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Updated on Friday, May 8, 2020
The idea behind passive income is that you can earn money over time without actively being involved in anything day to day. There may be work involved in the setup, but once your passive income earner is up and running, you get income on a regular basis without daily effort.
Passive income is important because it can both supplement your regular paycheck and act as an income safety net if you lose your job. It can also be an additional revenue stream once you retire. In short, passive income is a powerful tool to have in your financial portfolio.
10 passive income ideas to consider
To earn passive income, you will need to set up a situation that brings in continuous income over time. Passive income opportunities are plentiful, but some are easier (or more successful) than others. You’ll have to consider your skills, which strategies might be easier or more available to you (some of them require cash, while others call for time and talent) and how much time you have to get something started before deciding on a passive income stream. Here are 10 ideas to consider.
- High-yield savings and money market accounts
- Cashback cards and websites
- Peer-to-peer lending
- Real estate rentals
- Affiliate marketing
- Online courses
- Print-on-demand business
- Selling stock photos
1. High-yield savings and money market accounts
Earning interest on your money is a reasonable way to generate some passive income, particularly if it’s cash that’s just sitting in the bank. To do this, make sure your emergency fund (you do have an emergency fund, right?) is in an interest-earning savings account or money market account. In either type of account, you can earn between 1% and 2% on your cash savings.
- Risk level: Low. Because savings and money market accounts are typically FDIC-insured, your money will be protected up to the legal limits if your institution were to fail.
- Time commitment: Low. Beyond researching the best rates and looking into which accounts suit your needs, you won’t have to devote much time to this option.
2. Cashback cards and websites
A variety of financial products and websites allow you to make money by spending money in a particular way — either via a credit card with cashback rewards or by doing your shopping through an online portal that pays you a percentage of your purchases back in cash. (Or you can do both at the same time for two passive income streams.)
Look for a cashback credit card paying at least 1% on all purchases and preferably greater rewards in certain categories. Then, shop via an online portal like Rakuten (formerly Ebates), which will pay you a percentage of purchases with participating retailers, such as Petco and Lands’ End.
- Risk level: Low. With this passive income option, you’ll be earning extra cash on money you’re already spending. Just don’t let yourself get carried away and make purchases just to earn cash back.
- Time commitment: Low. Again, this is just a way to optimize the spending you are already doing.
3. Peer-to-peer lending
Peer-to-peer lending platforms, such as Prosper, allow you to loan money to individuals or small businesses via the platform and, in turn, earn interest, typically at a rate higher than you’d find at a bank. Your returns will depend on how much risk you’re willing to take, and you can spread your money out over multiple loans with multiple risk profiles. Prosper states that its loans have historically returned an average of 5.10%, while Funding Circle, another peer-to-peer lender, estimates its historic returns at 5% to 7%, even after the 1% servicing fee.
The downside is that borrowers could default on their loans and you could lose your principal. But sites rate borrowers by credit score and other factors to help you determine how much risk you’re taking.
- Risk level: Medium to high. There is more risk involved with this option because you are face the risk of default, which would cause you to lose not only your passive income opportunity but also your principal.
- Time commitment: Medium. With this option, you’ll want to dedicate time to learning the industry and researching lending opportunities.
In terms of true passive income, it doesn’t get much more passive than dividends, which are distributions made from a portion of a company’s earnings to investors in that company. If you’re invested in companies that pay dividends, you’ll receive periodic cash payments.
That said, dividend investments tend to have different goals than other kinds of investments, and you shouldn’t swing your entire portfolio over to dividend stocks just to realize this kind of passive income. A financial advisor can help you determine what kind of role dividend investments can play in your financial plan.
- Risk level: Medium to high. Investing in the stock market isn’t without risks. You’ll be susceptible to fluctuations in the market as well as the company’s performance.
- Time commitment: Low to medium. Though this is a truly passive investment opportunity once you’ve chosen your investments, you do want to dedicate some time to choosing the right stocks.
5. Real estate rentals
Some people invest in real estate as a passive income investment. If you own a property and rent it out, for instance, you’ll receive income each month from your renters. But owning real estate isn’t labor-free if you’re managing the property, which involves finding and screening tenants and being available for emergency repairs and other assistance.
“To truly be passive, you’d want somebody else doing it and you get mailbox money,” said Matt Chancey, a CFP in Tampa, Fla. “But the more passive it becomes to you, typically the lower the income stream, because there are other professionals in the value chain doing part of the work for you.”
- Risk level: Medium. Though you don’t face the risk of market fluctuations or default, you are allowing people to stay in your property. It is important to find trustworthy tenants to avoid any issues with property damage or late rent payments.
- Time commitment: High. Real estate rentals aren’t a set it and forget it opportunity. You will need to take the time to vet tenants and maintain the property, among other tasks.
6. Affiliate marketing
If you’re willing to plug certain products or services online and on social media, you can earn a tiny piece of the profit if people click your link or make a purchase. This is called affiliate marketing, which is essentially earning a commission by promoting other people’s products.
You can do this via a blog you write or another social media account, such as an Instagram account with a lot of followers. The trick is that you need an audience — but once you have that audience, you can use affiliate marketing to monetize it.
“This isn’t a get rich quick scheme,” said Donovan Gow of home DIY site HouseAndTool.com. “You’ll have to learn a lot about SEO, website building and layout, keywords and link building in order to build traffic to your website. However, this is all very doable.”
There are various formats for affiliate marketing, including pay-per-click, pay-per-sale and more. You can check out affiliate networks like ClickBank, CJ Affiliate (formerly Commission Junction), Google AdSense, Infolinks and Rakuten LinkShare to learn more.
- Risk level: Low to medium. There isn’t necessarily monetary risk in this, but you could end up wasting time if your efforts to drive traffic don’t pan out.
- Time commitment: High. As mentioned, getting the ball rolling on this passive income opportunity requires a lot of learning, about everything from SEO to website building.
7. Online courses
Do you have a particular skill, or is there a kind of training you regularly give to your employees or coworkers? You can package it into an online class or tutorial. Once it’s produced, you’ll receive income every time someone purchases it. You can use a site like Udemy, Teachable or Skillshare to make your course available to the paying public.
“Building a truly substantive and penetrating online course is essentially a one-time cost,” said Jason Patel, founder of college and career prep company Transizion. “Sure, you’ll have to pour a lot of time and effort into building the course, but once it’s made, you’ll only have to update it with design and curriculum.”
In addition, an online course gives you bragging rights, a portfolio item and a way to attract customers to your brand. “Even if the course itself doesn’t sell, you can offer the course as a lead generation tool, thus transforming it into a powerful passive marketing tool,” Patel said.
- Risk level: Low to medium. Similarly to affiliate marketing, you’ll put time and effort on the line but you won’t necessarily risk much money.
- Time commitment: High. Creating a course isn’t something you can whip up in a spare hour. It will require time and effort, but once it is made you won’t have to do much to keep it going.
8. Print-on-demand business
Another example of passive income is a print-on-demand business, which allows you to list items for sale without having any of the items in stock. For instance, you might offer t-shirt designs, artwork or allow someone to upload a photo that is then printed on an article of their choice. (Picture your pet’s face on a pair of socks.)
When a person purchases the item from your store, the order is automatically sent to a print-on-demand fulfillment provider that prints the product and ships it out to your customer on your behalf. “My business is about 90% automated,” said Justin Blase, founder and owner of Ted’s Vintage Art, which sells vintage maps. “I also sell these products on Etsy, Amazon, eBay and Houzz.com.”
- Risk level: Low. Because you aren’t making items until the demand to sell is already there, you won’t risk losing money on inventory sitting around unpurchased.
- Time commitment: Medium. While you have to invest the time and energy to get your business set up, you can largely automate things once you’ve gotten the ball rolling.
Like an online class, a self-published e-book gives you the chance to showcase your expertise and offer it to the world in the form of a purchasable product. “Some say self-published e-book publishing isn’t as lucrative as it once was,” Gow said. “While that may be true, it’s still probably the simplest way to begin generating passive income.”
That’s because once you’ve written the book, your work is available in perpetuity. “Our company has books that we self-published years ago that continue to generate hundreds of dollars a month in profit with absolutely no marketing or effort on our end,” Gow said.
And while many self-publishers offer only Kindle versions of their books, a surprising number of people still prefer to purchase a hardback book, and it’s easy enough to make one available via a service like Printful.
- Risk level: Low to medium. You have to invest a significant amount of time and energy for this one to pan out. Still, while you could earn steady passive income if your book performs well, you simply won’t get that income if it doesn’t, as opposed to losing funds.
- Time commitment: High. Writing a book is no walk in the park. You’ll have to have talent and expertise, as well as the time and patience to get the job done well.
10. Selling stock photos
If you’re passionate about taking photos, another passive income idea to look into is selling your photos on a stock photo platform. Stock photos are what companies use in varying content, such as their website, internal and external publications and marketing materials.
To make money from stock photography, you simply would upload your photos to a stock photography site. Different sites have different requirements in terms of who can upload photos, and rates may vary. Some sites to check out include Alamy, iStock, Can Stock Photo and Shutterstock.
- Risk level: Low. Especially if you already have the equipment because photography is your hobby or career, you aren’t risking much at all.
- Time commitment: Medium. You will have to invest time to take the photos and also consider what types of stock photos might be in demand. Still, uploading photos isn’t a huge undertaking and you don’t have to worry about much maintenance once they’re up.
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