Making a living has taken on many different looks in the 21st century. What used to be the American model — get a full-time job, move to the suburbs, start a family — has changed drastically. People often work side hustles, or utilize the gig economy to make a living. It may not be 9-to-5, but people are making it work.
One of the most popular ways to grow additional income is through passive income — taking investments or things you’ve created and putting them to work for you, letting them make money in the background while you focus on other things. These passive income streams take many forms, from the more traditional (real estate, investments) to the more modern (affiliate marketing, online course development).
In this article we’ll define passive income, take a look at different ways to bring in passive income, and answer some FAQs. By the end, you’ll have some ideas on how to take your money (or talent) and put it to work for you.
What Is Passive Income?
Passive income is the idea of making money without putting in active work to do so. This usually requires some initial investment, either by way of money, time, or labor, but once that investment is made, the idea is that the money will then grow in the background while you focus on other aspects of your life.
Earning by way of passive income is different than the “side hustle.” While side hustles can bring in a solid amount of money, they require repeated and regular investment of time and labor to make the money.
Put simply: Driving for Uber is an example of a side hustle. Publishing an online course that people then continue to pay for into the future, even after your work is done, is an example of generating passive income.
Passive income tends to be an additional way to generate cash flow outside of full-time work, but with enough initial capital, people can make a living out of the money solely generated from passive income.
A key way to prosper is to put your income to work so it makes more for you. You can take the money you already have and generate additional revenue streams by investing it in stocks and bonds, buying real estate, or starting a business.
All of these options require patience.
Passive income streams can generate lots of additional revenue, but very few of them are short-term opportunities. Some take a few months to one year to see returns, and many of the ideas described below will take years to generate serious cash.
The key is to have long-term vision and be smart, as with all matters of personal finance. If an opportunity sounds too good to be true, it probably is. If a company promises you 500% returns on investments in a manner of weeks, odds are they are not on a good trajectory.
While it can be tempting to lunge at an opportunity to finally have financial freedom, do your research. People can make millions on passive income in theory, but it would require a major, early minimum investment up front to generate that amount of wealth without putting in any work.
If you don’t have a ton of extra money lying around, you can still make passive income streams work for you. But the key is to be realistic with your growth goals, do the research, and make sure you don’t get taken advantage of.
15 Passive Income Ideas
1. Affiliate Marketing
Affiliate marketing is an online marketing strategy that businesses use to grow sales. Companies will offer commissions to affiliates (that’d be you in this instance) who recommend the product to other people.
Amazon is a major practitioner of affiliate marketing (affiliates can earn commissions if people buy using a special link), as are many other companies. If you have a big online following, or a website that has a devoted audience around a topic or product, affiliate marketing can bring in a lot of cash. Learn more.
2. Peer Lending
Peer lending (sometimes known as P2P lending) allows groups of people online to essentially function like a bank. You can review business proposals, provide capital, and then get paid back for your investment with interest. Clubs like these allow you to grow money by investing in businesses you believe in. Check out Fundrise and Lending Club if you’re interested.
3. Savings Account
Old fashioned and stodgy? Sure. But having a savings account is one of the surest ways to keep your money safe and growing. Many banks offer savings accounts with high interest rates, and if you’re patient, that money will grow.
4. Real Estate
A real estate investment has been one of the favored ways to grow money in America since the dawn of the country. Land tends to appreciate, and buying a home in a developing area will often mean more money down the line.
5. Real Estate Investment Trusts
A real estate investment trust is a bit like a peer lending group in that it allows people to join together and purchase investment properties together. If you don’t have the money to buy houses but want to get in on real estate investment, it’s a nice way to do so.
6. Rental Property
If you have the capital to buy a second home, turning it into a rental property will be a great way to bring in extra money while still having a house appreciate in value. Maintaining a rental property can be a bit more active work than some of the other items on this list, but you can hire a property manager to take care of that, and rental income is a steady way to generate cash.
7. Airbnb Host
Have that rental property ready to go, or a second summer home? Do some research, and you might find that you can bring in more money as an Airbnb or VRBO host than through a traditional rental arrangement.
8. Invest in the Stock Market
The stock market is another tried-and-true method to put your money to work. Investing in the S&P 500, NASDAQ, or dividend stocks can all generate nice returns. It can be a very active gig if you want it to be, but if you build a solid portfolio, it can also be something that operates in the background generating cash.
9. Open an Online Business
One of the new developments of the modern economy is the ability for people to build a business quickly, efficiently, and easily. There are bulk suppliers and manufacturers (mattress manufacturers have embraced this model), which allow entrepreneurs to build a website to sell their items. The suppliers will take care of manufacturing and shipping, while you get a cut for providing marketing and customer service.
And website companies like WordPress, Wix, and Shopify will now let you build a site quickly, market your products, get paid via major credit card, and even outsource online customer service. If you have a small business idea but don’t have the capital to invest in a brick and mortar space, you might want to look into a model like this.
10. Cash Back Credit Cards
It seems counter-intuitive, but spending (responsibly) with a cash back credit card will get you money back on what you’re spending. If you’re going to spend the money anyway, you might as well earn some cash back on it in the process.
11. Cash Back Programs
There are numerous companies like eBates and Ibotta which allow you to get cash back on savings for shopping as you normally would. These sometimes require some initial work — a survey or a product review — but often can just get you savings on items when you shop.
12. Invest in an IRA
An IRA lets you build a retirement investment portfolio and make smart stocks and bonds decisions without having to pay tax on that money. This is a smart way to build up income you’ll use in retirement.
13. Take Advantage of Mutual Funds
Mutual funds allow you to more safely play the stock market by spreading your money out across many different stocks and bonds, reducing risk by diversifying your portfolio.
14. Create and Sell Online Courses
Online course depositories like Teachable and Udemy allow users to upload learning materials and then generate income on those videos or course guides moving forward. If you have a unique knowledge base on anything from welding to how to nail the SAT or ACT, you can share that knowledge and earn in the process.
15. Self-Publish a Book
This requires a bit more upfront work, but if you can do the work, a book can generate income for you, especially if you self-publish and take most of the profits. With the internet, it’s never been easier to do so.
Frequently Asked Questions
This is a lot of information on making money, and there are probably some questions you have. Let’s get to them.
1. How do I avoid pyramid schemes?
A pyramid scheme is a company that relies on you to recruit more people under you to sell a product, and then promises you a cut of all the money made by them, and the people they recruit, and so on. (So imagine you’ll be at the top, then the moneymakers underneath you will fan out below you, in the shape of a pyramid.)
While people can make money in setups like this, it is risky, and relies on you to recruit people to have a hope of making serious money. If a company makes you pay for something up front, or requires you to recruit aggressively to make money, be wary.
2. How do I avoid fraud?
The golden rule is: If it sounds too good to be true, it probably is. If a company asks you to make a sizable initial investment without clearly explaining how your money will grow, or if they ever ask you for private banking information, be extremely careful. Do research, talk to people, and know that making money takes time.
3. What’s the best way to make money quickly?
There is no single tried-and-true method to generate passive income quickly. If there were, everyone would do it. Our best advice is to do your research, leverage your unique skills and knowledge, and be patient.
Achieving Your Financial Goals
Passive income streams can be a great way to make money. This article hopefully sparked some ideas on how best to make that happen, and smart, safe ways for you to earn cash back or make money grow while you enjoy the rest of your life.