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How to Make Passive Income
By Kellan Jansen MONEY RESEARCH COLLECTIVE
Whether you want extra breathing room in your budget or are simply looking for new ways to make money, it pays to learn how to make passive income. For example, you could invest in bonds that will help you earn money through interest rates. Or, you could create digital products that you can sell online.
Below are some of the best strategies for earning extra cash that require minimal ongoing effort.
What is considered passive income?
Earning passive income is different from active income, which compensates you for your time and effort spent working each day.
Passive income is typically something you invest in or create that helps you earn money over time. Passive income sources are not entirely passive — they still require work and money upfront — but they may not need constant time and effort beyond that. For example, interest rate payments on bonds are considered passive income because you receive them without having to take any action after purchasing the bond. Another example is an online course. Creating an online course can be a time-intensive effort, but you may be able to continue selling the course for years to come.
Passive income ideas
There’s no shortage of passive income ideas from which to choose. Regardless of your skills, academic background or current financial situation, you can find opportunities to earn money passively. It just comes down to choosing the right strategy for your situation.
We split the ideas into categories, including things you can invest in, digital products you can sell online and other options you can’t do entirely online.
Best passive income investments
If you are willing to dedicate some money upfront, you can take advantage of passive income investments that may pay off over time in interest payments or rent. These options don’t require much time and work on your part. Here are three ideas worth considering:
Bonds investments
Bonds are sold by the government and large companies when they want to raise capital. When you purchase a bond, you are lending money to a government entity or corporation, depending on the type of bond you buy. The borrower agrees to pay the bond back by its maturity date and make interest payments, which would be your passive income.
You can choose from the following types of bonds:
- Corporate bonds: These bonds are issued by public and private companies needing to raise capital and typically earn higher interest rates than bonds issued by the government.
- Municipal bonds: These are issued by state or local governments. You can choose from general obligation, revenue and conduit bonds — each option funds different projects or purposes.
- U.S. Treasuries: Treasury bonds are issued by the U.S. Department of the Treasury and are backed by the U.S. government. They typically fund government operations and projects.
Bonds are an easy way to earn a passive income because you don’t need any additional money or effort once you purchase the bond. You will collect interest on the money you lend until the bond’s maturity date.
Real estate investments
Another potential passive income source is an investment in real estate. You can purchase a home, apartment building or commercial property and rent it to others to earn monthly income.
Real estate investments require more upfront capital than other passive income strategies. You may also have to pay for the upkeep of your property. However, these investments offer a nice monthly income and have the potential to increase in value significantly, so you may be able to sell a property for more than what you paid for it if you need to in the future.
High-yield savings accounts
One of the easiest passive income ideas is putting your excess capital into a high-yield savings account. These pay a higher interest rate than standard bank accounts, so they can help grow your money faster. High-yield savings accounts typically base their interest rates on the economy, and the rates are variable so they can change over time. They typically adjust along with the Federal Reserve rate.
Best online passive income ideas
Now that we’ve evaluated some of the top forms of passive income by investment, let’s look at how to make passive income online. Here are three strategies you can try:
Affiliate marketing
If you’re active on social media and have a large following, affiliate marketing could be one of the best passive income strategies for you to try. It’s also great if you have a website that receives consistent traffic.
To earn money this way, you partner with brands and advertise their products and services through your online presence. You have a higher potential of increased earnings with more visitors to your website or social media followers engaging with your posts. When people click on your affiliate link and buy a product, you earn a percentage of their purchase. However, creating and sharing advertisements on your platforms may take some work.
If you’re interested in leveraging your online following to earn income, you can find a variety of affiliate marketing partnerships through large companies, including the following:
- Amazon
- Shopify
- Rakuten
- eBay
- HubSpot
- Fiverr
- NordVPN
One thing to keep in mind while searching for affiliate marketing deals is that you’re most likely to get the best results with brands that resonate with your audience. For example, if you grew a Twitter account by regularly posting about business-related topics and trends, HubSpot could be a good fit for an affiliate marketing program because it appeals to people who are interested in those products. On the other hand, if you had the same type of following and tried an affiliate marketing program for a food brand, your results may not be as good.
Selling digital products
Another way to earn passive income is to sell purely digital products to online shoppers. This can include marketing templates, photos, e-books, software or wedding and event invitation designs.
Selling a digital product allows you to earn money without having to figure out logistical concerns like packaging and shipping. This option may require significant upfront effort to create your digital products. But, once you create them, you can continue selling them for years with little additional effort. However, you may want to spend time optimizing your listing and advertising your services to increase visibility and potential sales.
Creating an online course
Are you an expert at something? You can monetize that expertise by packaging it as a paid online course for others to take. There are many different platforms on which you can host an online course and find interested buyers, including the following:
- Udemy
- Skillshare
- Teachable
- Podia
- Thinkific
If your online course is popular, you can continue earning money without additional effort. However, keep in mind that there may be some ongoing costs, including a fee to use one of the online platforms to host your course.
When brainstorming ideas for an online course, try to identify what you’ve mastered that others would be interested in learning about. Whether it’s how to form strong business relationships or write a book, there are people out there who would love to learn from your expertise.
Other passive income ideas
There are plenty of other ways to generate passive income that aren’t entirely online. Here are a few more ideas to consider:
Vending machine business
One idea is to purchase vending machines and place them in strategic locations, such as office parks and malls. You may even be able to buy refurbished vending machines online for less than $2,000. Your vending machine could bring in a solid amount of income every week and may pay for itself within the first several years of owning it.
The downside of running a vending machine business is that it requires capital upfront, and you must continuously focus on keeping your machines stocked. You may also have to pay a commission to the property owner of the area where you place your machine. However, if you can get your vending machines into the right, high-traffic locations, they can be an excellent source of income.
Car advertising
You can earn passive income by turning your car into a roaming billboard advertisement for companies. This typically involves putting a vinyl wrap on your car, but some companies may allow large stickers or signs that attach to a roof rack on your vehicle.
The downside of car advertising is how it impacts your vehicle’s appearance. Removing the vinyl from the car is typically easy when your advertising deal ends. If you don’t mind this look, car advertising is an easy way to make money without spending ongoing money.
Rent out things you own
Finally, you can look into renting out some of the things you own. Of course, if you have a rental property, you can rent that out to tenants directly or through Airbnb to earn passive income. But there are also other kinds of rental apps worth looking into.
For example, Turo lets you rent your car out to qualified drivers when it’s not in use, such as when traveling or using public transportation. Even accepting one or two rentals per month could be enough to make your monthly car payment. Though, consider downsides such as wear and tear on your car.
There are plenty of other property rental apps as well, including:
- BabyQuip: When your child outgrows clothing, cribs and other baby gear, users on BabyQuip pay to rent them.
- Neighbor: This app lets you put your extra storage space to use by renting it out to those who don’t have enough.
- SpotHero: If you own a parking spot in a major city, you can rent it out when you’re not using it through this platform.
- Fat Llama: An app for anything else you have that people may want to rent, from DJ equipment to drones.
How much passive income is enough?
Everyone’s needs are different. The amount of passive income that you need may not be the same for your neighbor. If you want to calculate the amount of passive income that’s enough for you, start with a budget. List the amount that you spend each month on critical things, such as the following:
- Housing
- Groceries
- Gas
- Car payments
- Insurance
- Cell phone bills
- Credit card payments
- Other recurring expenses
Add all of these together and consider how much you make with your primary income to decide how much passive income you want.
For someone living paycheck-to-paycheck, adding a passive income strategy can reduce stress and add breathing room to the budget. Passive income is also great for those looking to fund goals or projects, such as a vacation or home renovation.
The bottom line is that you decide how much passive income is enough based on your finances and goals.
Why is passive income important?
More and more people are looking for passive income business ideas as the cost of living rises. Passive income can provide you with ways to supplement your income to protect your finances against high inflation and wage stagnation. It’s also useful for those who explore passive opportunities to reach long-term financial goals faster.
Regardless of why you’re interested in earning passive income, the good news is that it’s never been easier. You can start earning immediately by investing in a financial product that pays a regular interest rate. Or you can invest some upfront energy to create an online course, website or artistic creation that can deliver passive income for years.
Summary of Money’s guide to earning passive income
Earning passive income can be an excellent strategy for getting out of debt, adding some breathing room to your budget or reaching your financial goals faster. But the best way to earn passive income will depend on your current financial situation and skillset.
If you have enough upfront capital, you may want to look into investment opportunities like bonds that pay passive income through interest rates or real estate that pays through rent. Or, you can sell products and services online through popular platforms or your own website. Before diving in, make sure your money and time investment will be worthwhile.