Having more than one source of income is pretty common these days. For some people, it’s a way to make ends meet. For others, it’s a way to grow their wealth. It can also be a way to feel more financially secure. If one source of income dries up, there is another that can fill in the gap. While a common source of income is the type earned from a regular job, there is also passive income.
Creating and managing passive income streams isn’t a passive activity. It requires upfront work and sometimes investment to build up a source of passive income. Depending on what your passive income source is, such as a blog or podcast, it may require you to put in time each week to keep it earning you cash.
Related: 25 things to know when renting out an Airbnb
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What is passive income?
Passive income is money that you earn without active involvement. In other words, it is income that isn’t attached to an hourly wage or annual salary. Passive income streams could include things like cash flow from rental properties, dividend-yielding stocks, sales of a product (that requires little or no effort), royalties and more.
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Types of income
In addition to passive income streams, there are other types of income you can earn:
- Earned income: This is the most common type of income
- — money you make from a job. With earned income, you are trading your time for money.
- Profit income: Profit income comes from the sale of a product after expenses have been deducted.
- Interest income: This can be money earned from one entity lending to another entity, such as a person, company or bank. This can also be referred to as interest from accounts such as savings accounts and certificates of deposit (CDs) in which you receive a 1099-INT at the end of the year.
- Dividend income: Most dividend income is earned by the distribution of income from companies to shareholders owning stocks that pay dividends.
- Rental income: Rental income is earned when you rent or lease a house, car, or other property you own to someone else.
- Capital gains: This generally refers to profit (or gain) that is subject to taxation when you sell an asset such as stock or real estate. There are both long- and short-term capital-gains tax rates depending upon how long you held the asset before sale.
- Royalty income: Royalty income is generated when you own the rights to a piece of art, music, literature or another asset licensed for other people to use, or from the extraction of oil, gas, or minerals.
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Potential benefits of earning passive income
There are only 24 hours in a day. If you go to a job each day that pays you a set amount of money, that is the maximum amount that you’ll ever make in a 24-hour period. That is called earned income.
By investing some of that earned income and creating sources of passive income, you may be able to increase your earnings. Diversifying your income stream may also improve your financial security.
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Some benefits of passive income are:
- More free time: By earning money through passive income sources, you might be able to free time in your schedule. You may choose to spend more time with your family, pursue a creative project or new business idea, or travel the world.
- Financial security: Even if you still plan to keep your 9-to-5 job, having multiple sources of income could help increase your financial security. If you lose your job, become sick or get injured, you may still have money coming in to cover expenses. This is especially important if you are supporting a family.
- Tax benefits: You may want certain legal protections for your personal assets or to qualify for tax breaks. Consulting with an attorney and/or tax advisor to explore setting up a formal business structure like a sole proprietorship, a limited liability company (LLC) or a corporation might help you decide if this is a good route for your particular situation.
- Location flexibility: If you don’t have to go into an office each day, you’ll be free to move around and, possibly, live anywhere in the world. Many passive income streams can be managed from your phone or laptop.
- Achieve financial independence: The definition of financial independence is having enough income to cover your expenses without having to actively work in order to cover living expenses. This could allow you to retire early and have more freedom to live your life the way you choose. Whether you’re interested in retiring early or not, passive income can be one way to help you reach financial independence.
- Pay off debt: Passive income may help you to supplement your income so that you will have the opportunity to pay off any debts more quickly.
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Potential downsides of earning passive income
Although it might sound like a dream come true to quit your job and travel the world, earning through passive income is not quite that simple.
- Earning passive income is not a passive activity: Whether you earn passive income through a rental property, running a blog or in another way, you will still need to put in some time and effort. It takes time to get these income sources up and running, and they don’t always work out as planned. If, for example, you run an Airbnb, you have to maintain the property, ensure a high-quality experience for guests, and address any issues or concerns guests may have to secure positive reviews.
- Passive income requires diversity: In order to earn enough passive income to quit your job and cover all your expenses, you would most likely need more than one source of income. Although you may no longer need to clock into a 9-to-5 job, you will likely still need to spend time managing multiple income streams.
- It’s lonely at the top: It might sound great to never have to go to the office again and to have the freedom to travel, but earning money through passive income can become lonely. Not having anyone to talk to during the day might make you feel lonely, and if you aren’t self-motivated, you may find it difficult to stay on task if you need to manage your passive income streams.
- Getting started may require investment: Depending on how you plan to earn passive income, it may require an initial financial investment. You may need money for a down payment on a rental property, the development of a product you plan to sell or for investment into dividend-yielding stocks.
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Types of passive income
There are a number of ways to earn passive income. Some options, like the following, take relatively little active supervision.
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1. Open a high-yield savings account
By simply putting your money in the bank, you may be able to start to earn passive income on it. If you invest in an FDIC-insured account, the first $250,000 of your money is protected. There are both banks and online platforms that offer high-yield savings accounts.
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2. Buy a company
Although this may take an up-front investment, buying into a business and becoming a silent partner can be another passive income source.
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3. Become a peer-to-peer (P2P) lender
Using a peer-to-peer or crowd-lending website, you can be matched to an individual seeking a loan and lend your money as an installment-type loan, earning interest on it. You might earn even more than from a bank, depending on the loan.
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4. Buy a rental property
Another popular passive income source is rental property. You might want to purchase a home to rent out to an ongoing tenant or list a property on a short-term rental site like Airbnb. Hiring a property management company lessens your day-to-day involvement, thereby making this venture more passive than active.
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5. Invest in crowdfunded real estate
If you don’t have thousands of dollars to spend on a piece of property, you can always check out your options on crowdfunded real estate sites like Fundrise and CrowdStreet. For Fundrise, you only need $500 to start.
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6. Invest in index funds or dividend-paying stocks
There is no guarantee that investing in dividend-paying stocks will continue to earn you passive income, but some investors may enjoy the thrill of the ups and downs of the stock market. Dividend-paying stocks typically pay investors quarterly or annually and often allow investors to reinvest the dividends.
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7. Invest with an automated advisor
If you’re just getting started with investing, you may want to use automated investing tools to help you choose the appropriate allocation of assets for your goals.
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8. Start a retirement account
When you open your retirement account, you can choose to invest it however you want. One way to earn passive income on a retirement account is through mutual funds. You can choose the level of risk you want to take with your money by finding a mutual fund that is higher or lower risk.
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9. Join an affiliate program
When you join a company’s affiliate program, you earn a commission from every product that someone purchases from that company. All you have to do is post the link on your blog, website or social media pages. Amazon Associates is a great place to start.
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10. Rent out your car
Another one of the best passive income opportunities is renting out your car on a site like Turo. It’s basically the Airbnb of cars, and, according to Turo, the average annual income for one car on the site is $10,516.
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11. Advertise on your car
If you have a clean driving record and a newer car, consider getting in touch with a car advertising agency. You simply drive around town with ads on your car and easily earn passive income.
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12. Rent your parking space
Do you have space in your driveway that you aren’t using? Then rent it out on platforms like Stow It, where you can find people who will pay to rent out the space.
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13. Rent storage space
If you have extra space in your garage, shed or storage unit, then you could earn passive income by using a peer-to-peer storage site like Stashii to find people who need your space.
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14. Invest in storage space
You may not have space to store other people’s things, but you might consider investing in a real estate investment trust (REIT) that focuses on storage units. For example, one option is Public Storage, which has ownership or interest in 2,548 properties located in 38 states.
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15. Rent your bike
Perhaps you don’t have a car, but you do have a bike that’s just sitting around. Your bike could be a lucrative passive income source, especially if you live in a high-traffic area. List your bike on Spinlister to get started.
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16. Airbnb or rent out a room
Even if you don’t own a rental property, with your landlord’s permission, you may be able to rent out a room in your apartment or list it on Airbnb and start adding to your passive income streams.
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17. Pet sit in your home
If you love pets, you can earn passive income by welcoming pets into your home while their owners are on vacation. For instance, you could charge $30 to $80 per day just for running a doggy daycare. You can gain clients through word of mouth or use a site like Rover to find customers.
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18. House sit for someone
When your friends go out of town, they may need someone to stay in their home and do simple things like water their plants and collect their mail. You can easily make money and have somewhere new to stay for a little bit. Along with making yourself available to friends, you can sign up to be a house sitter on HouseSitter.com.
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19. Buy and sell domain names
Some domain names are cheap, while others cost a lot of money because they are in high demand. One thing you could do to start another passive income stream is to purchase domain names you think will be popular. Purchase low for around $10 to $100 and then sell them for a much higher price later on.
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20. Rent your tools
Have you ever done a home improvement project that required you to purchase tools? You may never need to use those tools again. Thankfully, now you can rent tools, and rent out your tools, on peer-to-peer platforms such as Sparetoolz to earn passive income.
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21. Invest in royalties
Let’s say you don’t have any songwriting ability, but you would like to make money on other artists’ work. You can invest in royalties through Royalty Exchange and earn passive income on the intellectual property.
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22. Purchase a billboard
You can make thousands of dollars per month if you own a billboard where companies can advertise their products and services. Do your research and make sure you get the right permits before committing to a billboard.
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23. Purchase a blog
If you don’t have the time or energy to create content for your own blog, then look into ones that are already successful and see if the owners are willing to sell. You could also hire someone to manage your blog so that you’re truly earning in a passive way.
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24. Create an online course
If you have a special skill or knowledge about a certain topic, you may be able to create a video course where you teach people about that topic and charge them to take the course.
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25. Sell digital products
You may want to research online platforms where you can sell everything from digital art to e-books. Whether you’re an artist, graphic designer or writer, you can create digital products to sell online.
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26. License your photos
Many companies, bloggers and individuals use stock photos on a regular basis. You may be able to upload your best photos to stock photo sites and earn passive income on them.
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27. Create a mobile app
If you’ve been dreaming about an amazing phone app that you think a lot of other people would use, you may want to look into hiring a development team to create it.
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28. Sell a product
You may be able to earn passive income through sales of a product that you create. This could be a book that you write or a physical product that you design and make. You might also list items you already own on sites like eBay and earn extra income through those sales.
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29. License your music
Do you love to write songs? Then you could license your music and start to earn passive income. You’ll just have to team up with a music licensing company to get started.
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30. Self-publish a book
Through platforms like Amazon’s KDP, you can self-publish a book and earn a royalty on it every time someone makes a purchase. You will be able to set the price of your book and be in full control of your book’s Amazon page, where you can list pictures of the book, reviews and videos promoting it.
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31. Sell blank books
You can start selling books online without having to write anything. How? By focusing on blank books, such as journals, sketchbooks and planners. Simply find a design you believe will appeal to people and begin collecting royalties when people buy your books.
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32. Create greeting cards
Another artistic endeavor that could be a good passive income stream is creating greeting cards that you sell to a wholesale or retail stationery company that accepts independent artist submissions.
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33. Sign up for dropshipping
If you want to sell products online but don’t want to store any of the goods, you could always look into dropshipping to earn passive income. With dropshipping, you don’t have to have much money to start since you don’t need inventory to fulfill orders for customers.
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34. Start a blog
If you like to write and are passionate about a certain topic, you might want to start a blog and earn money through ads and affiliate links.
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35. Start a YouTube channel
If you enjoy creating videos more than writing, then consider starting your own YouTube channel. Once you get enough viewers, you can earn passive income through YouTube advertising.
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36. Create a podcast
Podcasts are all the rage, and they can generate some passive income streams for you. If you start a podcast that resonates with people, then you can grow your audience and monetize your show by sponsoring with ad partners. If you get enough listeners, you may be able to sign up for podcast advertising networks.
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37. Start an ATM business
When people are out at a bar or nightclub or they’re frequenting a cash-only business, they may need cash right away. If you own an ATM business and you place your ATM in high-traffic locations, you could start to earn passive income through surcharge fees. Typically, you could earn around $3 per withdrawal.
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38. Start a vending machine business
Similar to an ATM business, a vending machine business allows you to use your creativity and determine high-traffic areas where you could make a lot of money. If you buy in bulk, you’ll be able to save on the snacks and drinks you purchase for your machines.
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Managing passive income streams
No matter which type of passive income you choose to pursue, it’s important to keep track of your finances and both your short-term and long-term financial goals.
Tracking multiple sources of income in a monthly budget can be a complex task. To be profitable, it’s important to pay attention to how much money you put into the maintenance of your passive income stream(s), such as property upkeep or monthly online services.
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The takeaway
Establishing passive income streams is one way to diversify your income and can help you build wealth and achieve financial freedom in the long term. There are a variety of ways to earn passive income, such as through investing, rental properties and earning royalties. Some passive income sources require a financial commitment upfront, such as purchasing a rental property, and others may require a time commitment.
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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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