“Passive income,” “When money works for you,” “Earning enough for a comfortable retirement on the French Riviera” — thoughts like these have crossed the mind of every working adult at least once. Experts agree that the desire to increase your income and build a financial cushion is not about postponing life; it’s about financial literacy and personal security.

So let’s find out how to increase your income by investing in securities and address the most common questions.

How to Create Passive Income and What Is Needed for It

We all know that there are two types of income: active and passive. The first one includes your salary, freelance projects, and even a few hundred dollars you earn while betting at 20Bet. But what is passive income? It’s money you earn without putting in effort or spending your time. This can include:

• Interest from deposits
• Dividends from stocks
• Coupon payments from bonds
• Income from real estate
• Royalties

This type of income is not tied to your job, the time you spend, or the work you perform. It should exist, essentially, on its own.

To generate passive income, you need to invest money, effort, or time. When it comes to money, one of the most obvious steps is to review your expenses and work on increasing your income.

What You Need to Do to Increase Your Income

First, keep a budget to understand where your money is going. Analysing your expenses will help identify problem areas, eliminate unnecessary spending, and start saving.

Second, set aside a portion of your income every month, starting with 10-20% of your salary, is a good approach.

Third, build a financial cushion, which typically amounts to three to six months’ worth of expenses.

Fourth, start investing. Bank deposits are a tool for saving money, but for money to “work” for you, it needs to be invested in the stock market.

Why Invest at All?

Investing means putting money into a specific instrument with the goal of generating income — whether in securities, business ventures, or real estate.

One of the main ways to invest is through the stock market.

The stock exchange is a market with many buyers and sellers. Sellers offer various securities, and buyers look for profitable investment opportunities.

Retail investors cannot directly buy securities on the exchange; they need a broker. A brokerage firm helps clients choose the right securities at the right time to invest, handles all administrative tasks, and provides convenient trading platforms for placing buy or sell orders.

How Investors Earn Money

When an investor buys securities, there are two main ways to earn:

• First, buy a security at one price and sell it at a higher price. For example, you could buy an Apple stock for $120 and later sell it for $140. The $20 difference is the investor’s profit.
• Second, receive payments from the company whose securities you purchased. These can include dividends on stocks or coupon payments on bonds. In short, this is a small percentage of the security’s value that you receive as profit.

What to Invest in on the Stock Market

The most common securities are stocks and bonds.

When you buy a company’s stock, you acquire a small share listed on the exchange. For instance, buying Apple stock makes you a shareholder and, in essence, a partial owner of the company. While you don’t participate in management, you can earn from owning the stock. Large, stable companies share their profits with shareholders in the form of dividends.

When you buy bonds, you are lending money to companies or even governments. When they need funds, they issue bonds (debt certificates) on the exchange. By buying such a bond, you lend money, and in return, they are obligated to repay it within a certain period, with a specified interest.

How to Start Investing

Anyone can invest. It’s not as complicated as it may seem. Most importantly, you don’t need millions of dollars — you can start with even a small amount.

First, define your investment goal. Whether you aim to save for an apartment, earn passive income, or protect your savings will determine your investment strategy and the types of securities you can buy. For example, if you are willing to take risks and aim for high returns, you might participate in IPOs (Initial Public Offerings) or buy high-risk stocks. Conversely, if you want to protect your savings, you should diversify across different securities to reduce risk.

Next, choose a broker and open an investment account.

What Are the Risks of Investing?

Even if your starting amount is small, returns can be diminished by broker commissions, and the time and effort spent may not pay off.

It’s also important to understand how much time you’re willing to dedicate to investing. If you want to make decisions yourself, select securities, and monitor news and factors affecting their value, it makes sense to allocate time for learning. If you prefer your money to be invested “automatically,” you can choose suitable instruments, such as funds and ETFs, or opt for a trust management service.

Risk level truly determines potential returns: higher risk can lead to higher returns and vice versa.

For example, an IPO could yield several hundred per cent in a few months in dollar terms. However, the risk of losing money — or part of it — is much higher than with bonds. Bonds, in turn, typically provide lower returns of around 5-7%. Accordingly, buying bonds, especially government ones, is generally less risky than buying stocks.

You should understand that whenever you buy securities, there is always a risk of losing money. That’s how the stock market works. Stock prices are influenced by many factors: a company’s financial condition, economic and political conditions locally and globally, news, competitors, and much more. Experienced traders can forecast price changes, but nothing is guaranteed. Therefore, when you start investing, you must understand that, unlike deposits, most securities cannot offer fixed returns.