Passive income can be described as income that you receive regularly but does not require a lot of work to sustain it — money that you continue to make whether you work or not. Although there are many different ways to make money, we will focus on money-making ideas that don’t require as much ongoing effort to keep it producing money (i.e., it is not a job). Of course, many of these ideas require effort upfront, and many require financial investment, but they can make you money even while you are asleep once you put them in place.
Passive income is a crucial component to help you reach financial independence and retire early — specifically, once you can cover 100% of your living expenses with passive income, you can quit your job! Now, let’s get started.
Table of Content
Easy Passive Income Ideas for Beginners
This group contains QUICK WINS ideas that everyone should be able to implement right away. They are alternative ways to do what you’re already doing so that you can get money from these routine activities.
1. Earn Higher Interest on Your Savings
Is your savings account earning you more than 2% interest? If not, one of the easiest ways to increase your passive income is to shift your savings to a bank that pays a higher yield on your savings — some of the banks on our list pays as high as 2.5% which is way higher than a typical savings account.
Although it doesn’t sound like much, little things do add up, and this doesn’t take that much effort.
Some banks will also pay you a signup bonus, so be on the lookout for that!
2. Earn More from Your Checking
If you have a lot of money in your checking account, there are some outstanding checking accounts out there. However, you will have to follow some of their basic rules to be eligible for the best rate. For example, use their debit card X times a month, set up a direct deposit, set up an online statement, etc.
3. Build a CD Ladder
For a slightly higher yield than savings and checking, build a CD ladder. Break your money into smaller chunks and buy a series of high yield certificates of deposit.
4. Get Cash Back Reward from Credit Cards
You buy stuff every day, why not make the most of your purchases?
Look for a credit card that pays cashback on your purchases. When you make your day-to-day purchases, use a reward card, and get money back. Some credit cards offer as high as 5% on selected categories or merchants on a rotating basis, and some will have a limit on the amount of cashback you can earn (so you might want to have several cards to maximize the cashback).
My family gets several hundred dollars a year from using these cards.
5. Get Cash Rebates When Buying Online
This web site provides you with extra cashback (on top of your credit card cashback) when you buy through them. You can install the browser toolbar or extension for even a better result. As a bonus, you also get extra money when you refer Rakuten to your friends.
Another similar service is MyPoints — check out both and see which one you like best.
6. Earn Gift Cards When You Search
You probably do a couple of web searches each day. If you do all your web searches through Swagbucks.com (instead of Google or Bing), you can collect points called SwagBucks. Trade your SwagBucks for a variety of prizes, including gift cards for Amazon.com, Walmart, PayPal, and more.
Passive Income Ideas through Investing
Why is saving and investing important? The money that you save and invest has the potential to earn you more money than you ever could by working. For example, my net worth grew $350,000 so far this year, and I certainly did not make that from my job.
Early in your life, you will want to invest mainly for appreciation and then slowly convert it to income generation as you get older. Here are ideas to help you create passive income through investing.
1. Take Advantage of 401(k) Matching
This one is a deferred gratification; however, you’ll be missing out on a lot of money if you don’t take advantage of this free money. If your company offers a matching 401(k) contribution, at the minimum, you should contribute enough to get all of the matching money. That money and yours will grow in your retirement account and be there for you once you reached retirement age.
When I used to work my corporate job, my company matched the first 6%, so I was getting between $3,600 to $6,000 a year while I was there. Last year, my wife got over $2,000 from her company!
2. Invest in Dividend Paying Stocks or Funds
If you’re looking for current income, investing in the dividend-paying stocks (or better yet, use dividend ETFs) is an excellent way to earn money regularly. Pay particular attention to the S&P Dividend Aristocrats; these are companies that have long histories of increasing their dividend payouts each year.
For example, one of my holdings is the SPDR S&P Dividend ETF (SDY), which pays dividends quarterly. As of this writing, it pays a 2.39% dividend by investing in high-quality companies.
3. Invest in Bonds or Bond Funds
As part of healthy investment diversification, you want to have some bonds to go with your stock investments. You don’t want to have too much early in your investing career, but as you get closer to your retirement, your bond investments will become a significant income generator.
Here is the portfolio I manage for my parents that have 25% Bonds Allocation with some dividend ETFs and a REIT. It generates almost $1,200 a month in dividend income!
4. Invest in REITs
If you don’t want to get your hands dirty with rental properties, you can gain exposure to real estate investing through Real Estate Investment Trusts (REITs). REITs invest in real estate and mortgages and payout 90% of the taxable income to shareholders annually. REITs trade like stocks and funds, so it is straightforward to invest in them.
Before I got into rental properties and investing in real estate syndication, I used to invest in Vanguard Real Estate ETF (VNQ), which currently has an effective yield of 3.12%.
5. Rental Properties
This requires a bit of upfront work and money to identify the right rental property. Once you have the right tenant in place, this becomes a mostly passive income stream that just needs occasional maintenance.
Currently, we invest in a couple of rental properties and earn about $500 per month profit from each property. Our best rental has an annualized return of 25.5% for the past seven years!
6. Rent Out Parts of Your House
You can rent out just about any unused space in your house if you’re comfortable with the idea. As long as it is not short term rentals (think Airbnb and VRBO), this is a relatively passive activity. Some of the spaces you can rent out include:
- A room or two in your house
- Your garage or parking space
- Your basement
- Your storage shed
7. Real Estate Crowdfunding and Syndication
Another option is to go through a real estate syndication. For example, I am currently an owner of a tiny fraction of an $8 million apartment complex in Arizona, by investing through a Capital Partners group.
8. Lend Money via Social Lending Network
Prosper and Lending Club are peer-to-peer lending platforms where you can lend your money to other people. You’re the bank. Each note is only $25, so you can invest $1,000 and lend money to 40 people. There are many grades of loan (from safest to riskiest) and investors earn, on average, between 5% and 7% annualized returns.
For more information, check out Investing and Making Money with Lending Club Peer-to-Peer Lending.
Income Ideas that Could Become Passive in the Future
Some income ideas require a lot of work up front (almost like a job) that could then later become more passive, requiring less work to maintain the same amount of income or even to grow it. There is no need to quit your full-time job (or your side gigs) when you start pursuing these ideas. It will take time and effort before any of these bear fruit, but once they get going, they could generate a nice income stream with very little maintenance work. Some of these ideas include:
1. Make Money Blogging
This blog has been providing me with daily income since 2007. Here is a short guide I wrote on how to make money blogging to get you started with blogging and making money with it.
You should also look at these articles to learn more about blogging for money:
- How to Start a Blog for Fun or Profit – Introduction to a Series at Cash Money Life.
- 28 Ways to Make Money with Your Website at Daily Blog Tips.
2. Make Money with YouTube
With nothing more than your smartphone, you could make videos and start posting them on YouTube. Just like blogging, you should be making videos about what you know and love. This way, you’ll have a better chance of gaining subscribers to your YouTube Channel.
You will need to have some success with the channel already before you can start to make money with it. According to YouTube’s Monetization page:
You can apply for monetization at any time. To be reviewed, all channels need at least 4,000 watch hours in the previous 12 months and 1,000 subscribers. This requirement allows us to properly evaluate new channels and helps protect the creator community.
3. Write a Book
If you write a book, you can earn royalties for as long as people keep purchasing it. Many great authors receive monthly royalty checks for books they wrote twenty years prior. Even if your book in not on the best seller’s list, you still have a good chance of earning a passive income from it. For example, some of our Authors have books that they are selling on Amazon, check out these author profiles:
They each have one or more books they are selling.
4. Network Marketing
When you become a network marketer, your goal is not just to sell the products; you will also work to recruit other people to become an affiliate, as well. When they sell anything, you earn a percentage of their commission. With enough recruits in your downline, you could earn several thousand dollars a month in passive income.
If you go this route, pick legitimate companies like Amway, Avon, Mary Kay, etc. — just watch out for scams and hype.
We have a friend who does this very successfully with Amway, and another who is working with Rodan and Field.
5. Selling Insurance
When you sell insurance, every time one of your customers renews their insurance, you will earn another commission. Yes, it takes a lot of work at the beginning, but once you have enough policies in place, you will start to collect residual income each year that they renew.
Reverse Passive Income (by Reducing Expenses)
As you already know a dollar saved is more than a dollar earned because you don’t have to pay taxes on the money you saved.
If you’re in a 22-24% tax bracket, you’d have to earn on average $1.55 to save $1 because of all the taxes you’re paying. Therefore, if you can save $1 in recurring expenses, you effectively earned $1.55. Here are some big-ticket items to consider.
1. Refinance Your Home Loan
This one can produce a massive saving, but you have to consider the pros and cons of refinancing carefully. If it is the right move for you, now is a great time to refinance your mortgage. If you reduce your monthly payment by $400, you’re basically earning $620 per month in passive income. Not bad for just going down the road to talk to your bank.
While you’re at it, look into cutting another major household-related cost…your insurance.
2. Reduce Phones and Cable Bills
Another significant recurring expense is your cell phone plan and your cable/internet plan. If you can manage to save $75 from these two plans, you’ve just earned yourself $116 in monthly passive income.
You get the idea about cutting expenses to increase your passive income; the article below has some more expense reduction ideas.
As most people already work forty to fifty hours each week, the last thing they want to do is put more time in to make more money. Instead, they could be earning passive income. By investing some time into learning these proven methods of passive income generation. With passive income, you could stop working so many hours and still make more money than you were before.
If you still need more income ideas, we have a list of extra income ideas that are mainly side hustles, gigs, or second jobs. Check it out and see if there are more money-making ideas you can add to your income portfolio.
Pinyo Bhulipongsanon is the owner of Moolanomy Personal Finance and a Realtor® licensed in Virginia and Maryland. Over the past 20 years, Pinyo has enjoyed a diverse career as an investor, entrepreneur, business executive, educator, financial literacy author, and Realtor®.