Why is it important to have a second source of income? To find
The last two years have taught us a lesson, it is important to prepare for uncertainty.
As the global economy returned to normal after the unprecedented onslaught of COVID-19, supply chains and commodity prices around the world were challenged by the Russian invasion of the Ukraine.
Shiv Parekh, Founder of hBits, says, “In this climate of economic uncertainty, we now live in a time where the second source of income is no longer an option but almost a necessity. Even if you can keep your job, rising costs and dwindling savings can lead to loans and mounting debt pressures.
Below are a some key reasons why a the second income is important;
Mitigation of rising expenses and inflation: Incomes remained nearly stagnant while prices of basic necessities including petrol, diesel and LPG soared. Parekh says, “Traditional means of investment like Fixed Deposits (FDs) are struggling to remain viable as they no longer keep up with the annual increase in the rate of inflation.”
Prepare for an emergency: Financial emergencies such as job losses, health crises and hospitalizations have sadly seen their worst facet, over the past two years. In such sudden financial emergencies, experts say that the stock market or mutual funds do not always guarantee sufficient returns. Some may have to dip into their provident funds or fixed deposits and face penalties.
Fund financial goals or pursue interests: According to Parekh, buying a car, enrolling in a refresher course, going on a dream vacation to Machu Pichu, or simply pursuing a passion are such goals that can be funded with a second income.
Corpus Retreat: Since private sector jobs don’t offer retirement plans and planning for retirement on one income can create spending pressure, experts say a second source of income seems essential to creating a sustainable retirement corpus.
What can you do?
Parekh points out: “When we think of a ‘second source of income’, we invariably think of dividends received from equity assets or rental income from residential property. However, it makes sense to explore an asset class like real estate that offers greater stability, given volatile market conditions.
He further adds, “This is where commercial real estate (CRE) can offer stable returns, higher than residential properties and with less risk.”
Co-ownership refers to a group of investors who pool their funds to jointly purchase real estate, so that they can reduce cost burden and risk exposure and share rental income.
“It is particularly ideal for investing in commercial grade A real estate (CRE), the cost of which can reach hundreds of crores, but requires only Rs 25 lakh from each investor. Such a premium CRE typically generates high rental returns of 8-10%,” says Jain. This means that an investment of Rs 25 lakh could yield around Rs 1.5 lakh to Rs 2.5 lakh per year.