How to Make Passive Income: 15 Ideas to Get You Started
10 minutes reading time (2047 words)

How to Make Passive Income: 15 Ideas to Get You Started

If you want more freedom over your time, building passive income streams should be a priority. Finding ways to convert active income, i.e. your job, to a passive model will give you more agency over your waking hours.How to Make Passive Income

Working a day job means you’re trading time for money. Every day, you wake up and get ready to go to your job, get in the car and sit in traffic until you finally make it to the office. On the other hand, earning passive income requires little time and effort on your part once you have everything set up.

While the idea sounds simple, figuring out how to make it work may take some time. There are a number of different ways to generate passive income streams so read on for some suggestions on how to get started.

What is Passive Income?

If you’re wondering what exactly passive income is, here’s a quick definition: it’s income that you receive over and over for the work you did one time. Or put another way, it’s money you earn while not working.

Whether you’re relaxing on the beach or playing video games in your living room, passive income dollars continue to roll into your bank account. Active income, on the other hand, requires exchanging your time for money. This could be in the form of a salary, commissions, tips, etc.

The majority of the population relies on active income to earn money and support themselves and their family. Millionaires, on the other hand, focus on creating passive income streams to add more money to their bottom line.

Passive Income Ideas

Now that you know what passive income is, let’s look at some ideas for how you can get started down this path. Most passive income streams require doing some upfront work, so you can reap the benefits down the road. Pick a couple to try from the list below and do some research to figure out if it’s a good fit for you and your finances.

Pay Off Debt

If you have debt, especially loans with high interest rates, make it a priority to pay them off. Reducing your fixed expenses by paying off debt is similar to creating passive income. For example, let’s say you have a credit card with a $15,000 balance and a $300 monthly payment.

Paying it off will free up $3,600 per year in cash flow that would otherwise go to monthly payments. In addition, getting out of debt quickly can add more monthly cash flow because you’re no longer paying interest every month.

Use a High-Yield Savings Account

If you’re looking for a way to dip your toe into the passive income pool without much risk, try a high-yield savings account. Take some of your savings and transfer them to an online account.

Rates can easily be 20-30 times higher than what you would get at traditional banks. While a high-yield savings account won’t make you very rich, it’ll give you a nice trickle of consistent passive income especially if you just have your savings sitting at a traditional bank.

Try Peer-to-Peer Lending

If you’re ready to take on a bit more risk for the potential of higher returns, consider investing in peer-to-peer lending. This is where you loan people money who can’t qualify for traditional financing.

Investment returns can be up to 10 percent, which beats out typical savings and money market accounts. However, keep in mind that peer-to-peer lending comes with some risk since borrowers could default on loans. Start investing with a small amount of money and make sure to spread it across different loans.

Dividend Stocks

Another great way to generate passive income is through dividend stocks. To get started, do some research and start building a portfolio of dividend-paying stocks, which over time can turn into nice passive income.

One great thing about stocks is that there’s always the potential for capital appreciation. If your stocks do indeed go up in value, you get two passive income streams - dividends and capital gains. Dividend payout is typically every quarter, which makes it an especially attractive passive income option.

Index Funds

One of the most popular ways to invest in the stock market is buying index funds. By putting your money in an index fund, you take all the guesswork out of which stock to choose and having to research historic returns.

Index funds track the market over time, going up or down accordingly. One of the best ways to take advantages of this type of passive income is to set it and forget it. Just continue adding more index funds to your investment portfolio and watch your money grow. This is a great option for investing your retirement funds and for shielding your savings from taxes.

Crowdfunded Real Estate

Another great way to generate passive income is through real estate. However, if the high price tag or potential headaches of purchasing real estate give you pause, consider using a crowdfunding platform instead.

When you invest via a real estate crowdfunding platform, your money goes into a REIT or Real Estate Investment Trust. The REIT owns multiple properties, so you don’t have to worry about the headaches associated with being a landlord.

REITs tend to pay higher dividends than stocks, bonds, or bank investments. But, as always, be aware of the risks associated.

Sell Your Photos

If you have a passion for photography and an eye for the perfect shot, selling photos may be a good passive income stream for you. Websites such as Shutterstock let you upload your photos and sell them to potential customers. You get paid per download.

How much you get paid depends on a number of factors. Before you commit to a platform, research all the different options available for selling your photos. The best part about this passive income stream is that you take the perfect shot once and reap the benefits over and over.

Write an eBook

While writing an ebook may not be easy, it could provide a passive income stream for years to come. Finding the right topic and niche as well as targeting the right audience are all critical elements for writing a successful ebook.

Another upside of writing an ebook are the low production costs. There’s no need to go through a formal publishing house and have your book printed. You can sell it either on your own website or through an affiliate arrangement with online marketplaces such as Amazon.

Start a Blog

Starting a blog won’t make you rich overnight. However, once you get the hang of blogging, you can grow your audience and scale your blog into a business. Since there’s a learning curve, the sooner you start, the sooner you can grow this into a legitimate income stream.

Once you’ve grown your blog and receive consistent traffic, you can start reaping the benefits of the passive income it produces. You’ll still need to keep it updated with fresh content but for the most part, you should be able to get a steady income from your efforts.

Buy a Blog

If you don’t want to deal with all of the upfront work involved in starting and building a successful blog, consider buying one. Online marketplaces such as Flippa let you find blogs for sale and offer important information on each one such as traffic and revenue streams.

Buying a blog with a reasonable amount of traffic, evergreen content, and demonstrated cash flow can help you quickly ramp up this passive income stream. Blogs usually sell for 24 times their monthly income so keep that in mind when shopping around.

Become a Referral Source

Becoming the link between buyers and sellers can pay dividends and generate passive income. This can be in the form of a lead generation website, which offers referrals to local businesses. These types of sites usually offer information about a certain niche topic.

You can place links within the site so people who are interested in learning more about the subject can contact you. In turn, you can refer the person to a local business who would pay you for the warm lead. Additionally, you can use advertising on the site as another form of passive income.

Try Affiliate Marketing

While you don’t need a website to make money with affiliate marketing, it’s a lot easier to do it if you do have one. Starting a website is quick and easy and the benefits far outweigh the costs. Some people make significant amounts of money through affiliate marketing.

The way affiliate marketing works is that companies pay you a commission for referring clients to them. If you promote a particular product or a service and a reader clicks on a link to purchase it, you could get paid an affiliate commission. This is at no additional cost to the reader. It’s also a great way to continue making money over and over from the same piece of content.

Rent Out a Room on Airbnb

Do you have a spare room you rarely use? Or maybe your house comes with a finished basement apartment or a mother-in-law suite? If so, consider renting it out via Airbnb, which is an online vacation rental platform.

The great part about using Airbnb is that you can block out weeks or months when you don’t want to have your room available for rent. You’d get more money renting out your space through Airbnb rather than getting a full-time tenant. To make this more passive, you can hire a maid service to clean and prep the room between guests.

Rent Out Your Car on Turo

If your car sits unused for large periods of time, consider renting it on Turo. Check out the online calculator to get an idea of how much you can make letting others take your car for a spin. Expect to collect anywhere from 65 to 85 percent of the trip’s fare.

Worried about accidents or damage to your car while someone else is driving it? Turo offers optional accident protection that will cover you up to $1 million. The extra money you’d make renting out your car can help you with your monthly payment and insurance premiums or you could use it as passive income.

Buy a Rental Property

Becoming a landlord is not for everyone but if you’re ready to take on the challenge, it can be a lucrative passive income stream. Finding a good rental property to purchase can take time so make sure you study the market and get an idea of what to expect.

Once you find and purchase a property that fits your criteria, consider if you’d prefer to be an active landlord or hand over the reins to a property manager. Finding a reliable tenant is half the battle so make sure you do your due diligence with potential applicants.

When all the pieces are in place, this should provide a nice steady passive income stream. As an added bonus, the property will continue to appreciate in value over time.

The Bottom Line

There are many different ways to make passive income. Which route you take depends largely on your available capital as well as your tolerance for risk. When you’re just starting out, it’s ok to go with a safer passive income option such as a high-yield savings account.

If you’re ready to ramp up your passive income streams, research some of the other ideas on the list and pick one or two to try out. Having several passive income streams can be a great way to supplement your job income and can lead to more opportunities down the road.

Not sure which option is right for you? Talk to a qualified financial advisor who can help you weigh the pros and cons of the different passive income options and offer professional advice on your specific situation. An advisor can also help you get your finances in order and get you on the right path for long-term financial success.

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This is a post from Clint Haynes, a Certified Financial Planner® and Financial Advisor in Kansas City, Missouri. He is also the founder and owner of NextGen Wealth. You can learn more about Clint at the website NextGen Wealth.

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Aurtho Clint Haynes, CFPThis article was written by Clint Haynes, CFP®. Clint is a Certified Financial Planner® and Founder of NextGen Wealth. You can learn more about Clint by reading his full bio here.

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