Content of the material
- Best Passive Income Ideas
- Which passive income source is best?
- How can I make passive income with no money?
- How can I make passive income with money?
- The Bottom Line
- What Is the Highest Paying Passive Income Investment?
- Passive Income Ideas Requiring an Upfront Monetary Investment
- 1. Dividend Stocks
- How to Start Building Passive Income
- 1. Start building a nest egg
- 2. Assess your skills
- 3. Assess your time, money and effort. Be realistic about your commitments
- 4. Ideate and choose
- Passive Income Ideas You Can Access for Building Wealth
- 1. Rental Properties
- What Passive Income is not
- ❌ Your job.
- ❌ Side hustles.
- ❌ Consulting.
- ❌ Investing for speculation.
- The Benefits Of Passive Income Investments
- Tax Breaks
- Retirement Fund
- Your Mortgage Gets Paid
- How Do You Get Started with a Passive Income Investment?
- Popular Posts
Best Passive Income Ideas
- Rental Properties
- Crowdsourced Real Estate Platforms
- Small Businesses
- Real Estate Investment Trusts (REITs)
- Peer-to-Peer Lending
- Alternative Investments
- Invest in Farmland
- Dividend Stocks
- A Bond Ladder
- Selling Information Products
- Sell an eBook
- Flipping Retail Products
- Become an App Developer
- Affiliate Marketing
- Invest in CDs or High-Yield Savings Accounts
- Rent Out Your Home Short-Term
- Advertise on Your Car
- Create a Blog or YouTube Channel
- Rent Out Household Items
- Invest Automatically in the Stock Market
- Sell Stock Photos
- License Music Royalties
- Storage Rentals
- Cashback Sites
- Get Paid to Have Apps on Your Phone
- Save Money on Utility Bills
- Design T-Shirts
- Buy Vending Machines
- Buy a Car Wash
- Buy an Established Business
- Rent Out Your Car
- Invest in a Business as a Limited Partner
- Pay Off or Reduce Debt
- Sell Digital Files on Etsy
- Cashback Rewards Credit Cards
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 likelihood of success.
So you’ll need to weigh the opportunity against these factors and see which passive income strategy works best for you. But it can be helpful to have natural ability and an interest in your target area, because these can help motivate you in the early days when things are likely to be tougher.
There are passive income opportunities for people who are starting out with some money and even those who have no money to start.
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 own 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 out 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.
In effect, you’re substituting your time for your lack of capital, until you can get enough capital to expand your set of opportunities.
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 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.
Here you can use your money to make money with little or no effort on your part, if that’s what you’d like to do. Of course, you could pair your money with a lot of time investment to move into an even more lucrative niche, too.
The Bottom Line
What you do with the money earned from passive income stocks is up to you. But a powerful strategy to boost your annual returns is using a dividend reinvestment plan (DRIP). If your investment strategy is for the long haul, this is a surefire way to boost your portfolio’s performance.
But keep in mind, passive income stocks aren’t the only way to earn passive income. And we’ve got plenty of other great passive income ideas that can boost your earning potential. Just click on that link to check ‘em out.
What Is the Highest Paying Passive Income Investment?
The best passive investment will vary over time and from year to year depending on various circumstances. Historically, real estate (either directly held, or indirectly in the form of real estate investment trusts (REITs)) and dividend-paying stocks have tended to outperform other asset classes.
Passive Income Ideas Requiring an Upfront Monetary Investment
These types of passive income require you to invest money up front to generate the passive income later. Don’t be alarmed though – you can start with as little as $5 with some of these ideas, so it’s achievable for everyone.
1. Dividend Stocks
Dividend stocks are tried and true way to earn passive income. You will have to do plenty of research to find good stocks and invest a significant amount of money to receive large dividend checks. However, if you consistently invest money into dividend stocks you can amass a nice residual income over time.
For any of these investment opportunities, make sure you open an account at the best online brokerage, and get rewards while doing it.
This is amazing for investing in dividend stocks because you can build your portfolio of, say, 30 stocks. Then, your investments will be auto-allocated to your entire portfolio every deposit – for FREE! You can even auto-rebalance. Then, your dividends can also be reinvested. It’s a fantastic platform, and it was made for this. Plus, M1 Finance was an honorable mention on the best places to invest for 2022!
Read our full M1 Finance review here.
How to Start Building Passive Income
There’s no magic trick that turns your time directly into money. Instead, you plant seeds so your money will grow, even when you’re sleeping or at the park walking your dog.
The initial downtime you put into passive income can be as involved as starting a blog or as simple as logging into a robo-advisor platform and investing $100. You can earn passive income whether you’re an entrepreneur with a brilliant business plan, a talented artist, or just happen to have extra cash to invest.
1. Start building a nest egg
Remember earlier I said to create passive income you need time, money or skills? Let’s start with money. Open a high-interest savings account and park even $100 dollars in it. Boom, you just made passive income!
It may not be much, but you’ll earn interest on that money and many online banks even offer cash bonuses for opening accounts. Our favorite right now is CIT bank.
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2. Assess your skills
When I started GoodFinancialCents I was a Certified Financial Planner looking to grow my business and answer common client questions. I figured out that I could use these skills to create great content online, and that I could make money with this blog over time.
I have friends who were stock traders and now have communities around that skill or write for financial publications. Other friends have gotten good at management, and now are building career websites.
What are you good at? What are you passionate about? Take a quick inventory, and research the ways others have used those skills to build income streams.
3. Assess your time, money and effort. Be realistic about your commitments
Time is a tricky one, because it’s our most limited resource. Trying to make more money or create passive income can be a trap because it usually requires you to learn new topics or new skills, and that can be a time suck. Remember, you may have to bite the bullet in the short term, but in the long term your goal is to minimize your time investment.
Are you fully committed? Current work, family and social activities eat up a lot of time. If you don’t have much time, you’ll need to lean more towards investing or getting someone else to do the work for you.
In this guide, we’ve labeled each idea with an effort level (1-5, 5 requires the most effort) to help you match your current abilities to the idea.
4. Ideate and choose
The final step is to put some ideas down on paper and choose how to begin. We created the following list to help you kick off your brainstorming. To help with that, we’ve created this list of ideas to get you started. Here’s to your wealth and freedom!
Passive Income Ideas You Can Access for Building Wealth
If you’re thinking about creating a passive income stream, there are a variety of ways to do it. The passive income ideas below represent some of the most common—and uncommon—ways to earn passive income.
Before proceeding with a single income source on this list, be sure to understand the risks involved with each and how they fit within your broader portfolio and overall risk tolerance.
1. Rental Properties
In order to make passive income from investment, you can invest in rental properties.
However, many people find that it takes more time to see results than they would like. Plus, they need to deal with the headache of managing rental properties and tenants.
Investing without understanding the risks can make it a costly mistake.
Opportunity: To earn passive income from rental properties you must determine three things:
- What’s your target return?
- What are the total expenses from buying and managing the property?
- What are the risks involved with owning and managing this rental real estate?
If your goal is to earn $15,000 a year in rental cash flow and the property has a monthly mortgage of $2,500 and costs another $400 for taxes and other related real estate expenses per month as well, you’d have to charge at least $4,150 in monthly rent.
In some areas of the country, this isn’t far-fetched. It also depends on the size of the home. You should also realize capital appreciation as the home’s value increases over time.
Risk: There are a few questions to consider before investing in real estate projects:
- Does your property exist in a desirable market?
- What happens if you sign a tenant who pays late (or not at all) or who damages the property?
- What if you fail to find a tenant?
It’s situations like this where even with the best passive income ideas, you could still be earning less than anticipated.
Add further new challenges posed by the pandemic. While likely a transitory event, you may get saddled with tenants who not only don’t have to pay rent but also don’t need to vacate the property due to legal protections, eviction moratoriums and more.
Suddenly, your investment property becomes a money pit and a liability on your balance sheet rather than an asset.
What Passive Income is not
❌ Your job
Obviously. The whole idea of passive income is to supplement, augment or get you out of your job so you can retire, travel or spend more time with loved ones.
❌ Side hustles
Side hustles are great ways to make money, but not all side hustles are passive. Side hustles are usually active, and maybe with systemization, they can turn into passive income streams.
If you need to continually invest the same (or more) amount of time for the same amount of financial output, the venture is not passive. Be careful here, because remember, in the beginning, a passive income stream could require more time, money, or work than it produces.
You have to evaluate the passive income opportunity in its long-term state for you.
Consulting is just another job – perfect for a side hustle, but not exactly passive. For consulting to be passive, you’ll need to build the practice with other people, and be able to step away from the work eventually.
❌ Investing for speculation
Here’s where I split hairs. I do not consider stock investments for capital appreciation only to be passive income. Why? Because stock appreciation is not income. On the other hand, investing in stable companies that throw off cash in the form of dividends is definitely a passive income strategy. The difference is, are you getting a cash-on-cash return, or will you only see a return if you sell the investment?
Also, investments like cryptocurrencies and commodities are reserved for price speculation. There are many times when these investments should get some allocation of your portfolio, but investing like this is not a stable passive income strategy unless you are earning yields or grit bot trading.
The Benefits Of Passive Income Investments
Along with generating continuous streams of revenue void of extensive activity, passive income provides a variety of advantages over traditional investment methods. For example, an investor who generates passive income through real estate might experience the following benefits:
Your mortgage gets paid
Making your first investment also means you are increasing your taxable income. It is crucial to consider the various tax strategies you can follow to minimize the taxes owed on your new investment. Fortunately, one of the biggest perks that passive income assets can provide comes from tax deductions. For example, rental property owners get to claim depreciation losses by writing off the property’s cost over the life of the loan.
There are other important tax considerations to make when selecting a passive income investment. One common strategy is to use a retirement account, such as an IRA or 401k, to invest your money in other asset types. There are numerous tax benefits associated with these account structures. As you consider various passive income assets, set aside time to meet with your accountant or financial advisor. They are the most qualified at guiding your passive income portfolio. By paying attention to potential tax breaks, you can make sure you are maximizing the overall profits from your passive income investments.
Many view passive income as a powerful strategy for growing retirement funds at a faster rate.
Although it may take more work than investing in the stock market, securing multiple revenue streams can help eliminate long-term concerns about running out of money during one’s retirement years. It is also a means of providing financial assets for future generations. Also, rental income will typically keep up with inflation—sometimes even outpacing it.
Your Mortgage Gets Paid
One of the greatest perks of earning a passive income is being able to pay off your mortgage. For example, a rental property investor can use their rental income from tenants to pay off those properties’ mortgages. In an ideal situation, they would even have income left over each month. This can be extremely beneficial, as not having to pay a mortgage out-of-pocket can free up your finances, as well as help you tap into the liquidity of your investment much faster.
How Do You Get Started with a Passive Income Investment?
If you have money to invest, purchasing the appropriate passive asset, whether it be a REIT or an index ETF, will allow it to start working for you. You may need to open a brokerage account in such a case in order to transact and hold your investments.