It’s a well-worn adage in the world of investment that you should never put all your eggs in one basket, meaning, you should never rely on a single source of income to generate wealth.
The future is always uncertain and will be marked by unknown events that could potentially upset your current set of circumstances. So if you’ve been relying on a job, there’s no guarantee you’ll get to keep it. The coronavirus is a great example of an unforeseen event that completely rattled the world’s economy, costing trillions of dollars in damages with millions of people losing their jobs almost overnight.
Those who relied only on stocks will have found out the hard way that the stock market hinges on the stability of a very particular set of conditions, and if something were to happen to upset this arrangement in any way, shape, or form – down goes their investment. For instance, the Dow Jones has been posting ‘their worst’ day every day since the pandemic started – and it’s still not looking very good.
This is most wealth experts argue that people should ‘diversify their portfolio’. The trend these days is to leverage the infinite potential of passive income streams. Sure they require an upfront investment, your valuable time, and a lot of nurturing in the beginning – but the results are going to pay off, and then some.
But First: What is Passive Income?
Passive income is another term for ‘residual income’. It’s when you earn money while not actively working. You are not trading your time for money, as is traditionally done in most 9 to 5 jobs. Passive sources of income let you generate wealth when you’re not doing anything.
A few examples of passive income include returns from the stock market, real estate, dropshipping, running an online business, and website monetization.
The Main Difference between Passive Income and Active Income
Active sources of income generate money in exchange for providing a service. The business model could be based on hourly wages, tips, sales commissions, or salary. Simply put, you’re trading in time for a fixed income.
Most people build their wealth this way, and there’s nothing wrong with this approach, so long as you understand that there is a limit to your true earning potential. This doesn’t mean you should quit your job, it just means that you should start looking for additional ways to make wealth.
Generating Passive Income Whittles Down to Two Approaches
Passive income isn’t a money tree that drops cash when shaken. The money comes from assets that you own. You’ll have to ‘nurture’ your assets before they generate meaningful wealth. As mentioned earlier, you have to spend money (upfront investment) and/or effort (time) to build these assets.
The First Approach: Invest Money
If you’re sitting on a ton of idle cash, you can invest it across various income streams. This approach ultimately requires minimal effort. In other words, you’re getting your money to work for you while you do nothing in the background. It’s like a game of chess with your success depending on how good you are at investing in the right ‘pieces’.
Here are just a few examples:
- Investing in real estate
- Renting out a room from one of your properties
- Opening a savings account
- Lending to others
- Investing in stocks that pay dividends
- Buying a blog that is already generating money
The Second Approach: Investing Time and Effort
Most people don’t have the luxury of idle cash just lying around. In this case, they’ll have to do manual work in order to build their assets so they can start generating passive income. It is worth noting that you’ll still have to spend money building up these assets, but the lion’s share of your investment comes from your time and effort. The rewards for your hard work will take months or even years (depending on the results of your efforts) to make a meaningful difference.
Here are just a few examples
- Starting a YouTube channel
- Starting an advertisement agency
- Selling online courses
- Affiliate marketing
- Building a profitable blog
- Building an online store
- Writing an e-book
Thanks to the rise of internet 2.0, we now have countless avenues to generate passive income. In this article, we’ve narrowed down our sights on 14 of the most reliable passive income ideas to help you grow your wealth.
1. Real Estate Crowdfunding: Make Money on as Little as $500
While real estate investment is a fool-proof way of generating tons of money, the only problem is that you need access to your own property in the first place. This is a pretty neat arrangement, you can generate passive income through rental payment while your house appreciates in value over time – it’s a win-win.
Only problem is, most people don’t have enough capital to outright buy properties. Thanks to crowdfunding, it is now possible to drop as little as $500 and generate a decent amount of passive income. A good example of this would be a real estate investment trust (REIT), these companies accumulate a pool of money which is used to buy, develop, manage, and sell properties.
Even better is the fact that you don’t have to worry about managing the property, handling landlord duties, or any other burdens that come associated with owning a property. Crowdfunding real estate truly is the authentic way to make some solid cash. This is an easy way to diversify your investments and gain exposure to a market that has otherwise impossibly high barriers to entry.
2. Investments with Help of a Robo-Advisor
Robo-advisors replace financial professionals, making their cost several orders of magnitude cheaper while getting a ton of money. The typical modus operandi for robo-advisors starts with collecting information from clients about their financial circumstances and future goals. Most robo-advisors will provide algorithm-driven account services that require zero or no human supervision at all.
Robo-advisors have the ability to draw their insights from a wealth of information to accurately manage your investments. Moreover, this sophisticated computer program takes care of everything for you, from account set up to goal planning, to portfolio management, to comprehensive educational resources, and robust security features.
You can start to see results even if you have a small amount of money to start with. A good example of this is Betterment, a robo-advisor that builds a portfolio for you from the ground up.
3. Open a High-Yield Savings Account
A typical savings account has a criminally low-interest rate for your money. As a matter of fact, a traditional savings account will make less than 0.1%. This is not meaningful enough to make a difference in your life. But thanks to the rise of online banks, people now have access to high-yield savings accounts that promise huge interest rates.
Why does this matter? As a general rule: higher interest rate = more bang for your buck.
But then you’ll be wondering: why can online banks promise high-interest rates when traditional banks can’t? After all, the latter has been around for centuries and has the necessary experience to make magic happen right?
The truth is, traditional banks will always have overhead costs to worry about because of their brick-and-mortar setups. They have to manage physical branches (and handle all the costs that come with it, such as utilities, rent, etc.), while online banks stay on the cloud and only have to manage a fraction of the costs. This allows online banks – or ‘fintechs’ – to offer a reasonably high interest rate on your savings account.
A typical online high-yield saving account can earn around 1.30% APY, which is comparatively huge. But if you do your research properly, you’ll find high APYs of around 5%. In the past, the only way to secure 2% or more return on savings was to get a certificate of deposit (CD). The main drawback of a CD is that your money is frozen up until the duration of the CD. Good high-yield savings account not only gives you access to a huge APY but it’s easier to take your money back as and when you need it.
4. Put Money in Investment Property
Putting money in rental properties can be an intimidating prospect. Finding a tenant is no easy task either. One such company that simplifies this entire process is Roofstock. With Roofstock, you can buy properties for only 20% downpayment and they usually have tenants living in them. This means you can get start getting paid right after making your investment.
The best part? You won’t ever have to physically visit the property. Although we recommend doing so since it is your property.
Roofstock provides you with an alternative path to investment properties, which you’ll find particularly useful if you live in an area where real estate prices are sky high.
Click here to check out Roofstock.
5. Rent out a Room
This really is the oldest trick in the book: renting out a room in your house.
If you own a house or a condo with a spare room, you can rent it out to earn a decent amount of passive income. You’ve probably already heard of solutions like Airbnb, where you immediately rent out your property, set your own daily rate, and create your own rules.
Additionally, Airbnb provides hosts with insurance of up to $1,000,000 should they experience any mishaps. Their robust rating system lets you view a renter’s reputation before letting them stay in your property.
To get an idea about the kind of income you can make with Airbnb, you can take a look at similar properties in your area. This will help you get a good idea about the average prices for certain days during the week (weekdays may be slightly pricier depending on where you live).
The advantage of using Airbnb is that you don’t have to worry about any long-term commitment as a landlord. The average length of stay for most stays is about 3 days, while about 5% about the bookings may be over 12 days.
Alternatives to Airbnb include Apartments.com, Homestay.com, and VRBO.com
6. Invest in Dividend Stocks
Dividend stocks are a great solution for beginners who want to earn some passive income. It is the best way to generate passive cash flow without putting in too much effort.
Your goal with stocks is simple: buy low, sell high.
While dividend stocks work much the same way, they provide an additional benefit: you’ll get paid a small percentage of the company’s profits. So not only are you getting paid when the stock goes up in value, but you’re also getting dividends paid out to you.
If you’re new to the idea of dividend stocks and don’t know where to start, here is a very detailed article on fool.com.
If you want more complete control over your stocks, you should try online brokers such as Charles Schwab, Ally Invest, Fidelity, Vanguard, and FirsTrade (more suited to international investors).
7. P2P Lending
Peer to peer lending is a novel concept of lending and borrowing money. The idea works by setting up a marketplace that brings together people who have lots of idle cash lying around and people who need access to that idle cash.
The market connects these people and allows them to loan cash to peers (hence the term peer-to-peer). In return, the lender makes a return on the investment, just like a traditional bank.
Here’s an easier way to explain this concept:
Imagine you lent your friend $5 and got $6 back, assuming they plan on paying you back.
Peer-to-peer lending works on the same concept and scales it up to thousands of people lending and borrowing money from each other.
In other words, P2P is to money what Uber is to ride-hailing.
P2P lending is gaining a lot of mainstream traction and is taking the monopoly away from traditional banks. It allows people to gain access to money that they may not otherwise qualify for in a traditional setting. At the same time, P2P lending allows people with extra disposable money to increase their wealth.
Many P2P lending platforms let investors compare loan details down through various criteria, such as interest rate, loan purpose, and borrower information.
Popular places to start include Lending Club, StreetShares, Upstart, and Prosper.
8. Building a CD Ladder
After doing some investigation, we believe that building up a CD ladder is a smart way for anyone looking to maximize their interest rates on their savings without freezing their money for long periods of time.
This is done by accumulating a large number of CDs so that they mature at different times. The main idea is to keep your money liquidated (or ready to withdraw) like traditional savings account while earning high-interest rates.
In order to create a CD ladder, your first step would be to choose a financial institution that offers high-interest rates.
Here’s a typical arrangement offered by most banks:
- CD at 1% interest rate for 6 months
- CD at 2% interest rate for 12 months
- CD at 3% interest rate for 18 months
Let’s say you buy all three. The first CD matures in 6 months. The second CD matures 6 months later. The third CD matures after another 6 months.
This allows you to create a ‘ladder’ where you gain access to massive amounts of funds every six months. Every six months, you can decide if you want a renewal or simply take your money and your interest home.
It’s better to put your money in a CD ladder that matures every 6 months than to put all of your money in an 18 month CD, because of the simple fact that you won’t have to wait 18 months to get your money back.
Caution: It is possible to cancel your CD before its term ends but at the cost of cash-out penalties.
9. Make Money for Shopping
Chances are, you’re already spending a significant portion of your money buying stuff through online stores.
But if you’re clever about it, you can easily generate passive money by leveraging cashback rewards.
Method 1: Using Cashback Credit Cards
These credit cards offer a percentage, usually between 1 to 5%, on your purchases. The cashback offers depend on the kind of things you’re buying. For example, a credit card may offer 3% cashback on groceries and 2% on other purchases.
Most cashback credit cards also offer to sign up bonuses. In order to qualify, you’ll have to spend a certain amount of money within the first 60 or 90 days of opening the account.
Pro Tip: Make sure to pay your credit card on time otherwise your interest rate fees and penalties will negate all your potential rewards.
Method 2: Cashback on Shopping Portals
You can use a tool like Rakuten to absorb as much as 40% of the money you spent shopping online. You can download Rakuten for free and use it as a browser extension to ensure you never miss out on deals that avail this option.
Rakuten works in partnership with major retailers like Best Buy, Target, and Amazon. This relationship allows Rakuten to notify you of cashback automatically. Of course, you can do all this yourself, but you’ll have to spend a considerable portion of your time doing all the research. And as we mentioned earlier in the article, time is money!
Another tool worth exploring is Swagbucks. Their motto is to ‘put cash back in your wallet!”. They promise similar returns with online shopping and work with retailers like Target, BestBuy, Amazon, and a lot more.
10. Buy a Profitable Blog
Most people start blogs only to lose interest and quickly move on with their lives.
What they don’t realize is that their blog has massive money-making potential, subject to various conditions (such as technical SEO and content generation, you can learn more on those on our website).
Thanks to places like Empire Flippers and Flippa, you can easily find profitable websites and blogs for sale. Do keep in mind that some of the best blogs will be asking for some crazy amounts like $40,000 or even $3,000,000. Most of these blogs already have multiple sources of revenue and will give you a return on your money from the very first day.
Do keep in mind that creating a blog is harder than it sounds. You have to optimize it for things such as technical SEO, pay hosting fees and domain renewal fees, and spend time curating content. This isn’t easy and owners charge a fortune for having spent time and money bringing their blog up to speed.
Pro Tip: Make sure you have experience running online blogs when you decide to buy one. Because even the most well-established blogs need maintenance (and you’ll have to commit to content generation) if you want to retain its reputation and build on it.
11. Doing Affiliate Marketing with a Website
An affiliate marketer promotes someone else’s products and services with the hopes of earning a commission for each sale generated.
Suppose you want to earn a commission when someone buys a high-end gaming PC online. Most companies selling PC accessories pay a decent commission on products, to the tune of 1% to 5%. The average price for a decent gaming PC ranges from $500 to $5000. This means you can make anywhere from $25 to $250 whenever someone buys a gaming PC based on your recommendation.
If your blog starts ranking for a particular keyword, such as ‘mechanical keyboard’, you’ll be generating a ton of money whenever someone buys an expensive mechanical keyboard. If your host company runs out of the product, you can simply change your recommendation to a different product and continue making money.
Sounds promising, right?
The only problem with this theory is that you need to spend a lot of time (several months) building your blog’s reputation and doing SEO. Our recommendation is to find a niche that you’re passionate about and focus your efforts on curating content for that niche.
Going back to the example of gaming PCs, you can start blogging about video games, current trends in video games, video game skins, graphics cards, and a whole lot of other stuff that appeals to this segment of the internet.
12. Sell an Online Course
This one is gaining a lot of traction but only works if you’re actually good at what you do.
The idea is to create an online course teaching a certain topic and then selling it in exchange for money. Online platforms like Udemy and Teachable let you do this with ease.
If your course gets popular enough, you’ll make a lot of money over a long period of time.
But you have to first establish yourself as a figure of authority. The best way to build a reputation is to offer free advice in the form of how-to blogs and video tutorials on YouTube. Eventually, you’ll build a large enough audience who will be interested in what you have to sell.
13. Start Streaming on YouTube
YouTube continues to be a dominant space for entrepreneurs who want to generate a ton of cash. You probably already know about those at the top, such as PewDiePie, Markiplier, and Jacksepticeye.
There are many ways of making money with your videos on YouTube.
There’s the obvious monetization option. This means advertisers can place videos at certain sections in your videos and you’ll earn cash based on your number of views (and ad clicks).
But if you play your cards right, you can do endorsements and make a lot of money whenever someone buys a product or service based on your recommendation.
You can talk about traveling, unbox video, do makeup tutorials, create reviews, and a whole lot more. YouTube attracts millions of people every month, which means that you’ll find a crowd for even the most ludicrous ideas (we won’t be discussing them here!).
14. Build an Online Store
An online store lets you stay open for business round the clock, through thick and thin, as long as your hosting provider is doing alright. Many people and businesses are jumping the bandwagon, making it difficult to stand out from the competition.
In order to market yourself as truly unique, you’ll have to put in a lot of effort to properly set up your online store. This means creating a user-friendly website, choosing the right theme for your e-commerce store, finding a payment provider, hiring a graphics designer, finding a content writer – the whole nine yards.
But once you’re done with all of this hassle, you’ll have created a self-sufficient system that requires minimal supervision from you.
You have three main options when it comes to running an online store:
i) Sell your own product
You’re manufacturing your own products and doing all the marketing for it. You have full control over the product and get the highest margin of profit. This option requires a lot of upfront capital and effort.
ii) Selling someone else’s product
You source a variety of products from various companies and sell them at wholesale prices.
This is a popular option that requires the least amount of effort. When someone places an order from your website, a third-party manufacturer takes care of everything from handling and shipping. You don’t have any control over this process though. If the manufacturer fails to meet quality standards, it’s on you.
So What Are My Best Options?
How you go about choosing each option ultimately depends on you. If you were to ask us, the best approach is to build online assets with lots of content marketing. Once you gain enough reputation, you’ll be in a position to sell all kinds of products and services.
Which option best suits your interests? Let us know in the comments below!