Passive income can provide a steady stream of earnings with minimal involvement.
Passive income can be an effective way to diversify and build wealth.
Most passive income streams require some type of initial investment.
As the world evolves, so do the opportunities to generate passive income, especially in the digital era.
In this uncertain economic environment, diversifying your income streams is not just a wealth-building strategy. It can be a survival tactic.
Passive income provides an additional earnings source and acts as a financial safety net, making it a cornerstone of financial stability. From cushioning against job loss to funding life’s luxuries, the benefits of passive income extend far beyond having an extra paycheck.
With an initial investment — be it time or money — anyone can start generating passive income. The key is choosing the right passive income ideas that align with your interests, skills and financial goals.
Setting up a passive income stream may require effort initially. But once underway, passive income pays out automatically.
Best passive income ideas for 2023
Other passive income ideas
What is passive income?
Passive income can be generated with little to no active involvement. Unlike active income, which includes salaries or wages, passive income streams require an initial effort or investment, followed by minimal ongoing work.
The allure of passive income lies in its potential to generate continuous earnings without trading time for money, a concept usually associated with traditional employment.
How to get passive income
Creating passive income streams takes time, money or both. For instance, you could invest money into income-generating assets like dividend-paying stocks, rental properties or peer-to-peer lending platforms.
On the other hand, investing time might involve creating a blog, writing a book or developing an online course, all of which can yield income long after the work has been done.
“Creating an online product one time that you can sell for life, such as an e-book, a notebook or a course, and then selling it on your own platform or Amazon are popular and relatively easy ways to generate passive income,” said Jacqueline Schadeck, a certified financial planner professional.
Generating passive income often follows a sequence of steps. First comes the idea — identifying a potential income source aligned with your skills, interests and financial goals. Next is the investment phase, where you put in the upfront effort or capital required to kick-start the income stream.
This is followed by the development phase, which may involve building a website, buying and refurbishing a property, or writing a book.
Finally, there’s the maintenance phase, where you manage your income stream with minimal effort, allowing you to earn while focusing on other ventures or enjoying your spare time.
While passive income streams can be rewarding, they are not without risk. It’s crucial to research, understand and carefully manage that risk when investing in any passive income ventures.
This might involve diversifying your investments, regularly monitoring your income streams or seeking professional advice. Remember, the goal of creating passive income is to increase your earnings and achieve a sustainable and balanced financial lifestyle.
5 passive income ideas
By exploring these options, you’ll be better equipped to venture into the world of passive income, bringing you one step closer to achieving financial freedom.
Bonds and bond funds
Bonds and bond funds can be a reliable source of passive income. When you purchase a bond, you are lending money to an issuing entity, such as a government or corporation.
In return, you receive periodic interest payments throughout the bond’s life. Bond funds simplify the process by investing in a diverse range of bonds, providing regular income and spreading the risk.
High-yield savings accounts
While not an investment in and of itself, a high-yield savings account is an effortless way to earn passive income.
These accounts offer higher interest rates than standard savings accounts, allowing your money to grow over time. It’s a safe, low-risk option for those starting their passive income journey.
“Although it may be an easy way to earn passive income, at the moment, it’s not yielding enough to make an income for most people, and that’s why they will turn to dividend stocks as a next step with the potential to earn more money,” Schadeck said.
Investing in dividend stocks is a popular passive income strategy.
Companies distribute dividends to their shareholders as a portion of their profits. Once you invest in a dividend-paying stock, you can earn a steady stream of income based on the company’s profitability and dividend policy.
“(This is a) popular way to earn passive income because you get income in the form of dividends and, in addition, you can earn capital gains if the stocks appreciate,” said Deva Panambur, a certified financial advisor and planner at Sarsi.
Dividend stocks tend to be popular among investors because little effort is required.
“When an investor determines they’d like to invest in dividend-paying stocks, they only need to establish the account and then transfer money into it, and then they can purchase the stocks they’d like to invest in,” Schadeck said.
You can reinvest the dividends to buy more shares and increase your income over time.
Investing in rental properties can generate significant passive income but requires a substantial upfront investment. Once you own a rental property, you can earn a regular rental income minus expenses like mortgage payments, property taxes and maintenance costs.
Being a landlord isn’t entirely passive. It may require dealing with property management and tenant issues, but hiring a property management company can help reduce the workload.
Real estate investment trusts
If you’re interested in real estate but prefer a more hands-off approach, consider investing in real estate investment trusts. REITs are companies that own and often operate income-producing real estate.
As an investor, you can buy shares of a REIT and earn a share of the income produced, just like dividend stocks.
“One of the biggest benefits of real estate are the tax advantages,” said Marc Lescarret, owner and founder of Marc Alan Wealth Management.
Other ways to earn passive income
If you have capital to fund high-interest loans — also known as peer-to-peer or P2P lending — you can make passive income. P2P lending connects borrowers to private investors, allowing for less strict eligibility requirements for borrowers.
With a low cost of entry (investments start at $25), plenty of loan diversification and higher-than-average yields, a portfolio of peer-to-peer loans can create a steady stream of passive income. Investors are typically paid monthly, when borrowers make a payment on an existing loan.
Websites like Avant, Upstart and Prosper are firmly established in the market, but engaging in peer-to-peer lending is not without risk. If a borrower defaults, lenders often lose their money. And if a platform fails, which has been known to happen, your money may not be protected and you may not be reimbursed for your loss by the Federal Deposit Insurance Corp.
Read our best peer-to-peer lending guide to learn more about P2P lending and the best lending platforms.
Sell ad space
If you own an automobile, pasting colorful banners on your doors is a simple way to make extra cash while running errands.
Carvertise and Wrapify have no upfront costs and offer the unique opportunity to make hundreds of dollars in passive income per month by driving around town in your very own car. You can earn between $450 and $1,500 per campaign through Carvertise by advertising brands like Netflix, Coca-Cola, Planet Fitness and Nascar.
If you’re popular on social media and know your way around TikTok or Instagram, you can use your influence (and social media profile) to market products.
Businesses pay mega bucks for celebrities to mention their products. You can do the same. Brands will sometimes sponsor videos and offer discounts to your audience. Every time someone takes advantage, you get paid.
Collective Voice is a great place to start. With commissionable links and sponsored campaigns, you can hang out online, engage with your audience and make passive income. As audience members take advantage of offers throughout the life of your content, the money will keep rolling in even when you’re not online.
Passive income advice for beginners
Passive income is money you make without actively working for it. It’s passive because it requires little effort to maintain. For example, it may entail collecting rent or receiving profit from an investment. By comparison, traditionally earned income requires active participation, where you work and get paid a salary, wages or tips. If you don’t work, you don’t get paid.
With only so many hours in a workday, passive income creates opportunities to increase your earning potential without engaging a lot of your time, talent or physical labor. With that in mind, here are a few tips for those new to passive income generation:
Start small and diversify. Passive income is a journey, not a race. Start small, learn from your experiences and gradually diversify your portfolio.
Understand your risk tolerance. Every passive income source has a risk profile. Understanding your risk tolerance will guide you in selecting the right passive income investments.
Be patient. Don’t expect to see immediate results. Building a stable passive income stream takes time, patience and consistent effort.
Frequently asked questions (FAQs)
What is the easiest way to make passive income?
The easiest way to make passive income depends on your skills, knowledge and resources. But investing in high-yield savings accounts or dividend-paying stocks may be the simplest starting point.
What is the most popular way of making passive income?
Rental properties and stock market investments are two of the most popular ways to generate passive income due to their potential for high returns.
How do I minimize my taxes on passive income?
Strategies to minimize taxes include using a tax-advantaged account like an IRA or 401(k) for investments, offsetting gains with losses through tax-loss harvesting, and leveraging long-term capital gains rates.
A tax advisor can provide personalized strategies for your situation.
Passive income can be an invaluable tool for wealth building, offering a route toward financial security and freedom. By exploring these ideas and finding the ones that fit your goals, you could be well on your way to making money while you sleep.
Can you have more than one income stream?
No one can stop you from becoming a passive income guru. The key is finding a few complementary opportunities.
Building multiple income streams is a savvy way to boost your earnings without having to free up more of your time. Imagine collecting money from two, three or even four passive income streams while working your regular full-time job. This is the definition of working smarter, not harder.