What Is Passive Income? Plus 12 Ways You Can Use It To Build Wealth
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Are you looking for ways to make a little more money in your life? Or perhaps you are just interested in finding new streams of income and side hustles? Then look no further as we are here to help you out. Answer this: which of the following is an example of passive income: a 9-5 salary or a dividend stock? If you aren’t sure, then this article aims to make it clear for good as we show you 12 different examples of passive income.
What Is Passive Income?
Before we continue, we want to make sure the meaning of the concept is clear. Passive income is income that results from cash flow received on a regular basis without continuous effort on your part. This requires little to no effort by the user to maintain it and keep money flowing, unlike a full-time, daily job which usually requires you to work long hours every single day. Usually however, passive income can be quite difficult to generate in the beginning. It can take a large investment of time to get up and running. Once it takes off however, it will be well worth the rewards.
Examples of Passive Income
Gone are the days when you can get high yields on CDs or savings accounts, but if you need to park your cash somewhere with zero volatility or risk, look no further than a high yield savings account or a short term CD. If you’re looking to open a new savings account or CD you can use a service like SuperMoney to compare offers from financial institutions to find one with the highest yield and lowest minimum balance requirements.
Good old, trustworthy bonds. They aren’t as flashy or as fun as some of the passive income streams below, but they are a staple in any balanced portfolio. And when times of economic uncertainty might rock your other investments, bonds can provide a steady stream of income. The biggest risk with bonds is the future of interest rates. If rates remain extremely low, bonds are no more reliable than parking money in a CD or savings account. If you are looking to add bond exposure to your portfolio, Vanguard’s Total Bond Market ETF (BND) is a great place to start.
Peer-To-Peer Lending (P2P)
The allure of Peer-to-Peer Lending (P2P) is that it can boast much higher returns – 10-20% at times — than some traditional forms of investing. PSP is a great option for anyone who doesn’t shy away from a little more risk and who is also looking for a high yield. Most P2P loans mature over a 3-5 year range, so you can create your own portfolio of loans that can drive you monthly income for years to come. With P2P, the notes you choose can be catered to your specifications and requirements. Meaning, you can pick notes based loan term, loan type, debt-to-income ratio, credit-score range. This will give your portfolio as much or as little risk exposure as you’re looking for.
Whenever you invest your money through an ETF or dividend-paying company directly, you will receive dividends on a quarterly or monthly basis. This is a way for the company to reward the loyalty of a shareholder. And if you invest in the best dividend ETFs (see: high yielding with proven year-over-year returns), you will be rewarded. Handsomely. According to Brett Owens, a Forbes contributor, dividend investors have the potential to earn an annual return between 15% to 25%. This is because the best dividend stocks don’t just pay you, the share prices also grow as time goes on.
If you want to use private equity to generate passive income, you should look to put your money into credit hedge funds, real estate funds, and private company funds. Again, access to these funds usually come with fairly sizable minimum investments, but most of them provide regular passive income distributions. They are also have set lockup periods, which make them more liquid than simply sourcing individual investments on your own.
Real Estate Crowdfunding
Did we save the best for last? Well, that is up for debate, but real estate crowdfunding certainly seems like it is here for the long haul. Thanks to companies like Fundrise, RealtyMogul and CrowdStreet real estate crowdfunding has exploded. Just how thorough is the due diligence process? Per the RealtyMogul website, since the company’s inception 10 years ago, the platform has received over 30,000 real estate deals submissions and they have only accepted 337 of them.
One of the most famous forms of passive income, is the classic blog. Blogs can generate seriously high amounts of income, but not right away. These will usually take a careful amount of planning and vast amount of work and time in order to succeed. As soon as things kick off and your blog becomes more popular, this provides you with a platform and audience to generate many streams of income, through marketing relevant products and services to your readers.
Another successful way to earn passive income is by writing an eBook. These non-fiction ebooks can help to educate your audience on any given topic that you wish. The best way to begin writing an ebook is by thinking of any skills you possess, and if you know enough to write a book about it. If the answer is yes, then this can be a great way to earn some good money. The Amazon kindle Direct Publishing platform can be a great place to start.
Gathering all your knowledge and putting it into an online course could make you a significant amount of passive income. Similar to the eBook option, there is always someone who is looking to learn a new skill, so if you have something you believe is worth teaching, go for it and you will definitely see some results for your effort in the future. If you are looking for somewhere to begin, Udemy is a platform which allows almost anyone to create and upload a course, and get paid for it.
Sell on Etsy
Etsy is another online platform where many talented crafts men and women sell their creations. If you are good at making things, this can also be a great option to generate a passive income. There is also the possibility of selling digital products, which take a lot less time. Digital products require no overhead and will sell themselves providing that they are high quality and appealing to the right audience.
Develop an App
Another clever way people are making passive income is through creating smartphone apps. This is not for everyone, however if you posses the skills to develop one you will be able to make a good amount of money doing so, providing your idea is a good one and will be profitable. If you have a really good idea for an app and want to build it yet lack the expertise, you can find a freelance developer to help you out. This might be a bit costly initially, but if it takes off, you will have a nice passive income stream for a good while.
A form of passive income which many have used for years is that of real estate. Renting out a room, apartment or entire home can be a great way to earn passively. Of course, if you do not have something of your own to offer, this will require a sizable upfront investment to begin with. Or, as we mentioned earlier, you can use a platform like Crowdstreet, which lets you get involved with real estate investing, and enjoy the regular payouts, without having a massive upfront cost.
We hope this article has helped to answer the question “Which of the following is an example of passive income?” and hopefully you have been inspired to look for some new income streams yourself.