Financial Literacy Lesson Three: Investing, Side Hustles and passive income


You’ll never truly achieve financial freedom if you’re living from pay-cheque to pay-cheque. Finding methods to generate a ‘passive’ income, or a ‘side-hustle’ is increasingly popular in this day in age. As starting a business may not be for everyone, below are a few ideas on how to make your money work for you, to research further.


Here, Jay, chartered accountant, introduces a few different ways you might want to start thinking about income and and how to make your money go far.


WHAT IS A PASSIVE INCOME AND A SIDE HUSTLE?

A passive income is a little misleading by definition. The theory is a minimal amount of work is required to generate this income. However, it is still work and a large part of it will involve a digital skill or area of expertise. By extension, a side hustle is a job or function you do on the ‘side’ (evenings/weekends/free time!) of your main job to generate an income. This could be anything: for teachers this is sometimes tutoring or exam marking; for others it might be teaching a few exercise classes a week, or even a YouTube channel!

A side hustle is usually a hobby that can generate an income and the digital world, especially social media, has made these increasingly accessible to the majority of people.

INVESTING IN THE STOCK MARKET

Interest rates are at an all-time low, so the amount earned from putting your money in a bank account is pretty low. Historically, the stock market overall has provided above average returns; however this is not to say there is no risk as the value of your investment can go down and you could lose money.


A significant amount of research, knowledge and experience is important if you are interested in trading individual stocks in the future. For anyone familiar with the Reddit/GameStop saga, occurrences like this are far and few between, and the risk of losing money on individual stocks for the everyday investor, in something to be aware of.

Instead, I’d recommend looking into a Stocks and Shares ISA, where you can invest in a portfolio of stocks and shares or a fund that is managed by a professional. Your investment will be spread across multiple stock and shares, but also other products, to spread the risk but still link your returns to the performance of the market overall.


INVESTING IN PROPERTY

For most people, buying a property will be the largest transaction in their lifetime. Buying a property for you to live in, will require you to save up to 20% of value of the property and take out a mortgage (loan) for the remainder, which you’ll pay back on a monthly basis.


You may wish to buy a property as an investment, so instead of living in it, you’ll be renting out. You’ll still require a deposit, and will obtain a mortgage from the bank to enable this to happen – but can generate an income on a monthly basis which will be the difference between the rent you’re paid and the mortgage payments you owe.


Investment in property requires a large amount of funds and therefore isn’t typical investment for young people, however, being aware of these possibilities can help you plan for your financial goals.


INVESTING IN CRYPTOCURRENCY

The rising value of Bitcoin has dominated the news in recent times – especially as Elon Musk has also bought some.


Cryptocurrencies are different from normal currencies like £ or $ – they use blockchain technology (a method of sending data in cyberspace) for the transfer of funds. They are not regulated by a financial authority (governments or central banks). Investing in crypto for this very reason is inherently risky. This isn’t a traditional investment however this makes it attractive to many who deem cryptocurrencies to be the future.


The volatility of the prices of cryptocurrencies has made many investors incredibly wealthy. There are an equal number who have suffered great losses. I’m certainly not an expert in this area – but it is an up and coming area within the financial services sector – and an area to look into. This article in The Times provides an overview, which I think is a great introduction.


KEY TAKEAWAY

If there’s one message to take away, it’s that it’s never too early to start thinking about money and planning to be financially independent. Most importantly, ask questions of your parents or professionals as you want to be prepared to handle the financial freedom you’ll have as soon as you turn 18! Do your research carefully, as there are lots of great sources out there, but also a few vague ones too.


Jay is a chartered accountant, with 5 years of experience working in a Big 4 Accounting Firm, including both the Advisory and Audit team. He navigated the recruitment process and began working as a school leaver. He is passionate about sharing the alternative routes and opportunities into the accountancy sector, after-school.


Jay feels he is in a privileged position as he understands the practical and technical terms related to personal finance – things he was not taught at school. He would like to empower young people to talk about managing money as it’s such an important life skill.

The above is not intended to provide advice and is the personal view of the author.

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