When it comes to making money, “passive income” is an idea that gets a lot of attention. People are constantly looking for ways to earn more while putting in less time, so this method of earning money is obviously attractive. But what exactly is passive income, and where do you start?
What is Passive Income?
According to Wikipedia, “Passive income is income that requires little to no effort to earn and maintain. It is called progressive passive income when the earner expends little effort to grow the income”. There are three main terms to categorize income: active income (actual work), portfolio income (some effort), and passive income (little or no effort).
Here’s the truth: Passive income isn’t constrained by the typical “time = money” equation. In other words, it’s not something where you have to continually invest your own time to make more money. It still requires plenty of effort – typically on the front end – but it’s possible to make money while you sleep (or do other things – such as work a full-time job). This is the distinction.
Most people never generate meaningful passive income because they’re unwilling to put in the work it requires on the front end. At the start, it feels anything but passive. However, if you’re willing to push through this initial phase, you can do big things.
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4 Good Sources of Passive Income
There are hundreds of different types of passive income – and new methods are being added daily – but here are a few of the more effective options:
1. Rental Property Investing
There’s arguably no better method of generating passive income than by investing in income producing rental properties. While it obviously requires some money (and plenty of research) on the front end, it can result in a virtually endless stream of cash for as long as you hold the property.
The beauty of investing in rental properties is that you can borrow money from the bank and then basically get your tenant to pay your mortgage. Plus, on top of that, they’ll pay you extra cash that you can save up to invest in another property, and so on.
Depending on the type of property and the rental rates in your area, you should be able to make at least a 10 percent rate of return on your money. Many properties generate significantly more than this.
How are rental properties passive, you may be wondering? Well, the key is to hire a property management service to take care of all the ongoing tasks for you – such as rent collection, repair and maintenance, accounting, and property marketing. If you do this, you’ll never have to spend more than a few hours per year managing an individual property.
2. Selling Information Products
Don’t like the idea of taking on debt and potentially over-leveraging yourself? Consider launching an information product business where you sell a book, membership site, or online course. Once you create the content (which does take time), you can sell it repeatedly. And it doesn’t matter if you sell the product 50 times or 5,000 times; the work has already been done.
3. Create CD Ladders
Certificates of Deposit (CDs) are savings products that give you small interest rates in return for parking your cash. They’re CDIC insured, offer higher yields than savings accounts, and can generate a few hundred or thousand dollars per year (depending on the upfront investment). And if you want to use CDs as part of a passive income strategy, you should try building what’s known as a CD ladder.
“The goal of building a CD ladder is to lock in high APYs (Annual Percentage Yields) across multiple CDs, instead of lumping all of your funds into one CD,” Marcus.com explains. “Those multiple CDs will mature (in other words, the CD term has ended) at different points in time. As each CD matures, your cash will free up to either use or rollover into new CDs.”
CD ladders only work if you can tie up considerable cash. But if you’re highly liquid at the moment, this is a fine way to make a little more on your parked money.
4. Advertise With Your Car
Own a vehicle? There are companies that will wrap your car in advertisements and pay you for the space (sort of like a mobile billboard). While you won’t get rich doing this, it’s a simple way to bank a few hundred dollars without doing any work.
If you choose to pursue this option, make sure you do your research. There are plenty of scams out there, and you have to make sure you’re only working with reputable companies. Carvertise, Wrapify, and StickerRide are three legitimate ones.
Adding it All Up
Hopefully this article gives you some encouragement to go out there and begin developing passive income. You won’t get rich right away, but with a steady commitment to increasing your passive income over time, you’ll eventually reach a point where you’re able to generate a healthy income without having to be directly involved every single day.