Whether you’re running a side business or simply looking for a little more cash flow each month, passive income might be a terrific method to help. This is especially true as consumers are feeling the pinch of increasing pricing. When things are good, passive income can help you make more money. It can also help you get by if you suddenly lose your job, take a voluntary leave of absence, or your purchasing power is steadily declining due to inflation.
With passive income, you can earn money while working at your regular job. If you can establish a steady source of passive income, you may wish to take a brief vacation. In any case, having a passive income adds security to your life.
Additionally, creating wealth through passive income is a tactic that may be appealing to you if you’re concerned about having enough money saved for retirement.
Monetize now
What is passive income?
Passive income includes regular earnings from a source other than an employer or contractor. The Internal Revenue Service (IRS) says passive income can come from two sources: rental property or a business in which one does not actively participate, such as being paid book royalties or stock dividends. While legally that’s true,.
“Many people think that passive income is about getting something for nothing,” says financial coach and retired hedge fund manager Todd Tresidder. “It has a ‘get-rich-quick’ appeal … but in the end, it still involves work. You just give the work upfront.”
Passive income is not …
- Your job. Generally, passive income is not income that comes from something you’ve been materially involved in such as the wages you earn from a job.
- A second job. Getting a second job isn’t going to qualify as a passive income stream because you’ll still need to show up and do the work to get paid. Passive income is about creating a consistent stream of income without you having to do a lot of work to get it.
- Non-income-producing assets. Investing can be a great way to generate passive income, but only if the assets you own pay dividends or interest. Non-dividend-paying stocks or assets like cryptocurrencies may be exciting, but unless you’re staking your coins, they won’t earn you passive income.
Passive income ideas for creatives
1. Write an e-book
Writing an e-book can be a good opportunity to take advantage of the low cost of publishing and even leverage the worldwide distribution of Amazon to get your book seen by potentially millions of would-be buyers. E-books can be relatively short, perhaps 30-50 pages, and can be relatively cheap to create, since they rely on your expertise.
You’ll need to be an expert on a specific topic, but the topic could be niche and use some special skills or abilities that very few offer but that many readers need. You can quickly design the book on an online platform and then even test-market different titles and price points.
2. Sell photography online
Selling photography online might not be the most obvious place to set up a passive business, but it could allow you to scale your efforts, especially if you can sell the same photos over and over again. To do that, you might work with an organization such as Getty Images, Shutterstock, or Alamy.
To get started, you’ll have to be approved by the platform, and then you license your photos to be used by whoever downloads them. The platform then pays you every time someone uses your photo.
3. Create an app
Creating an app could be a way to make that upfront investment of time and then reap the reward over the long haul. Your app might be a game or one that helps mobile users perform some hard-to-do functions. Once your app is public, users download it, and you can generate income.
4. Create a blog or YouTube channel
Are you an expert on travel to Thailand? A maven of Minecraft? A sultan of swing dancing? Take your passion for a subject and turn it into a blog or a YouTube channel, using ads or sponsors to generate your income. Find a popular subject, even a small niche, and become an expert on it. At first, you’ll have to build out a suite of content and draw an audience, but it can create a steady income stream over time, as you become known for your engaging content.
5. Sell designs online
If you have design skills, you may be able to turn them into a money maker by selling items with your printed designs on them. Businesses such as CafePress and Zazzle allow you to sell items including T-shirts, hats, mugs and more with your own designs.
Passive income ideas for investors
6. Dividend stocks
Shareholders in companies with dividend-yielding stocks receive a payment at regular intervals from the company. Companies pay cash dividends every quarter out of their profits, and all you need to do is own the stock. Dividends are paid per share of stock, so the more shares you own, the higher your payout.
Opportunity: Since the income from the stocks isn’t related to any activity other than the initial financial investment, owning dividend-yielding stocks can be one of the most passive forms of making money. The money will simply be deposited in your brokerage account.
7. A bond ladder
A bond ladder is a series of bonds that mature at different times over years. The staggered maturities allow you to decrease reinvestment risk, which is the risk of reinvesting your money when bonds offer too-low interest payments.
Opportunity: A bond ladder is a classic passive investment that has appealed to retirees and near-retirees for decades. You can sit back and collect your interest payments, and when the bond matures, you “extend the ladder,” rolling that principal into a new set of bonds. For example, you might start with bonds of one year, three years, five years and seven years.
8. A high-yield CD or savings account
Investing in a high-yield certificate of deposit (CD) or savings account at an online bank can allow you to generate a passive income and also get one of the highest interest rates in the country. You won’t even have to leave your house to make money.
9. Set up an annuity
An annuity can be a good place to set up reliable income. With a typical annuity, you make payments to an insurance company, which will provide you with a stream of income in the future. Annuities pay out monthly, and they can be set up in a variety of ways, for example to start paying immediately or much later.
10. Peer-to-peer lending
A peer-to-peer (P2P) loan is a personal loan made between you and a borrower, facilitated through a third-party intermediary such as Prosper. Other players include LendingClub and Upstart.
Opportunity: As a lender, you earn income via interest payments made on the loans. But because the loan is unsecured, you could end up with nothing in the event of a default.
To cut that risk, you need to do two things:
- Diversify your lending portfolio by investing smaller amounts over multiple loans. At Prosper.com, the minimum investment per loan is $25.
- Analyze historical data on the prospective borrowers to make informed picks.
11. A municipal bond closed-end fund
Municipal bonds offer tax-free dividend income to investors in exchange for financing public projects for states and cities. A closed-end fund focused on this area of the market owns a variety of these bonds and then juices the overall return by borrowing money to buy more. Like investing in CDs or dividend funds, a closed-end fund is the most passive kind of income.
12. Preferred stock
Preferred stock is a type of stock that acts more like a bond, making attractively large dividend payouts on a quarterly schedule. Like bonds, preferred stock has a face value and may have a specific maturity, though it may also be perpetual, meaning the company need never redeem it. Typically, it can be redeemed after five years of issuance. Preferred stocks trade on an exchange, so you can buy them easily, and liquidity is relatively good.
Real estate-based passive income ideas
13. Rental income
Investing in rental properties is an effective way to earn passive income. But it often requires more work than people expect.
If you don’t take the time to learn how to make it a profitable venture, you could lose your investment and then some says Graves.
Opportunity: To earn passive income from rental properties, Graves says you must determine three things:
- How much return ydo ou want on the investment
- The property’s total costs and expenses
- The financial risks of owning the property
14. Buy crowdfunded real estate
If you’re interested in investing in real estate but don’t want to do a lot of the heavy lifting (management, repairs, handling tenants and more), then another option is using a crowdfunding platform to invest in property. An experienced investing team picks out the real estate, and then you can decide to invest in it and how much you’re comfortable with.
You’ll pay an annual management fee to the real estate platform and have minimum investment amounts that could range from ten dollars to tens of thousands of dollars.
15. REITs
A REIT is a real estate investment trust, which is a fancy name for a company that owns and manages real estate. REITs have a special legal structure so that they pay little or no corporate income tax if they pass along most of their income to shareholders.
Opportunity: You can purchase REITs on the stock market just like any other company or dividend stock. You’ll earn whatever the REIT pays out as a dividend, and the best REITs have a record of increasing their dividend on an annual basis, so you could have a growing stream of dividends over time.
16. Rent out your home short-term
This straightforward strategy takes advantage of space that you’re not using anyway and turns it into a money-making opportunity. If you’re going away for the summer or have to be out of town for a while, or maybe even just want to travel, consider renting out your current space while you’re gone.
Marketing-based passive income ideas
17. Affiliate marketing
With affiliate marketing, website owners, social media influencers, or bloggers promote a third party’s product by including a link to the product on their site or social media account. Amazon might be the best-known affiliate partner, but eBay, Awin and ShareASale are among the larger names, too. And Instagram and TikTok have become huge platforms for those looking to grow a following and promote products.
You could also consider growing an email list to draw attention to your blog or otherwise direct people to products and services that they might want.
Affiliate marketing is considered passive because, in theory, you can earn money just by adding a link to your site or social media account. In reality, you won’t earn anything if you can’t attract readers to your site to click on the link and buy something.
18. Sponsored posts on social media
Do you have a strong following on social media such as Instagram or TikTok? Get growing consumer brands to pay you to post about their product or otherwise feature it in your feed.
You’ll need to keep filling your profile with content that draws in your audience, though. And that means continuing to create posts that grow your reach and engage your followers on social media.
19. Advertise on your car
You may be able to earn some extra money by simply driving your car around town. Contact a specialized advertising agency, which will evaluate your driving habits, including where you drive and how many miles. If you’re a match with one of their advertisers, the agency will “wrap” your car with the ads at no cost to you. Agencies are looking for newer cars, and drivers should have a clean driving record.
Other passive income ideas
20. Flip retail products
Take advantage of online sales platforms such as eBay or Amazon, and sell products that you find at cut-rate prices elsewhere. You’ll arbitrage the difference in your purchase and sale prices and may be able to build a following of individuals who track your deals.
21. Create a course
One popular strategy for passive income is creating an audio or video course, then kicking back while cash rolls in from the sale of your product. Courses can be distributed and sold through sites such as Udemy, SkillShare, and Coursera.
Alternatively, you might consider a “freemium model” – building up a following with free content and then charging for more detailed information or for those who want to know more. For example, language teachers and stock-picking advice may use this model. The free content acts as a demonstration of your expertise and may attract those looking to go to the next level.
22. Rent out a parking space
Do you have a parking space that you’re not using or that could be used by someone else? You could trade that spot for some cash. It could be an even better set-up if you have a larger area that could fit several cars or that would be useful for multiple events or venues.
23. Rent out useful household items
Here’s a variation on renting out an idle car: Start even smaller with other household items that people may need but that may be collecting dust in your garage. Lawnmowers? Power tools? Mechanics tools and toolbox? Tents or large coolers? Look for high-value items that people need for a short time and where it might not make sense for someone to own the item. Then put together a way for clients to discover your inventory and a way for them to pay for it.
24. Buy a local business
A local business offers you the potential to generate a cash flow stream through an existing and established company. If the business is profitable enough, you may even be able to hire a manager to run it for you while you make only the biggest decisions or none at all. You may be able to get an attractive loan to buy it so that you put less of your own money at risk early on.
25. Buy a blog
If you want to get into the blogging game, consider buying one and skipping the line on building it. You can get the contacts and relationships of the prior owner and may be able to bring your own, too. And you can be generating income from day one rather than building and hoping.
Frequently Asked Questions (FAQs)
Which passive income source is best?
The question of which passive income source is best depends on several factors, but some of the most important include the amount of money you have to invest, the total opportunity size, your interest and ability in the area, the amount of time you need to invest and the potential to succeed.
Typically, the lower the barriers to entry, the more crowded the field of competitors and the lower the likelihood of success.
How can I make passive income with no money?
If you have little or no money to start, you’ll have to rely mostly on your time investment to power you through, at least until you build up a little money. That means focusing on passive income sources that take advantage of the following traits:
- An area where you’re an expert. Here you can build your expertise into a useful product or service for consumers, e.g. design, software coding and others.
- An upfront work-heavy opportunity. You’ll need an opportunity that requires a time or work investment, such as creating a course, building out an influencer profile or other options.
How can I make passive income with money?
Money can provide you with more passive investment opportunities. If you have money to invest in a passive opportunity, you have not only the opportunity set above but a new range, too. Money is a prerequisite for taking advantage of the following passive income areas:
- Investing in dividend stocks, preferred stocks or REITs. Investing in stocks means you need money upfront, but you’ll receive some of the most passive forms of income around.
- Save with bonds or CDs. Other purely passive activities include buying bonds or CDs.
How many income streams should you have?
There is no “one size fits all” advice when it comes to generating income streams. How many sources of income you have should depend upon where you are financially, and what your financial goals for the future are. But having at least a few is a good start.
“You’ll catch more fish with multiple lines in the water,” says Greg McBride, CFA, chief financial analyst at 7Search PPC. “In addition to the earned income generated from your human capital, rental properties, income-producing securities and business ventures are a great way to diversify your income stream.”
