Erica and Jordan at the The Worth Project have the goal of sharing their personal finance experience to help readers improve their financial lives. We regularly partner with companies that share that same vision. Some of the links in this post may be from our partners. Here's how we make money.
One of the best things you can do for your money is to create multiple income streams. Creating multiple income streams can give you a safety net in case you lose your job. Or, in our case, it’s giving us the security we need to sell everything we own, move around the world, and pursue different careers.
Multiple income streams are awesome.
When looking at ways to make money, you can break things down into active and passive income ideas. Before we jump into the 10 ideas, let’s break down what active and passive really mean.
These are things that require you to spend your time in order to make money. This includes your job, freelance gigs, driving uber, taking surveys, flipping houses, and so many other things.
Active streams of income aren’t bad. In fact, they’re great. They help you earn money that you can then invest in passive income streams.
This is the “make money while you sleep” idea. In order to make money, you don’t necessarily need to spend your time. That doesn’t mean there’s absolutely no work involved, it just means that the amount of money you make isn’t tied to the amount of time you spend on it.
For example, our rental property is passive income. We get a rental check every month, regardless of whether we have to put in work. Some months, we have to put a lot of time into it. Other months, we spend zero hours and are able to just collect a check.
Active and passive income actually work together. Think of it this way:
- You first earn active money through a job, freelance work, etc
- You use that active income to pay for your living and hopefully invest the rest into a passive income source
- That passive income source starts earning money and growing your wealth
Eventually, the goal is that over time the amount of income you’re earning from passive income sources grows and you don’t have to rely on active income sources.
Like the sound of that? Let’s dive in.
10 Passive Income Ideas
High Yield Savings Account or CD
Put this one in the category of everyone should be using this but it’s definitely not going to make you rich.
That said, interest is a form of passive income. Your money sits in an account and grows each month thanks to interest. That said, this interest isn’t going to be enough to keep up with inflation, so you won’t want all of your money sitting there. But this is a great place to stash some cash safely.
Stocks, bonds, and REITs
This is probably what you think of when someone talks about passive income. You invest your money by buying stocks, bonds, or Real Estate Investment Trusts (REITs). There’s no guaranteed return, but the goal is that the money you invest will generate money from capital gains or interest.
If you have a retirement account, like a 401K or an IRA, you’re likely already on this passive income train. But you can also open up a taxable investing account through a brokerage like Vanguard or Ally Invest or by using a robo-advisor like Wealthfront, Wealthsimple, or Betterment.
When you invest in stocks, there are two opportunities for passive income: capital gains (profit you make when you sell an investment that has gone up in value) and dividends. Dividends are money that a corporation pays to its shareholders. These are usually paid quarterly to everyone who owns the company stock. Not every company pays dividends, but those that do take them very seriously and may pay them even if they’ve lost money that year.
Peer to peer lending
People used to choose between banks and credit unions for loans. Now there are a whole host of new online lenders, including person to person loans, or peer lending. Companies like Lending Club started to help facilitate these peer to peer transactions.
There is definitely risk involved, but if you’re passionate about the peer lending space, this is a way for your money to potentially earn passive income.
Buy a rental property
While this can be a difficult investment to jump into (saving up a down payment takes time!), it’s an investment area where you can potentially see fairly reliable monthly income. Before jumping into a rental property, there’s a lot to understand: rental yield, occupancy rates, maintenance. As we’re looking to potentially sell our home and buy a different rental property, I’ve used Afford Anything and Bigger Pockets as resources to start my research.
To make owning a rental property as passive as possible, you’d need to hire a property manager. This can be very expensive but can significantly cut back on the amount of time you spend managing the property.
Rent out a room
Have some extra space? Use a site like Airbnb to rent it out and make additional income. A friend of mine has a basement bedroom with a separate entrance that she wasn’t using. A few months after putting it on Airbnb, she said it was bringing in a meaningful amount of income.
And if you’re going away for a few weeks on vacation, consider renting out your whole place. You’ll need someone local to help with any issues that come up, but you could potentially get paid to take a vacation.
Invest in crowdfunded real estate
If you want to invest in real estate, but don’t have the money or the time to buy a piece of property, investing in crowdfunded real estate could be a good option.
There are a number of investing platforms that operate just a little different, but the general idea is that you invest your money into a fund (with other investors) and they take that money and lend it to an investor who is buying or rehabbing a commercial or residential property. The investor pays you interest on your loan.
If you’re interested in learning more about this route, you may want to take a look at Fundrise. I haven’t tried them out yet, but I’ve read some good reviews.
Start a website
I know, I know. Woah. We’ve just jumped from investing and real estate to the online arena. While starting a blog or a website most likely won’t pay you immediately, if you have specific knowledge that you want to share you can likely make money from doing just that.
I make money writing about personal finance: I’m a CPA, personal finance writer, and I love sharing information here.
There are thousands of topics you could write about and potentially make money from gardening, fitness, cooking, parenting, DIY home improvements, home buying, and on and on. Once you build up enough of a readership you can earn money through affiliates, sponsorships, and advertisements.
Sell digital downloads (printables, e-book, etc)
There is a whole world out there of people who are making money selling digital downloads online. Printables are all the rage and you’ll find them for things like budget templates, meal planning, scheduling, calendars, goal setting, and the list goes on. There is a printable for pretty much everything you can think of.
Have some design skills, some knowledge, and a way of doing things you think people would want to buy? That can all be packaged and sold in a printable. Right now I’m honestly really into Montessori printables for Henry.
Have knowledge that you want to share in a less visual way? An e-book (or self-published book) could be a great option. You can sell them on your own website or through Amazon. Creating your book probably won’t be easy, but once it’s done you can promote it and earn passive income from sales.
Create a course
Online courses are big business. But this isn’t just an opportunity for big businesses. If you have a skill or knowledge that you want to share with the world, an online course might be the right form of passive income for you.
I’ve taken a photography class on Skillshare, a writing course on Teachable, and Jordan is taking an SEO course on Udemy. These courses were created by regular people wanting to share their skills with the world (and get paid for it).
Sometimes passive income feels like a pipe dream: like only really lucky people get the chance to make money without putting in a lot of active time. But with upfront work and some creativity, there are options out there for you to take advantage of.
Building multiple income streams — including passive income streams — can be one of the best things you do for your financial life.
Erica Gellerman is a CPA, MBA, personal finance writer, and founder of The Worth Project: personal finance and family travel. website. Her work has been featured on Forbes, Money, Business Insider, The Everygirl, The Everymom, and Lifehacker. When she's not writing about personal finance you can find Erica exploring Europe from her temporary home base in London.
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