"But, what is passive income?” I get asked this question a lot when I try to explain to people how I earn money as a blogger.
Okay, first, they need me to explain what blogging is, but then they get curious about how I make a living.
The reason passive income is brought up is that blogging is allowing me to earn passive income in a couple of different ways — affiliate income and course income. They’re not 100% passive, but they’re way more passive than trading time in an office for a paycheck.
And here’s the beautiful thing about passive income, earning from one source often allows you to build another source of passive income, then another, and another. This is why you hear that most millionaires have seven streams of income — most of them are passive!
But, what is passive income?
Passive income is a stream of revenue that essentially maintains itself.
Think about your current job for a second. You work for X hours and get paid X dollars for that work. You are trading time for money — or earning an active income.
Passive income is not attached to the number of hours you spend in an office, driving for a rideshare, or walking dogs. Passive income is money that you can earn while you literally sleep.
Passive income starts with an investment
If you hoped I was going to finish answering the “what is passive income?” question with a magic pill for how to do it easily, then you’re about to be disappointed.
Passive income doesn’t happen overnight, and it’s by no means a quick fix for cash.
See, to earn passive income, you have to start with an investment, and there are two different types:
- Financial investment
- Time investment
Being able to get a return on your time is something really cool about earning passive income. It means that anyone can do it. It still isn’t easy, but with some hustle, passive income is accessible for anyone willing to put in the work.
Why should I build a passive income?
I mentioned that passive income is money you can earn while you sleep… a great goal if you want to stop there. But earning a passive income has a powerful effect on your financial life — it increases your earnings, which can help you meet your financial goals that much faster.
When you’re trading time for money, there is only so much you can earn in a day. You’re limited by your salary or hourly wages. Since passive income isn’t attached to active working time, you can have one, two, three, or more streams running in the background.
If you have big goals like early retirement or financial independence, building passive income is going to be a massively important part of your strategy.
Another vital reason to earn passive income is that you’re no longer reliant on one source of income. Passive income can protect you from future debt, burning through your savings, financial stress, and more.
To put it simply, passive income protects your future financial self.
How do I start earning passive income?
Now that I’ve answered the important question of what is passive income and told you why you need it, you probably want to know how to start making it.
Start by thinking about what kind of investment you can make. Cash or time?
If you have cash, investing in the stock market is one of the most popular ways, which I’ll talk more about shortly. If you have time, you can do what I did and start a blog. Even the smallest time commitment can yield results.
Once you have one source up and running, you can leverage it to build another. It takes time, but it’s well worth it.
Take investing in real estate: the rental income you earn can be saved to purchase another rental property or invest in the stock market. Or, your blogging income can be used to invest in a REIT.
Ready to learn about each of those passive income sources and more?
10 Ways to Make Passive Income
1. Start micro-investing
Micro-investing is investing with small amounts of money. You’re investing a dollar here and there to buy fractional shares of stocks, bonds, and ETFs. No one is going to retire early from micro-investing alone, but it does break down the barriers to traditional investing.
You don’t need a big lump sum of money to start or know which assets to purchase, and there are easy-to-use apps that automate the entire process for you.
Here are some of the best micro-investing apps so you can start earning passive income:
- Acorns- Round-up purchases from a linked debit card to the next dollar amount and invest your spare change, apply multipliers, and set up recurring deposits. Invest in an individual account or IRA. Cost is $1 to $3/month. Learn more in my Acorns review.
- Stash- Round-ups, multipliers, and recurring deposits. You can pick investments that align with your interests and invest in micro-shares of stocks. Individual, IRA, or custodial accounts from $1 to $9/month. Read my Stash review to learn more.
One warning, because micro-investing is using small amounts of money, you’re going to get small returns.
2. Use a Robo-advisor
Robo-advisors are automated investment services that cost less than using a traditional broker, and they ensure that your money is invested in a portfolio that reflects your goals.
The reason this is a good way to earn passive income is that you don’t have to worry about picking the right investments. When you open an account with a Robo-advisor, you go through a series of questions that ask about your age, financial situation, and goals. The Robo-advisor recommends a portfolio for you with the best asset allocation for reaching those goals.
Robo-advisors keep you on track by regularly rebalancing your accounts so you’re not over or underweight in an area, and many have tax optimization options. You can set up recurring deposits that will make the process even more passive.
And with historical returns of ~7% annually, investing in the stock market passively grows your wealth.
If you’re interested in learning more about earning passive income with a Robo-advisor, check out these articles for information on the best Robo-advisors for 2019:
- Wealthfront Review 2019: How Does This Robo-Advisor Stack Up?
- Betterment vs. Wealthfront: Which Robo-Advisor is Best?
- Blooom Review 2019: An Affordable Robo-Advisor For Your 401k
M$M tip: Keep track of all of your passive income and investments with Personal Capital. This is the free tool my wife and I use to see our net worth, manage our cash flow, check on our investments, and stay on track for retirement.
You can learn more at Personal Capital Review 2019: Free Investment and Net Worth Tracking Tool.
3. Buy a rental property
Buying an investment property takes a more substantial investment, but what it’s great for is passively increasing your monthly cash flow. This means you’ll have extra cash on hand to save for another rental property, for investing, etc. And that’s how passive income creates more opportunities for more streams of passive income.
There are a couple of approaches to managing and upkeeping your rental property:
- The DIY approach can save you money, but you’re investing your time now, too.
- Outsourcing property management and repairs make rental properties super passive, but it’s a larger financial investment.
Make sure you have a financial safety net in place for repairs, taxes, and other miscellaneous costs.
Read more at Real Estate Investing for Beginners: A Quick Start Guide.
4. Invest in REITs
REITs, or real estate investment trusts, are how average people invest in commercial real estate. Through a company like Fundrise, you can start investing with as little as $500, and when the project is funded and turning a profit, you get a return.
Since 2014, Fundrise investors have seen returns of 8-12%. However, there is no guarantee that you’ll see that kind of performance.
To learn more about this source of passive income, read Fundrise Review 2019: Commercial Real Estate Investing for All.
5. Use a high-yield savings account
Most people have no clue what the interest rate is with their current savings account. I even know adults who still use the same account that was set up for them in high school. What this means is that many of you are missing out on some easy passive income.
We’re talking about going from a 0.03% APR to 2% or higher.
Earning passive income at that rate isn’t a ton, but it’s probably better than what your current bank offers.
To learn more, read Best Online Savings Accounts for 2019.
6. Earn credit card rewards
Some people in the personal finance world completely demonize credit card use. And yes, there are dangers if you don’t pay your balance off and on time every month.
But if you know you can use credit cards responsibly, you can earn points, travel miles, and cashback. I like using credit cards to earn travel rewards, and I’m able to pay for the majority of my airfare with points alone.
There is a lot to learn about earning points, churning credit cards, and travel hacking (there are entire blogs devoted to the topic). So if you’re interested, start with these two articles:
7. Start a blog
Earning a passive income from a blog is a major time investment. You’ll eventually need to put some money in your site to earn more, but it starts with time… lots of time.
Here’s how bloggers earn passive income:
- Display advertising- These are run through networks like Google Adsense, and you place the ads on your page and get paid based on impressions (CPM) or clicks (CPC).
- Affiliate marketing- You can promote products and services to your readers using a unique link. Your affiliates need to fit your niche and provide value to your readers for this to work. When someone clicks on your link and makes a purchase, you’re paid a commission. It’s passive-ish income because you can earn from posts you wrote weeks, months, or years ago, but you still have to generate traffic to your site and those posts. If you’re interested in learning how to make passive income with affiliate marketing, the badass blogger Michelle Schroeder-Gardner earns around $50,000/month from it and put together a course called Making Sense of Affiliate Marketing.
- Selling digital products- Bloggers can use their site to sell ebooks, courses, printables, etc. You invest time in creating your products, but being able to sell digital products means the sales and delivery are all handled for you.
It took me three months to earn my first dollar from this site and even longer until I earned what felt like passive income. Since my income has grown, I’ve been able to invest money in my site to make it feel more passive. I hired a virtual assistant, web guy, editor, etc. I also got rid of one source of passive income, display ads, to make the experience better for my readers. And it’s all paying off.
8. Create a course
This is one area of passive income that I’ve been focusing on this past year because I genuinely love teaching people valuable skills. I currently have two courses, the Facebook Side Hustle Course and Facebook Ads for Bloggers, and they contribute a relatively large portion of my blogging income.
But, I never would have been able to create and successfully sell those courses if I hadn’t spent years learning and implementing those lessons myself — this is the time investment.
I’ll say this too: selling an online course is more than just putting a course together, selling it, and never talking to your students again. It’s showing up in private Facebook groups, adding occasional bonuses, and more. I guess you could say it’s passive-ish. But when you do it right and really help people, it can be pretty lucrative.
If there is something you already excel in, creating an online course is a great way to start building passive income, and here are a few tips for starting it from How to Structure Your Course and Create a System to Sell the Hell out of It All Year Long:
- Your course should be about a topic you know well and feel strongly about
- Make sure it’s an in-demand topic, which you can test
- Price it well
- Add a coaching component
- Start using Facebook ads to sell your course
- Add layers to promote your course even more
9. Self-publish an ebook
Self-publishing on Amazon Kindle Direct Publishing has virtually blown up the barrier for new authors to enter the market, and it’s a great source of passive income. New authors can easily introduce themselves to the market on Amazon KDP.
The best-selling genres are:
- Science fiction
Here’s a great article about self-publishing if you’d like to learn more.
10. Get cashback for shopping
This isn’t a significant source of passive income, but I wanted to add it because it’s so freaking easy. There are a ton of apps and websites where you can earn money by shopping online like you usually would. Depending on the company, you are paid via check, direct deposit, or PayPal.
Here are a few of the best options:
- Rakuten (formerly Ebates)- You can earn up to 40% back for shopping online at places like Amazon, Macy’s, Kohl’s, Walmart, and more. There are over 2,500 different partner stores.
- Ibotta- This cashback app pays you cash back for shopping online or instore. You can earn cashback when you shop for groceries, home goods, travel, and more.
- Paribus- This app helps you get cashback when the price drops on something you’ve already purchased online. Paribus can also help you claim missed coupons and discounts.
Learn more about Paribus at Paribus Review: Legit, Safe, and Easy App to Save More Money.
What is passive income? The final word
There’s no trick to earning passive income. You don’t have to be rich to start or have tons of extra time to devote to creating a source.
And I think this list of passive income ideas proves that. You can start earning passive income from your spare change, by getting cash back on your purchases, or by switching banks.
Those little things do add up, but keep thinking bigger and investing more.
Remember, you’re doing it to protect your financial well-being. It’s how you build wealth, retire one day, and reduce your overall financial stress. You’ve got no more excuses to start now!