How to Make Passive Income

How to Make Passive Income

What It Takes To Earn Passive Income

Before we get into the passive income ideas I think it’s a good idea to first clear up a couple of misconceptions. Although the word “passive” makes it sound like you have to do nothing to bring in the income this just isn’t true. All passive income streams will require at least one of the following two elements:

1) An upfront monetary investment, or

2) An upfront time investment

You can’t earn residual income without being willing to provide at least one of these two. Because it’s important to remember what passive income is NOT. Passive income is not your job, it’s not freelancing, or working online. Passive income is doing something once, then earning rewards from it into the future.

Today, I have a big list of passive income ideas you can try regardless of the category you fall in.

Check out the video on passive income ideas here:

Video

Write a book and sell it online

Publishing a book was at one point a costly venture, but in the world of online self-publishing, all you need to get started is your unique knowledge about a topic. Sure, writing a book isn’t exactly a passive activity, but if you put in the work upfront, you can continue to sell copies without much ongoing effort. There are a few online tools that can help:

List your extra room

If you have extra space in your home, getting a roommate can be a great way to earn money. Alternatively, you could also consider listing your extra room on Airbnb for short-term stays. You might even choose to list your entire home while traveling to help offset the cost of your trip.

I Appreciate You!

I’m here for you as both a guide and as a friend.

I want to hear your stories. I want to know how else I can help you. I want the Smart Passive Income experience to be our experience, together. That’s how we all learn and grow together, including me.

I do my best to respond to emails. I treat everyone equally. And I firmly believe that I’m not special, just a normal guy who enjoys working hard and working smart. In everything I do here with Smart Passive Income, I truly want to make the Internet a better place.

5 Residual Income Ideas

Passive income, semi-passive income, side hustles, and now residual income?! It may seem like splitting hairs, but there is a difference between passive income and residual income. One type of residual income is a payment to an actor or writer for each rerun after an initial TV season. Don’t worry. You don’t have to be a celebrity to take advantage of this type of income stream.

1. Royalties

Let’s say you wrote a book. It could be an eBook (e.g., via Amazon’s kindle direct publishing) or a traditional book published in print. If you self-publish, almost all the money from sales of that book goes straight to you–even years later. If you use a publisher, they pay you an upfront fee for the work. Once they recover that fee from sales, any additional income you receive (net the publisher’s cut) is residual income. Meaning you did the work once, yet all sales proceeds going forward provide you residual income.

Pro: A steady income stream from now until you die.

Con: You’ve got to write an excellent book (or make a good movie, show, etc.). It takes skill and hard work.

2. Product Sales

Not the writing type? That’s fine. Let’s say you’re a widget salesperson.

You sell the widget for a set price. Part of the sale is for ongoing service. The purchaser pays a monthly (or other) ongoing fee for your company to service the widget. The company receives the money, the service department handles the continuing service, and you get a piece of the ongoing fee from the service contract— that’s residual income.

In the insurance world, salespeople get an upfront commission for the initial product sale. For example, the sale might be life insurance, property, and casualty, or health coverage. After the original commission gets paid, the salesperson receives an ongoing residual income from the initial sale as long as the customer pays the premiums. Service usually comes from the client services team, not the selling agent.

Pro: There’s a very high ceiling. Sales commissions and residual income frequently have no upper limits.

Con: Being in sales is a tough job, and your failures are very apparent and right in your face.

3. Stock Photos

Do you love photography and have an eye for capturing beautiful shots? Did you know there are numerous ways to sell your photos online? While you could launch a site to sell your photos directly, you can also sell your shots to large established stock photo sites like Shutterstock and iStockphoto with a built-in customer base.

Pro: After the initial time spent taking and uploading photos, you can receive regular royalty payments for years to come.

Con: There’s a lot of competition in the space from both amateur and professional photographers.

4. Online Course

Do you have a particular skill? Have you mastered a piece of your profession that you can teach others? If you’re a media relations professional, you could teach others how to write a press release that drives editorial coverage, for example. With over a dozen places to sell an online course, it’s never been easier to make residual income from the knowledge you already have.

Pro: Large, existing marketplace for online courses.

Con: Standing out among all the other existing course offerings can be difficult.

5. MLM Marketing

For those not familiar with it, MLM is a multi-level marketing program with residual income aspects.

In MLM programs, participants are encouraged to sell a company’s products. Of course, the participants get paid for that. But big money typically comes from recruiting others to sell those products under your account. Every person you recruit pays a percentage of their sales to you, as does every person they recruit. So you encourage those folks to recruit others, etc. The idea is to build a sales empire—sometimes shaped like a pyramid where many people are at the bottom and fewer people at the top.

People at the top of this food chain earn residual income via the people underneath them in their “line.” The folks at the top aren’t selling themselves yet are making income from those underneath them.

Pro: Turn your entrepreneurial spirit into passive income.

Con: MLMs are very controversial. Don’t get trapped by purchasing many products upfront, and don’t alienate your friends and family.

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!

What is passive income?

Passive income is money you earn through little or no effort of your own — unlike a side hustle or an independent contractor job, where you’re typically doing a task for money and the IRS considers you to be self-employed.

According to the IRS, these “passive activities include trade or business activities in which you don’t materially participate.”

When to consider secondary income streams

If you’re looking to add extra income to your monthly earnings without a lot of extra work, adding a passive income stream might be a good option. You can use the money to help pay off debt, beef up your rainy-day savings or even to save up cash for a large purchase. Since passive income opportunities generally require little effort, they can also help you earn extra cash without committing to a part-time job.

4. Index Funds

Index funds are mutual funds or exchange traded funds linked to a particular market index. These funds aim to mirror the performance of the underlying index they track and are passively managed. Therefore, their underlying securities don’t change unless the composition of the index shifts. For investors, this translates to lower management costs and lower turnover rates, which makes them more tax-efficient vehicles than many other investments.

Are Passive Income Investments a Good Idea?

In general, passive income investments allow you to use money to make money — putting your money to work instead of yourself. In that sense, they are often a good idea. However, beware of pitches that sound too good to be true or "get rich quick" ads that promise easy money with no effort, such as multi-level-marketing (MLM) and other work-from-home schemes. Some of these will end up costing you money.

Passive Income Myths: What Passive Income is NOT

Let’s dispel some myths and set realistic expectations before we go any deeper.

  1. Generating passive income is NOT easy and it takes a lot of hard work. Nothing in life comes easy. Making money online is no different. Many conventional internet marketers and online entrepreneurs will try to persuade you to think otherwise. Why? Because they’re trying to make money from false hopes. I’m here to tell you the truth: Online business is hard. I’ll do my best to guide you and give you the information you need, but I can’t force you to take action; that’s up to you.
  2. Generating passive income does NOT happen overnight. I don’t live, teach, or believe in get-rich-quick schemes. My first online business took about a year of hard work before it was generating enough income to support my family. There was nothing easy about what I had to do to get that business going. But in relative terms, it was “quick” because I decided to opt-out of the work-till-sixty-five-deferred-life plan and make my own luck happen. You can do it too.
  3. Generating passive income is NOT impossible. Passive income was just a dream for me until 2008. That’s when I was let go from my job due to the crumbling economy. With no other options, I bet on myself by trying to make my dream a reality. And you know what? The dream came true, and it’s totally awesome! I get to stay at home with my family, work when I want, and make my own decisions. This lifestyle is possible, and I want you to experience it too.

Examples of what is and is not passive income:

Some of these common small business ideas are not passive income streams. However, there are alternative ways to transform them into a money-while-you-sleep business model…

Active Income IdeaPassive Income Alternative
A consulting job where you charge by the hourCreate an online course that people can buy
Computer programming on a freelance basisBuilding a specific program that you can license and sell over and over again.
Freelance writingWriting a book or eBook
Working in construction or a similar industryInvesting in real estate
Driving for Uber or a delivery companyHiring your car or selling ad space on your vehicle
Hosting photoshoots or taking photos for commissionSelling stock images or building your photography Instagram account

These examples will help you understand what passive income is and how you can transform your existing side gig into a profitable enterprise that will earn you money even while you sleep.

How Does Passive Income Work?

Since you’re busy living your life, you want to build a passive income stream that eventually works while you sleep, play, socialize…whatever you want to be doing with your time. The good news is that you don’t need a pile of cash to start your passive income stream.

If you already have an asset that you are not fully utilizing, that can serve as your investment. If you have money that’s just sitting in a savings account, you can instead put it somewhere where it will earn extra money, letting you invest in your future.

How Much Money Can I Make?

Passive income won’t make you wealthy overnight, so forget about any get-rich-quick schemes you’ve heard of. But steady and profitable passive income options can build some serious money over the long haul. We’re talking anywhere from a few thousand dollars to hundreds of thousands of dollars—depending on which option you go with.

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.

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

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.

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 in order to continue earning an income. 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.

Conclusion

Passive income can really help elevate your earnings and fill in the gaps that your 9 to 5 job can’t fill on its own. If you’re looking to replace your 9 to 5 income so you can quit your job, the passive income ideas on this list can help you do that.

And it’s okay if you like your full-time gig too. The work that goes into earning passive income tends to be manageable when paired with a 9 to 5. So, yup, you can do both. 

Whether you’re looking to start a dropshipping store, start your own agency, or create profitable content, you’ll find that there’s money to be made in all these areas. All you need to do is get started.

FAQ

How can I make $1,000 a month with passive income? 

Making $1,000 a month in passive income alone might feel like a pipedream, but it’s actually entirely possible to earn this sort of cash!rnrnSome of the best ways to earn $1,000+ a month are through a successful YouTube channel, writing a best-selling book, joining an affiliate program, creating an online course, or investing in real estate.

How can I make passive income in 2022? 

As we all know, 2021 has been a bit of a weird year for businesses with so much uncertainty. That said, it’s still relatively easy to make money online in 2022 with a bit of inspiration and know-how. Some of the best ways to make passive income in 2022 include stock investment, cashback websites, selling stock photos, affiliate marketing, and blogging.

Can passive income make you rich? 

Believe it or not, passive income is the primary source of income for most of the richest people in the world. Making money with minimum effort, reinvesting it wisely, and watching spending is vital for getting rich, so passive income streams are an essential part of any wealthy entrepreneur’s portfolio.

What’s the fastest way to earn passive income? 

If you want to start earning passive income fast, you’re going to need to use the resources you already have. This could be schemes such as renting out a room or your driveway, advertising on your vehicle, affiliate marketing, or dropshipping.

Tags

Leave a Reply

Your email address will not be published.