What is Passive Income + Ideas for How to Make It! – Smart Passive Income

Passive Income Ideas: Asset Building

As the name implies, asset building requires the upfront time and effort to build an income-generating asset. While it may not carry the steep financial costs of investing, it does come with the risk that the assets you invest your time in creating may not sell.

Digital Products

Digital products can be anything, from ebooks and lesson plans to mobile apps—even NFTs. What’s key here is that you spend time building them once and then are able to sell the same asset again and again online. You can take a totally passive approach to the digital products you create, or you can devote time and money to marketing them.

Music and Photo Licensing

If you’ve got a creative streak, you can turn your photographs or music into a stream of passive income by licensing it to stock image and music sites. Other content creators then pay for the rights to use your creations. Musicians can sell their songs on sites like and Pond5, while photographers can sell their images on sites such as Alamy and Adobe Stock.

Custom Designed Products

By uploading original designs to print-on-demand websites like Teespring, Redbubble, CafePress and Zazzle, you can earn passive income each time someone orders a t-shirt, coffee mug or other physical product emblazoned with your design. Even better, you don’t have to handle the printing, storage or shipping, reducing much of the frustration of selling physical goods.

Affiliate Sales

Affiliate sales are passive income generated when someone makes a purchase after clicking a link or using a referral code that you publish on a website, video or podcast. You’ll generally earn a flat rate commission or a percentage of their purchase.

You can find affiliate links for just about any type of product or service, meaning you could make passive income from anything from mattress reviews to software evaluations. Keep in mind, however, that this space is very competitive, and most successful affiliate marketing requires high-quality ongoing content production.

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How to Build Residual Income

Depending on your interests, skills, and business

Depending on your interests, skills, and business knowledge, you can create sources of residual income that align with your experience. If you don’t have experience in a certain area but wish to learn, there are plenty of resources to acquire the necessary skills.

The main idea behind residual income is leveraging other people’s time and resources to achieve consistent revenue. Whether it’s an online product that continues to be sold or a rental property that is continuously occupied, residual income requires hard work at the beginning but the work and time tapers off once the investment is up and running.

In fact, many people have built their fortunes from residual income, all while achieving a more flexible lifestyle and earlier retirement. Residual income isn’t a get-rich-quick scheme. It’s a sustainable way to build wealth and increase your personal revenue with little effort to no effort.

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 they won’t earn you passive income.

Residual Income Idea 1: Information Products

Information products have become a huge factor in the residual income industry. It’s now easier than ever to gain access to and distribute information. Because of this, anyone who is willing to put in a decent amount of advance work can pool a large source of information, compile it into a more digestible format, and then distribute it.

For example, say you are a CPA with a lot of experience in small business finances. You probably already have enough knowledge to fill a book with useful information that small business owners could use to help them manage their finances. The up-front labor would be writing the book and then having it designed to look marketable. From there, you want to choose a source that you can distribute your book through in exchange for money. We’ll cover this in more depth soon.

But let’s say you don’t have a wealth of knowledge that seems marketable. Perhaps you’re fresh out of college and you don’t have much first-hand knowledge or experience that you can pull from. Well, you’re in luck. A lot of information products are based on existing sources of information. The creators of these products will pull from tens or even hundreds of sources of information and distill those sources down into a much more digestible form.

For example, perhaps you’ve noticed that there’s a demand for learning how to cook French cuisine, but most people complain that there’s too much conflicting information and that the information is very difficult to understand. While you have a knack for cooking, you may not be an expert. However, you could start your own residual income business by going through every single book and video on the subject of French cuisine.

After doing that, you will probably know more than 80% of the people who are interested in learning how to cook French cuisine. From there, you can develop your own methodology for cooking French cuisine. Refine it in your own kitchen, and then document that methodology. One thing you want to be sure of is that you always give credit to the experts you learn from. If you’re using Julia Child’s method for cooking duck, then be sure to give generous credit to her. Not only is this the ethical thing to do, but also it can build credibility for you. Chances are your name has very little weight in the French culinary circle, but Julia’s name has all kinds of street cred.

“But won’t people see this as a rip off because I’m just sharing other people’s ideas?”

No, not at all. People will see this as a convenient way for them to get started learning French cuisine. Instead of their having to go through all of those French cookbooks to find the best methods, they can just go to your book.

“But won’t that take business away from those experts?”

Hardly. Your information product on French cuisine will serve as a conduit for people who want to learn more. For example, if they really like Julia Child’s method for cooking duck that you share in your book, then they are more likely to be enticed to go buy one of Julia’s books. Remember, you’re combing through tens to hundreds of resources and putting your own twist on the techniques that you learn.

Once you have an idea on how to make residual income from your information product, you want to figure out the best medium to deliver it. Typically, the three choices are book format, video format, and e-learning platform.

There are two things to consider when choosing your format: What are you most comfortable with, and what do your customers want? If you have a background in video and editing, then you probably want to lean closer toward that for your medium. Unless, of course, you’re delivering a product that just doesn’t do well in video format. For example, self-help information products are usually delivered in book format or audio format because people are insecure about others seeing them watch a self-help video.

Become a referral source

Try networking with local businesses to see if you can get paid for referring new customers. There are also a number of sites and apps that will pay you to refer friends, so look for opportunities to recommend products and services that you are passionate about.

Get into index funds or ETFs

An index fund is a collection of stocks designed to match or track a market index, like the S&P 500, while an ETF is like a basket of stocks, bonds, and other assets. The greater diversification offers less risk, and taxes and fees are lower as well. And because index funds and ETFs are hands-off, your investment can truly be considered passive income. You’ll be able to sit back and watch the returns pour in over time.

6. Become a transcriptionist

If you’re a fast typer, you might consider doing some online transcription for cash. You’ll simply need to listen to audio files and then type out what you hear. You get paid per piece, so the faster you can type, the better – at least, financially speaking. Rev.com, GoTranscript and TranscribeMe are just a few of the sites where you can find online transcription work.

Passive Income Business Essential # 1—A website with blog

A website is the first essential of any profitable passive income business done online.

There are a few free options like Blogger, Tumblr, or WordPress.com. Those are great options for some, but I don’t recommend that path for three important reasons:

  1. When you use a free service, your domain name will almost always be an “extra” extension to the service provider’s own domain. For example, if I created SPI on Tumblr, the web address would be http://smartpassiveincome.tumblr.com instead of https://www.smartpassiveincome.com.
  2. You have fewer customization options for design, functionality, and revenue. For example, I know that with free WordPress.com sites, you are limited to using only certain plugins, and you aren’t allowed to advertise.
  3. When you build your business on someone else’s platform, your business is vulnerable to any changes they might make. For example, if Tumblr closed tomorrow, you would lose your business entirely.

These three reasons alone are exactly why I recommend going with a self-hosted website. You have more control, it looks more professional, and you can truly call it your own. (For help setting up your website, check out my free Build Your Own Brand course, mentioned above.)

4. Sign up for a gig-working platform

There are several platforms designed for online gig work. For example, Amazon Mechanical Turk is a place you can take on small tasks for businesses across the globe. They might include moderating content, taking a survey, or transcribing audio. Clickworker is another similar platform, or if you have a specific skill – like copywriting, editing or graphic design – you can use freelancing platforms like Fiverr, Freelancer.com and Upwork to connect with potential clients.

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.

Sign Up With CIT Using Code “Spring20”

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!

3 Passive Income Business Models

As you’re learning, there’s lots of ground to cover and I can’t wait to dive in with you. Let’s begin with this video, where I explain three different passive income business models. As you watch, take note of which model best fits your goals.

In Summary

Passive income streams can provide a boost to your savings, investing goals, and an unexpected job loss. Who wouldn’t want to earn money without having to clock in for an eight-hour workday?  

The good news is that there are many options to start building out a passive income stream beyond what I’ve already outlined above. Most will require upfront time and energy devoted to building them out before you start to see returns. 

Explore these ideas, and you could be well on your way to make money while you sleep in no time.

This story has been edited and revised. Its original version contained portions that did not meet our editorial standards.

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 Bankrate. “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.”

Of course, you’ll want to make sure that putting in effort into a new passive income stream isn’t causing you to lose focus on your other streams. So you do want to balance your efforts and make sure you’re choosing the best opportunities for your time.

Active income vs. passive Income: Which is best for me?

In theory, all of your income sources carry similar weight. But when it comes to achieving financial freedom, passive income leaves active income in the dust.

You see, active income is the money generated from all those efforts you’re currently making. And you need to keep working if you want to continue making a living. If you quit, you don’t get paid. Your time literally equals money.

And then you have passive income. An income that doesn’t require you to work actively. And the money continues to flow in for years and years. If you’re looking to design a dream life where you are financially free, it might be better for you to focus on passive income.

Just remember, while you might be able to build a passive income stream with a small investment, you’re not making any less of a commitment than someone investing their time. Making passive income comparable to income earned from active efforts requires a good amount of work upfront.

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. 

Our favorite place to invest is M1 Finance. You might not have heard of M1 Finance, but it’s a FREE investing platform that allows you to build a portfolio, and invest in it for free.

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.

Open an IRA at M1 today >>

Passive income FAQ

How can I generate passive income?

You can generate passive income ideas in myriad ways. For instance, you could write down all the things that interest you and research how other people build businesses around them. Another idea is to brainstorm how to solve a common problem you have and build it into a passive income idea. 

What passive income ideas can I start with little money?

There are many passive income ideas you can start with little money. These include dropshipping, affiliate marketing, print on demand, and selling your unused things.

How much passive income can I earn? 

You can make as much or as little passive income you want. However, it’s not a get-rich-quick scheme. You’ll need to put in some hours, effort, and capital initially to create a passive income source. The good news is that nailing these things early allows you to sit back and enjoy the financial rewards for years to come. 

You may invest as little as $100 in the beginning, then reinvest your profits until your passive income grows to a sustainable figure. With a high-recurring income, you can make enough money to live a happy, healthy life.

What are the best passive income ideas for 2022?

  1. Start a dropshipping store
  2. Sell courses online
  3. Monetize a blog
  4. Create a job board
  5. Invest in the stock market
  6. Create a print-on-demand store
  7. Sell stock photos online
  8. Become an affiliate marketer
  9. Flip websites for a profit
  10. Own a rental property

The golden rule of passive income protect your time

Passive income is more about time than anything else. You could do a lot of things to make money, but not all income streams are passive.

I’m all for you actively building a business or a side hustle, but for the income stream to truly be passive, it must require less and less effort to produce income, eventually requiring no effort (or very little to maintain).

For example, if it takes you 2 hours to generate $100 today, and it takes you the same 2 hours to generate $100 next week or a year from now, that income stream is not passive, because it takes the same effort (money, time, etc).

On the other hand, if I open an investing account today that takes some effort. But as that account grows and I check it 4 times a year, my returns go up, and my effort goes down.

Same if I build an online course. At first, I’m earning no money and my effort is very high. But I expend a ton of effort at first.

Once the course is complete, I do some continued marketing and client support which amounts to just a few hours per week, while sales roll in month after month.

You get the picture? Now let’s talk about what passive income is not.

Passive Income is all about protecting your time.

Residual Income Idea 4: Blogging

There can be big money to be made in blogging. And that’s not just limited to your standard WordPress site with written content. YouTube channels are becoming a huge market for passive and residual income opportunities.

There are several ways that you can make residual income if you own a popular blog or YouTube channel. The first is by selling products, particularly your own. In the above section, we talked about information products. After you put in all that work learning about a subject, you’re now in a prime position to create an awesome blog. Naturally, people who arrive at your blog to learn about French cuisine also probably will be interested in buying your French cuisine cookbook.

But you’re not limited to just information products, or even to your own products. You might develop additional products, such as cutting boards or knives, that complement your French cuisine recipes. You could sell these on your blog, or you could become an affiliate and sell other people’s products on your blog.

Remember all those cookbooks that you read through when learning how to become a master of French cuisine? Your readers are probably interested in those books as well. A quick way to cash in on the sale of those books is by becoming an Amazon affiliate.

When you become an Amazon affiliate, you get a small percentage of the sales that you contribute to on Amazon. So, let’s say you’re writing about Julia Childs’ duck recipe on your blog. You give credit to Julia Childs and you also link to her book on Amazon. When a reader clicks through that link and goes to Amazon and buys the book, you get about 5% of that sale. Becoming an Amazon affiliate is a residual income idea that benefits everyone involved.

So, if the book sells for $20, you’ll end up with $1. That’s not bad, but it’s also not great. Unless you sell 100 of those books in a month. And maybe 100 copies of Gordon Ramsay’s cookbook as well. Add in an all-clad chef series stainless steel kitchen set for $700. You see where this is going. It’s a great way to make residual income.

Amazon isn’t the only website that has affiliates. Smaller companies may be willing to give you up to 50% of a sale that is generated by traffic coming from your website. These businesses are usually selling—you guessed it—information products. They can afford this affiliate fee, given that information products are usually 90% profit for every sale.

Another method for how to make residual income with your blog is advertising. If you have enough traffic coming to your website, ad companies may be willing to pay you to place ads on your site. They can pay you based on the number of people who click the ad or simply the number of people who see the ad. Either way, with all these options, you’ll be able to make money while you sleep.

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