Passive income generates unearned residual income while requiring little time and effort. It can help you improve your personal finances and give you more time.
What is Passive Income and how do I earn from it
Passive income is unearned income that requires little effort to earn and maintain. Passive income sources include mutual funds, selling products online, teaching online courses on websites, and other side hustles in which the earner is not required to use a lot of effort.
Not having to trade your time for money can reduce stress and anxiety while also increasing your financial confidence.
How much can I earn from passive income?
The definition of passive income is broad. Some people earn a few nairas per day, while others earn 100,000 naira per year.
It is determined by the passive income channels you choose and the amount of time you devote to them.
Passive income vs. Active income
In theory, all of your income sources should be given equal weight. However, when it comes to achieving financial independence, passive income outperforms active income.
You see, active income is the money generated by all of your current efforts. And you must continue to work if you want to make a living. If you quit, you will not be paid. Your time is literally money.
Then there’s passive income. An income that does not necessitate active work. And the money keeps coming in for years and years.
If you want to create a dream life where you are financially free, you should consider focusing on passive income.
Remember that while you may be able to create a passive income stream with a small investment, you are making no less of a commitment than someone who invests their time.
Making passive income comparable to active income requires a significant amount of work upfront.
What passive income is not
Your Job: In general, passive income does not come from something in which you have a material interest, such as wages from a job.
A part-time Job: Getting a second job will not qualify as a passive income stream because you will still be required to show up and do the work in order to be paid. Passive income is about generating a consistent stream of income without putting in a lot of effort.
Non-income generating assets: Investing can be an excellent way to generate passive income, but only if your assets pay dividends or interest.
Non-dividend paying stocks and assets, such as cryptocurrencies, may be exciting, but they will not provide you with passive income.
Passive Income Ideas
If you’re considering creating a passive income ideas, take a look at these strategies and learn what it takes to be successful with them, as well as the risks associated with each idea.
1. Create a course
One popular strategy for passive income is to create an audio or video course, then sit back and watch the money roll in. Courses can be distributed and sold on sites like Udemy, SkillShare, and Coursera.
You could also consider a “freemium model,” which involves building a following with free content and then charging for more detailed information or for those who want to know more.
This model could be used by language teachers or stock pickers, for example. The free content serves as a demonstration of your expertise and may attract those looking to advance.
Opportunity: A course can provide an excellent income stream because you can easily make money after the initial time investment.
Risk: “Creating the product takes a massive amount of effort,” Tresidder says. “And it has to be great in order to make good money from it.” There is no place for garbage out there.”
Tresidder believes that if you want to be successful, you must build a strong platform, market your products, and plan for more products.
“Unless you get really lucky,” Tresidder says, “one product is not a business.” “Creating more excellent products is the best way to sell an existing product.”
He claims that once you master the business model, you can generate a good income stream.
2. Write an e-book
Writing an e-book can be a good way to take advantage of the low cost of publishing and even leverage Amazon’s global distribution to get your book seen by potentially millions of potential buyers.
E-books can be relatively short, perhaps 30-50 pages, and relatively inexpensive to produce because they rely on your own expertise.
You’ll need to be an expert on a specific topic, but it could be a niche topic that requires some special skills or abilities that few people have but that many readers require.
On an online platform, you can quickly design the book and then test-market different titles and price points.
But, as with designing a course, much of the value comes from adding more e-books to the mix, attracting more customers to your content.
Opportunity: An e-book can be used to drive traffic to your other offerings, such as audio or video courses, other e-books, a website, or potentially higher-value seminars, in addition to delivering good information and value to readers.
Risk: Your e-book must be very strong in order to gain a following, and it also helps if you have some way to market it, such as an existing website, promotion on other relevant websites, media appearances or podcasts, or something else. So you could put in a lot of effort up front and get very little in return, especially at first.
While an e-book is nice, it will help if you write more and then build a business around it, or make the book just one part of your business that strengthens the others.
So your biggest risk is probably wasting your time for little reward.
3. Rental income
Investing in rental properties is a good way to generate passive income. However, it frequently necessitates more effort than people anticipate.
According to John H. Graves, an Accredited Investment Fiduciary (AIF) in the Los Angeles area and author of “The 7 percent Solution: You Can Afford a Comfortable Retirement,” if you don’t take the time to learn how to make it a profitable venture, you could lose your investment and then some.
Opportunity: According to Graves, in order to earn passive income from rental properties, three things must be determined:
- What kind of return do you want on your investment
- Total costs and expenses for the property
- The financial risks of property ownership
For example, if your goal is to earn $10,000 in rental cash flow per year and the property has a $2,000 monthly mortgage and another $300 per month for taxes and other expenses, you’d have to charge $3,133 in monthly rent to meet your target.
Risk: There are a few questions to consider: Is there an interest in your property? What if you have a tenant who does not pay on time or damages the property?
What if you can’t rent out your property? Any of these factors could significantly reduce your passive income.
You may find yourself with tenants who are unable to pay their rent, while also having to pay your own mortgage. Or, as incomes fall, you may be unable to rent out your home for as much as you could previously.
And, because of the relatively low mortgage rates, home prices have been rapidly rising, so your rents may be insufficient to cover your expenses.
You should weigh these risks and have backup plans in place to protect yourself.
4. Affiliate marketing
Website owners, social media “influencers,” or bloggers use affiliate marketing to promote a third party’s product by including a link to the product on their website or social media account.
Amazon is the most well-known affiliate partner, but eBay, Awin, and ShareASale are also big names. And Instagram and TikTok have grown into massive platforms for those looking to build a following and promote their products.
You could also consider building an email list to attract attention to your blog or to direct people to products and services that they might be interested in.
Opportunity: The site owner earns a commission when a visitor clicks on the link and purchases from the third-party affiliate. The commission may range from 3 to 7 percent, implying that significant traffic to your site will be required to generate significant income.
However, if you can increase your following or specialize in a more profitable niche (such as software, financial services, or fitness), you may be able to make some serious money.
Affiliate marketing is considered passive because you can earn money by simply adding a link to your website or social media account. In reality, you won’t make any money if you can’t get readers to click on the link and buy something.
Risk: If you’re just getting started, it will take time to create content and build traffic. It can take a long time to build a following, and you’ll need to find the right formula for attracting that audience, which may take some time.
Worse, once you’ve expended all of your effort, your audience is likely to move on to the next popular influencer, trend, or social media platform.
5. Dividend stocks
Shareholders of dividend-paying companies receive payments from the company on a regular basis.
Companies pay cash dividends out of their profits on a quarterly basis, and all you have to do is own the stock. Dividends are paid on a per-share basis, so the more shares you own, the greater your payout.
Opportunity: Owning dividend-paying stocks can be one of the most passive ways to make money because the income is unrelated to any activity other than the initial financial investment. The funds will be deposited into your brokerage account.
Risk: The tricky part is picking the right stocks.
Companies that pay out a large dividend, for example, may be unable to maintain it.
Graves warns that too many newcomers enter the market without first thoroughly researching the company issuing the stock. “You must investigate each company’s website and be confident in their financial statements,” Graves advises. “You should investigate each company for two to three weeks.”
However, there are ways to invest in dividend-paying stocks without spending a lot of time researching companies. Graves recommends using exchange-traded funds, or ETFs.
ETFs are investment funds that hold assets such as stocks, commodities, and bonds but trade similarly to stocks. ETFs also diversify your holdings, so if one company reduces its dividend, it has little effect on the ETF’s price or dividend
Another significant risk is that stocks or ETFs can fall dramatically in a short period of time, particularly during times of uncertainty, such as in 2020 when the coronavirus crisis shocked financial markets. Economic stress can also cause some companies to completely cut their dividends, whereas diversified funds may fare better.
- Retail products should be flipped.
- Make an app
- Rent a parking space.
- Create and monetize a blog
- Publish sponsored Instagram posts
- Make a print-on-demand shop.
- Purchase stocks
- Purchase and sale of real estate
- Assist businesses in attracting customers.
Which passive income source is the best?
The best passive income source depends on a number of factors, the most important of which are the amount of money you have to invest, the total size of the opportunity, your interest and ability in the area, the amount of time you need to invest, and the potential to succeed.
Generally, the lower the entry barriers, the more crowded the field of competitors and the lower the likelihood of success.
As a result, you must weigh the opportunity against these factors to determine which passive income strategy is best for you. However, having natural ability and an interest in your target area can help motivate you in the early days when things are likely to be tougher.
Passive income online ideas
There are so many online ideas but here are a few.
- Make a print-on-demand shop.
- Sell digital goods.
- Teach online courses.
- Start your own blog.
- Sell handcrafted items.
- Run an affiliate marketing company.
- Online stock photo sales
Passive income ideas with little money
If you have little or no money to begin with, you’ll have to rely on your own time investment to get you through, at least until you can save up some money.
This entails concentrating on passive income sources that capitalize on the following characteristics:
Focus in an area in which you excel: Here you can turn your expertise into a useful product or service for customers, such as design, software coding, and so on.
A work-intensive opportunity: You’ll need an opportunity that requires a time or labor investment, such as developing an influencer profile or other options.
In effect, you are substituting your time for your lack of capital until you can obtain sufficient capital to broaden your set of opportunities.
Passive income ideas with money
Money can provide you with more opportunities for passive investment. If you have money to invest in a passive opportunity, you not only have the opportunity listed above, but also a new range.
Money is required to take advantage of the following passive income opportunities:
Purchasing dividend stocks or REITs. Investing in stocks requires money up front, but the rewards are some of the most passive forms of income available.
Bonds and CDs are excellent ways to save. Buying bonds or CDs is another purely passive activity.
If you want to, you can use your money to make money with little or no effort on your part.
Of course, you could combine your money with a significant time investment to enter an even more lucrative niche.
Passive income streams
- Earned Income
- Profit Income
- Dividend Income
- Rental Income
- Capital Gains Income
- Royalty Income
Passive income investments
The following are the investment of passive income.
- Real Estate
- Peer-to-Peer Finance
- Dividend Stocks
- Index funds
Passive income ideas from home
If you want to build your wealth using this method of monetization from your home, here are some passive income ideas to get you started.
- Create a Subscription for Monthly Membership
- Surfing the Web
- Sell Stock Photos
- Online Design
- Sell T-Shirts Online
- Rent Out Stuff You Don’t Use
Passive income ideas for students
There are numerous passive income ideas for children that are in school.
1. Pet or house sitting
House and pet sitting responsibilities vary depending on the client for whom you house or pet sit.
House sitting typically entails staying at someone’s home while they are away to ensure that everything in the house is safe. Pet sitting may entail visiting a home one to three times per day to check on pets, feed them, and perform other pet-related tasks.
2. Become an influencer
Passive income can be generated by social media influencers in a variety of ways.
Several social media platforms provide options for monetizing posts by paying you based on engagement. Influencers are paid by sponsors to promote their brands online, which can be lucrative for an influencer.
3 Sell your books.
Consider selling your old textbooks at the end of the semester. Campus bookstores frequently pay a reduced price for used textbooks.
If you want to make a little more money, consider selling to other students at a lower price than they would pay at the bookstore but at a higher price than the store’s buyback rate.
4 Make yourself a note taker.
If you’re good at taking notes, you can look into options for getting paid to take notes for others.
This may be available on your campus and is often beneficial to students with disabilities. Off campus, you can find people who require this service, such as taking notes for elderly clients.
5. Become a professional friend
Being a professional friend can be a source of passive income for people with outgoing personalities.
You can join an online rent-a-friend service and create a profile that other users can view, or you can choose your own jobs.
Going to events with paying customers, traveling with them, or showing them around an area are all examples of being a professional friend.
Other ideas are as follows
- Advertise with your vehicle
- Rent a car or a bicycle.
- Take part in sleep studies
- Sell stock photography
- Fill out online surveys
Passive income ideas for beginners
As a beginner, there are specific types of passive income ideas to consider, as well as rules to follow.
- High-yield savings account: A high-yield savings account can be a simple way to boost your savings above and beyond what you’d get from a standard checking or savings account. It won’t be much, but it’s a straightforward way to begin earning passive income.
- Certificates of deposit: CDs are another way to generate passive income, but your money will be more restricted than in a high-yield savings account.
- Real estate Investment: REITs are a way to invest in real estate without having to deal with the hassles of property management. REITs typically distribute the majority of their income in the form of dividends, making them an appealing option for investors seeking passive income.
- Reduce your taxes on passive income.
- A passive income can be a great way to supplement your income, but you will incur tax liability as a result of your efforts. However, you can reduce your tax bill while also planning for the future by incorporating your business and opening a retirement account.
- This strategy, however, will not work for all of these passive strategies, and you must be a legitimate business to qualify.
Cryptocurrency and passive income
Crypto.com offers a variety of faucets that users can use to supplement their investment earnings.
The Earn program allows users to lock up their coins for a specified number of months and earn interest. For example, BTC can earn you 6%, whereas USDC can earn you 10%. Polkadot (12.5 %), Polygon (12.5 %), USD Coin (8 %), and many other coins are also supported.
How many income streams should you have?
When it comes to generating income streams, there is no “one size fits all” advice.
How many sources of income you have should be determined by your current financial situation and future financial goals. However, having a few is a good start.
“With multiple lines in the water, you’ll catch more fish,” says Greg McBride, CFA, chief financial analyst at Bankrate. “Rental properties, income-producing securities, and business ventures are excellent ways to diversify your income stream in addition to the earned income generated by your human capital.”
Of course, you’ll want to make sure that putting effort into a new passive income stream isn’t distracting you from your other streams. So you must balance your efforts and ensure that you are selecting the best opportunities for your time.
FAQs about passive income
How can I generate passive income?
There are numerous ways to generate passive income ideas. For example, you could make a list of everything that interests you and then research how other people have built businesses around them.
Another idea is to brainstorm ways to solve a common problem and turn it into a passive income source.
What passive income ideas can I start with little money?
There are numerous passive income ideas that can be started with little or no money. Dropshipping, affiliate marketing, print on demand, and selling your unused items are examples of these.
How much passive income can I earn?
You can generate as much or as little passive income as you desire. It is not, however, a get-rich-quick scheme. To start earning passive income, you’ll need to put in some time, effort, and money. The good news is that getting these things right early allows you to sit back and reap the financial benefits for years to come.
What Is the Highest-Paying Passive Income Investment?
The best passive investment will change over time and from year to year, depending on a variety of factors. Real estate (either directly or indirectly through real estate investment trusts (REITs)) and dividend-paying stocks have historically outperformed other asset classes.
Are Passive Income Investments a Good Idea?
In general, passive income investments allow you to use money to make money, putting your money to work for you rather than you working for it. In that regard, they are frequently a good idea.
Be wary of pitches that sound too good to be true, or “get rich quick” ads that promise easy money with little effort, such as multi-level marketing (MLM) and other work-from-home schemes. Some of these will cost you money in the end.
How Do You Get Started with a Passive Income Investment?
If you have money to invest, buying the right passive asset, whether it’s a REIT or an index ETF, will put it to work for you. In such a case, you may need to open a brokerage account in order to transact and hold your investments.
There are numerous ways to earn passive income from home; some require a financial investment, while others require an initial time investment. However, if you are willing to invest time, effort, and possibly money, you can create additional income streams to generate more wealth.