I wish I knew how to create passive income
– Software Engineer
Most people already have at least one stream of passive income and just don’t acknowledge it because it is a small part of their total income. However, what you notice and nurture tends to grow. That’s true for income, so pay attention to where you already have some passive income to increase that stream and build your muscle for creating more.
Here are seven ideas for passive income, all of which will require active work to get going and active attention to keep growing. Even with that active component, these income streams will give you an opportunity to earn income that isn’t tied to a specific job, schedule or number of hours:
1 – Interest
This can be interest from a bank savings account or a money market fund. Because interest rates are so low now (less than 1%) it’s easy to overlook that you are earning passive income when you have accounts. To reach a six-figure income, you would need $10 million in a savings account paying 1%, so you probably don’t want to focus your efforts on padding your savings account at the bank. However, increasing your savings in general will give you capital that you can invest in other ways – perhaps for more than the current bank interest rate. Therefore, noticing this passive income stream and nurturing it will help your passive income total overall.
I juice up my interest income with private loans that pay 10-12%. These are riskier places to park my money than a bank, which is why the interest is higher. You also need to make a five-figure and up investment, and you’ll want to do your due diligence and have sound contracts with whomever you’re lending to (I lend to real estate investors since I’m already active in that community). As I mentioned at the top of the post, passive income requires some active effort.
2 – Dividends
If you own stocks or stock mutual funds, you probably already earn dividends. If these assets are in a retirement account, you might not notice this income stream because it gets reinvested rather than deposited to you. But it’s still income earned passively, simply by holding these assets. If you focus on the highest-paying dividend stocks, you can build a portfolio that yields several percentage points of income.
3 – Rental income
Real estate that you rent out on a long-term basis or vacation basis is yet another example of relatively passive income. You will need to identify and purchase the property, get it ready to rent, find the tenant and then manage the tenant and property going forward – all of which is active. However, you can outsource all or some of these activities, and then the rents come as long as you have tenants.
Rental real estate is a key passive income stream of mine. As a consultant, my “day job” is very much tied to hours worked, so funneling my consulting profits into real estate was one way that I was able to increase my income without increasing my hours.
4 – Affiliate income/ referral fees
In the first three examples of passive income, you need some money to get started – to put in the bank or lend out, to buy dividend stocks or to buy real estate. But if you don’t have any money to start, you could invest your time into nurturing a product that throws off income. You don’t even need to create the product yourself – you can identify a product that you believe in and become an affiliate marketer for that product and collect referral fees.
I am an affiliate of two different coaching programs:
- Optimize – a personal development program with a free component and soon-to-be-released app
- Inner U – a life coaching online course.
As a coach myself, I’m active in that community, and when I see a program that fits my audience and isn’t something I offer myself, becoming an affiliate for it is a way for me to add services to my clients and an income stream to my business.
I have recently stepped up my crypto investing and identified a high-interest crypto bank where you can deposit your coins and earn interest payable in Bitcoin. The bank, BlockFI, offers $10 to the new account and $10 to me for people opening accounts using my link.
Within the next month, I’ll be helping a friend and very talented media coach launch her year-long program, teaching entrepreneurs and executives how to raise their profile with publicity. Since I know publicity was a key driver in building my business and I have actually used the strategies from this program firsthand, it makes sense for me to be an affiliate.
If you have products that you’re already a fan of and that you have an audience for (it could just be your social media connections or personal friends and family), affiliate income may be a good match for your passive income focus
5 – Advertising income
If you have a personal website or podcast (perhaps to grow your affiliate income stream!), you could sell ads on the site or accept sponsors. Of course, there is work involved in setting up your site or show, populating it with content and driving traffic to it. However, if this is a creative passion of yours that you would spend time on anyway, you could expand it into a passive income stream by enabling ads and sponsorships. A personal website or podcast are also great for promoting yourself and establishing a strong personal brand, both of which will help your career. If you can get some passive income in the process, that’s a bonus.
6 – Royalties
Another way to promote yourself and establish your brand is to create products of your own – e.g., write a book or develop a course. These are examples of products stemming from your existing expertise that, once created, can yield ongoing royalties. As with the other passive income streams, there is active effort upfront to create the product. There is ongoing active effort to market the product. However, sales can happen when you sleep, while you’re on vacation and certainly when you are no longer creating that product (and perhaps moving on to the next one!).
7 – Licensing
The product you create might be something that someone else wants to use in their passive income efforts. For example, you create a course that another expert wants to teach to their audience in exchange for a licensing fee to you to use your content, tools, maybe even your marketing copy. While I haven’t done this myself with my books and courses, I know colleagues who have earned licensing fees for standalone workshops, whole courses, even whole business models.
Work you love may also feel like passive income
Passive income is earned whether or not you’re putting in the hours, so whenever you have to work, that income generated is not passive. That said, income might feel passive – or like icing on the cake – if the work you do is something you love to do anyway. Therefore, even as you try to build up traditional passive income streams, save some effort for nurturing your dream career.
“Choose a job you love and you’ll never have to work a day in your life”
– Confucius
