieve financial stability? How do you generate sources of passive income that is both reliable and consistent?
I always have the same knowledge and information to impart. You need to play smart; smart with your finances, smart with your choices and smart with your decisions. Living in Canada and looking for sources of passive income- your best shot is to invest in Dividend-paying companies. It is my personal favorite too.
It is passive in the true sense. You do not need to do anything and with the progress and growth of the companies, your dividend amount will keep on increasing (while the initial investment remains the same).
So, what are you waiting for? Get to work, look for the top dividend-paying companies, do your research and invest your money. Wait for the money to get back to you and enjoy the passive income while residing in Canada.