How to Generate Passive Income: 19 Things Anyone Can Do
Are you wondering how to generate passive income? Look no further! Here at Investment U, we believe in building wealth to live financially free. And passive income can play a large role. So we’ve provided a list of ways you can generate passive income.
How to Generate Passive Income
Many people think passive income means you don’t put any work in. But that’s not entirely true. Passive income often requires some effort upfront. And depending on the investment, it could require continual work.
Knowing how to generate passive income can be a big game changer for many people. If you find yourself working full-time and struggling but don’t have the time or energy for a part-time job, some of these ideas could be perfect for you.
1. Dividend Stocks
At Investment U, we believe in the power of investing. And high-yield dividend stocks can be a great choice.
Passive dividend investing is a popular method of saving for retirement and amassing wealth. You can also boost your returns by setting up a dividend reinvestment plan (DRIP). This means your dividends will automatically be reinvested. And when you want to stop, you simply turn off the DRIP.
Investment U’s dividend guru Marc Lichtenfeld encourages people to look at dividend aristocrats. These are companies with a long-standing history of paying increasing dividends.
2. Index Funds
Index funds are great for people who don’t want to worry about the risk of individual stocks. With these funds, you can invest in the general market. There are index funds for the S&P 500 and even for sectors, such as energy, finance or communications.
Investing in Real Estate Investment Trusts (REITs) is a truly passive way to make money in real estate. REITs are companies that own properties and are required by law to pay out 90% of their profits in dividends. This means REIT yields are often greater than those of most stocks.
Here are the four best REITs to watch in 2020.
4. Rental Property
Investing in a rental property can require a lot of money upfront. After all, property isn’t cheap. But that’s why it’s called an investment. Or, if you don’t want to buy an additional property, you can rent out a room or your basement, if that’s suitable to you and your living situation.
Rental property might not be the most passive way to generate passive income. It can require a lot of ongoing work to ensure the property is in good condition. If the property has tenants who live there, you may be responsible for property upgrades, damages and maintenance care.
However, there are property management companies who will do this for you. While their help doesn’t come for free, it allows your income to be truly passive.
Using a site like AirBnB is similar to owning a rental property. It requires you to invest in a property, which isn’t always cheap. But if you already have a property, such as a family vacation home, this might be a great answer for how to generate passive income.
One way people make money today is through YouTube. Popular YouTubers, who are also called influencers, can make quite a sum of money from creating content. Income comes from partnerships with brands and products, ad revenue and affiliate links.
YouTubers often make between $0.01 and $0.03 per ad view, or around $0.003 to $0.0005 per video view. So if you can reach a million views on your video, that could be up to $5,000 in your pocket.
However, becoming famous on YouTube isn’t the easiest way to go. You need unique and engaging content with an accessible market.
7. Affiliate Marketing
This passive income strategy is good for people with blogs or websites. Affiliate marketing is promoting products or services on your site or blog. Typically, you’d receive a commission from each sale completed through your site’s ads.
This is great passive income for people with established sites and steady traffic. But if your site is new, you’ll need to build up your site traffic before you can see real results.
If one of your hobbies is photography, did you know you can turn it into a source of passive income? Your photographs can become stock photos. Sites like Shutterstock and DepositPhotos are some of the bigger marketplaces for selling stock photos.
Every time someone buys your pictures, you’ll receive a commission. And what’s great is that multiple people can buy the same picture.
9. Selling Digital Products
You might be wondering how this can be passive. After all, if you’re selling a product, don’t you have to make it? Well, you’re not wrong. But it depends on what the product is.
You can create an online guide, an educational course or a digital file with a design for download, which are particularly popular on Etsy. Many of these require time and effort upfront, but, like stock photos, can be purchased multiple times without requiring more work.
10. Angel Investing
Angel investors are people who invest in startups. And usually, they invest in a company where they can provide guidance. For example, someone who has experience in the technology sector might invest in a technology startup.
Being an angel investor allows you to be part of a startup’s success and any benefits that come with it. After all, every industry household name was once a startup. But this passive income may require more effort, depending on how involved you want to be in the company.
11. Peer-to-Peer Lending
This is a growing form of investing, and one that’s becoming more popular. It allows people who may not qualify for traditional bank loans to borrow money. As the lender, you’ll receive information such as credit scores and income to determine if you want to lend to an individual. And as the lender, you’ll receive the principal back with interest.
Although it requires investing some money, it’s a fairly passive source of income. A popular platform is Lending Club. The average return here is 4-6%.
12. High-Yield CD
CDs can be a great source of passive income. CDs tend to have higher rates than savings accounts. All you have to do is open the account, put in the money and watch the interest come through. Online brokers often have better deals than traditional banks. You also want to do thorough research to find the best annual percentage yield and the time period that works for you.
One of the lowest-risk ways to generate passive income is government bonds. And both government and companies sell bonds. But unlike stocks, they aren’t ownership. They’re debt. That company or government is in debt to you.
Long-term bonds usually have higher interest. So, if you’re a long-term investor, bonds can be a great way to go. If you’re interested in learning how to generate passive income with bonds, check out our bond introduction.
14. Using Your Car
There are a couple of ways you can get passive income from your car. One is to rent it out – if you’re not using it, that is. If you have a car that sits in your garage or if you’re a city-dweller who seldom uses it, renting out your car is an easy, passive method of income.
Another is to advertise. Companies often look for as many ways as possible to advertise. They will wrap your car with an advertisement, and all you need to do is drive around.
There are specialized advertising agencies who will take information, such as where you drive and how many miles, and match you with one of their clients. Your car will be wrapped at no charge to you. These agencies look for people with clean driving records and newer cars.
15. Write a Book
E-books are popular in today’s age of technology. If you’re a compelling storyteller or knowledgeable in a particular area, this might be a good option for you. Once you’ve put in the work to write it, you can sell it through your own site or on a third-party site. Amazon is a popular place.
You can even take it a step further and publish your book the traditional way. Then you can receive royalties over your lifetime, for as long as the book sells.
16. Provide Storage
People are always looking for cheaper ways to store things. So if you have an empty shed or big room somewhere that you’re not sure what to do with, rent it out for storage. This is particularly great if you live in a college town or near a university as out-of-state students often need storage over academic breaks.
17. Rent Out Items
Is the answer to your question of how to generate passive income as easy as renting out what’s in your garage? The answer is yes! You can rent out equipment, personal items and more.
One great site is FatLlama, where you can advertise what you have for rent. And if you have baby equipment you’re looking to rent out, BabyQuip is another great source. While you may need to purchase insurance and keep your equipment clean and up to date, this option has the potential to provide a steady stream of passive income.
18. Garage Sale
19. Decrease Debt
You might be wondering how decreasing your debt generates passive income. But reducing an expense increases the money you get to take home.
For example, let’s say you have credit card debt. That debt requires you to pay $300 a month. The faster you pay that off, the faster you have that $300 to spend on what you want. And having no debt is one of the most critical steps to living financially free.
To learn more about how you can live financially free, sign up for our free e-letter below! It’s full of useful tips and research from our experts. No matter what your financial goals are, there’s something here for everyone.
Knowing how to generate passive income is the first step. Now it’s up to you to make it happen!
About Amber Deter
Amber Deter has researched and written about initial public offerings (IPOs) over the last few years. After starting her college career studying accounting and business, Amber decided to focus on her love of writing. Now she’s able to bring that experience to Investment U readers by providing in-depth research on IPO and investing opportunities.