How to earn a passive income in Singapore

The answer is yes, you can.

Whether you aim to bolster your savings or make some extra cash on the side, passive income could be your answer. The best part? You can start today!

From making your spare cash work harder for you to launching an online business, this guide will cover the essentials to help you begin earning a passive income in Singapore. Let's dive in!

Types of passive income in Singapore

1. Higher saving yields as passive income

Unlocking passive income isn’t rocket science, heck, you don’t even need to lock up your money! One of the easiest ways to get started is by parking your spare cash in the right place. For example: 

a) Fuss-free savings or cash managed accounts

Many of us keep our spare cash in savings accounts that offer a sad 0.05%. Fuss-free savings accounts work like these accounts, except on nitro! All you have to do is add your spare cash to these accounts, and you get high interest rates with no conditions, and no fuss.

b) High-interest savings accounts 

Banks offer high-interest savings accounts that reward you with higher saving rates if you fulfil certain criteria. 

c) Fixed deposit accounts

Fixed deposits are like time capsules that multiply – bury your cash and unearth it later for your rewards. But these days, finding good spots to bury your cash is as difficult as finding a needle in a haystack.

d) CPF life

It’s the most underrated form of passive income, backed by the government! Did you know that you can earn up to 5% on the first $60,000 of your combined CPF balances (for those below 55)? 5%! That’s probably higher than your salary increment!Plus, you don’t even need to lift a finger. If you have a job, your boss is already contributing to your CPF! Of course, if you want to max out your returns, you may want to top up your CPF to $60,000. You’ll even enjoy some tax relief while doing so. But remember, you won’t be able to withdraw your CPF funds in the short term, so don’t go all in!

Refer to the Central Provident Fund board website for more information about CPF interest rates and how CPF works.

2. Business opportunities for passive income

If you have spare time on hand and don’t mind the risk, a side hustle could become a significant source of passive income, when done right. I began by offering my skills as a freelancer. Over time, I built a client base and was able to scale my efforts, which allowed me to eventually focus more on strategic aspects and less on day-to-day tasks.

Here are some business opportunities for a passive income to consider:

a) Freelance

You might be thinking “Freelancing isn’t passive!” But, hear me out. The easiest way to start a business is to start freelancing, here’s why. You’ll learn the ropes and everything they don’t teach you in school about running a business. From getting leads, and closing sales to delivering your service. You’ll also get to build your portfolio and client base. With these skills, you can start outsourcing various parts of the business and unlock your passive income. Freelancing doesn’t have to be complicated either. You could start by offering writing services like what I’m doing now, services like photography or videography, or if you love teaching, you could even start tutoring kids! I also have friends who went from being freelance swim coaches to launching their own swimming academy!

b) Start your own home business

Since the pandemic, we’ve seen an increase in home businesses selling bakes, coffee, and even stickers. Like freelancing, you’ll need to do most of the work during the initial stages of your home business. But the rewards will be sweet. Other popular home business ideas in Singapore include beauty services like hairdressing or manicures, sewing services, retailing handmade goods like bags and accessories, design services, accountancy services, private tuition, and many more.

Not sure where to start? 

Explore your hobbies and skills! You could turn what you love into a business idea. Many people have turned hobbies into profitable ventures. For example, I run a mobile coffee cart service. What started as a small project has grown into a successful business with its own income streams.

c) Online businesses

If becoming a Tiktoker or Youtuber has always been your dream, then give it a go! You might become Singapore’s Mr Beast or Khaby Lame, with your own online empire. But remember, building an online business will take time and effort. Beware of get-rich-quick schemes! Other popular online opportunities for passive income include graphic design, digital marketing services, building e-commerce brands, and more.

3. Investment strategies for a passive income

Building a business usually requires capital, time, managing people and clients, dealing with an endless trail of emails/text messages, worrying about cash flow, and… you get the picture. It may not be for everyone. So, instead of risking your resources building a business, why not “put your money to work” by investing? Here are some investment strategies for a passive income you could consider:

a) Singapore Savings Bonds

Imagine having an unbreakable piggy bank that grows over 10 years! Singapore Savings Bonds (SSB) are like savings accounts issued by the Singapore government, and they pay out interest every 6 months.The best part is, you can choose to unlock your piggy bank anytime and get your money plus whatever interest you’ve earned. There are a few catches to a deal this sweet. First, you can't hoard SSBs, there's a limit of S$200,000. Second, interest rates are based on the Singapore government securities rates, which is “meh” most times.

b) Dividend stocks

You might be familiar with standard savings accounts that offer minimal interest rates. However, there are dividend stocks that can pay significantly higher returns, sometimes up to 4.98% or more.Imagine owning a portfolio of dividend stocks that regularly deposits money into your account, regardless of your work performance.In addition, dividend income in Singapore is not taxable, making this investment strategy even more attractive. If only our salaries were taxed the same way.

c) Real estate

Another popular investing strategy for passive income is real estate investing where you buy properties and rent them out for income, much like playing Monopoly. Real estate investing requires a more strategic cash flow and debt management as well as higher capital compared to dividend investing. It may not be for everyone. But if you have won Monopoly before, you probably have an idea of the crazy rewards that come with successful real estate investments.

Tax implications of having a passive income

Now, you’re probably wondering, “If I make more, I’ll need to pay more tax, right”? 

Well, not exactly. According to IRAS, only “income earned or derived from Singapore is chargeable to income tax”, with a few exceptions. Here’s a quick summary of the types of passive income mentioned above and their tax implications:

Is it taxable?

• Savings Account: ❌ No
• Credit Card Bonuses and Cashback: ❌ No‍
• Side Hustle or Business: ✅ Yes, generally‍
• Commission or Income as Influencer: ✅ Yes‍
• Capital Gains from Stocks or Real Estate: ❌ No, generally‍
• Rental Income from Property: ✅ Yes‍
• Dividend Income from Stocks: ❌ No

I’m no tax expert, so refer to the IRAS guide on what is taxable here for more information on how you’re being taxed in Singapore.

Common pitfalls of passive income

Passive income opportunities in Singapore are not all rosy, I’ll spill the beans on some common traps that could save you from painful decisions here, so don’t skip this section!

1. There is no such thing as a free lunch

If you’ve read the list above, you’ll undoubtedly come to the conclusion: there isn’t a passive income that is truly “passive”. Truth hurts but let’s face it, you’ll need to put in some time and effort to build and maintain your passive income. So make sure to stay ahead in the game, and the returns will definitely be worth it!

And always beware of:

2. Scams and get-rich-quick schemes

Scams and get-rich-quick schemes prey on greed – the idea of earning money without having to do any work is very tempting. If someone asks you to provide ‘capital’ on the promise that it will grow and reward you over time, your job is to find out how it works and if the payout is sustainable.

Do not make decisions in the spur of the moment. Give yourself a week or two to mull over it. 

It has been proven by psychology studies that the pain we feel when we lose outweighs the pleasure we feel when we win. It’s always better to miss out on a too-good-to-be-true deal than lose your hard-earned money.

3. Overextending your resources

Let’s face it, it is impossible for you to unlock all the passive income streams at once, so be chill and don't get too carried away. Instead, focus your energy on one new passive income stream at a time. That way, you will be able to maximise your returns and be sure that your passive income is sustainable.

Tips for maximising passive income

1. Emergency fund

Having an emergency fund allows you to protect your passive income streams during the rainy season. Imagine you needed $10,000 for an urgent surgery and you had to sell your stocks for a 50% loss during the bear market to afford it. That’s a double whammy! So always have an emergency fund! It should be stored in a trustworthy, liquid, and easily accessible account. 

2. Diversify

Why stop at one when you can have multiple streams of passive income? Having a diverse range of passive income protects you against the risk of a loss or drop in passive income should circumstances change. For example, imagine if you owned rental properties during the pandemic and couldn’t secure tenants in the lockdown. There goes your passive income, plus you have to cover the cost of maintaining the property. 

3. Hunt for high-yield opportunities that are safe

We have limited resources, so allocate them to the best high-yield opportunities where possible. But again, remember to do your own due diligence and stack the odds of success in your favour!

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Building a passive income in Singapore is easy, you just need to start!  I've shared a variety of ideas on how you can earn passive income in Singapore. The ball is now in your court. Take the first step towards creating a more prosperous tomorrow by exploring these strategies and setting your plans into motion. All the best!

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Disclaimer: 

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