It’s common to hear about “making money while you sleep.” Passive income opportunities is just that. The idea of your money — or some other asset you own — making money while you do very little is an attractive prospect. Before you decide to jump into passive income, it’s important to understand what it is and realize that, most of the time, it’s not completely passive.
Key Takeaways
Understand exactly what is passive income
Realise the work involved
Passive income opportunities under your nose!
What are passive income opportunities?
When we think of passive income, we often think of ways to receive revenue without doing active work. However, there are some things to realize before you move forward:
Taxing authorities have their own definitions of passive income. Depending on where you live, passive income might refer to something different. For example, the IRS, in the United States, has a specific definition of what constitutes passive income and how it’s taxed. In this case, some revenue streams that you might think of as passive, like investment income, aren’t included in the IRS definition of passive income for taxation.
In some cases, what you see as passive income is actually residual income. We often view revenue from websites, businesses, courses, or creative works (like books or music) as passive. However, it’s more accurate to say that’s residual income. You’ve done a lot of work to create something, and you receive ongoing income. However, it’s not completely passive because you had to do something active initially.
7 passive income opportunities
If you’re hoping for some passive revenue — whether it’s truly passive or through residual income — here are some ideas.
Invest in dividend-paying assets
Dividend-paying assets like ETFs that offer exposure to an index (like the FTSE 100 or the S&P 500) can be a good way to start building passive income opportunities.
Dividend stocks, real estate investment trusts (REITs), and certain business partnerships also pay dividends. As you create a dividend stock portfolio, you can grow your passive income from investments.
Rental property
Buy a property and rent it out. Each month you receive payments from tenants. This can cover the costs of the property, plus provide additional cash flow. This can be more active if you are acting as the landlord, or more passive if you have a management company handle the landlord duties.
Digital products
Create and sell digital products, including courses, worksheets, templates, stock photos, and ebooks. This requires upfront work, so is more likely to be considered residual income. However, once you have the product ready to go, you can set up marketing automations and then wait for the money to roll in.
Website affiliate marketing
Again, this is more like residual income, but once you set up a website, you can potentially earn money through ads and affiliate marketing. When others buy products through your website, you earn a commission. However, setting up the website and keeping it going can require effort at first.
Start a business and hire others
Running a business — being involved in the day-to-day — is not passive. However, as your business grows, you can hire others to do the heavy lifting. With the right planning and approach, the income becomes passive over time.
Cashback and credit card rewards
With the right credit card program, you could receive cash from everyday transactions. You’re going about your regular activities, but receiving cash or other rewards you can use to pay for travel or merchandise. Don’t carry a balance, though, or you destroy the value of the rewards.
Cryptocurrency staking
If you think crypto is here to stay, you could earn money by staking. When you stake, you lock up some of your cryptocurrency coins to be used for others in transactions. In return for letting others use your crypto to promote liquidity on an exchange, you receive a portion of fees and interest. You receive this in the form of crypto, so you need to be able to sell your coins for fiat currency.
How to begin making passive income
Most passive or residual revenue sources require some degree of effort to start. You might have to research investments or set up a website and market it. Here are some things you can do as you begin your journey.
Start small
Look for small ways to get started with passive revenue. Some strategies include:
Invest regularly. Use a robo advisor to start investing regularly. Many robo advisors offer dividend-paying investments. Once you receive dividends, have them automatically reinvested so that your portfolio grows over time.
House hack. If you can’t afford a property, start by house hacking. Buy a duplex and live on one side while renting out the other. You can use the rental income to cover your own housing costs while you plan your next move.
Small digital products. Try selling products by starting small with short ebooks or templates. As you become more successful, you can add more products and courses, increasing your income.
Manage your risk
Understand your risk tolerance before you begin. Determine where the passive income opportunities belongs in your portfolio. Take steps to diversify your portfolio so you are not relying on a single revenue stream. For example, if you stake cryptocurrency, make sure you limit how much of your portfolio is tied up in this volatile asset. Add dividend stocks or REITs to limit your portfolio’s exposure to risk.
Focus on your areas of expertise
Do not forget to look into what you already know. Look for opportunities to develop a business idea based on something you’re already good at. If you write a book, focus it on an area of knowledge. Review your hobbies and interests to find something you can turn into passive income.
Conclusion
Over time, building up wealth can lead to receiving ongoing revenue from various established income streams. This is sometimes referred to as passive income, but the reality is that almost nothing is completely passive. You might still need to do work to establish and maintain an income stream.
However, if you want to build wealth, developing different revenue streams can make sense. While it might be slow going at first, over time, you are likely to build up a portfolio of income streams that can sustain you even after you quit earning an active income.
Miranda Marquit, MBA, has been covering personal finance, investing, and business topics for the better part of two decades. She has contributed to numerous outlets, including NPR, Marketwatch, U.S. News & World Report, and HuffPost. She is an avid podcaster and the co-host of the Money podcast at Money Talks News. Miranda lives in Idaho, where she enjoys spending time with her son playing board games, travel and the outdoors.
Miranda Marquit, MBA, has been covering personal finance, investing, and business topics for the better part of two decades. She has contributed to numerous outlets, including NPR, Marketwatch, U.S. News & World Report, and HuffPost. She is an avid podcaster and the co-host of the Money podcast at Money Talks News. Miranda lives in Idaho, where she enjoys spending time with her son playing board games, travel and the outdoors.
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