Passive income refers to a source of income where you don't need to put in a considerable amount of effort to create it (...or do you?). It can be a great way to boost your earnings while focusing on your main job.
There are numerous ways to create a passive income stream, though many of them may be more tedious and time-consuming than what internet influencers will have you believe. (More on that later!) The most common types of passive income streams are the income from held investments and various side hustles. Let’s take a look at some examples!
Any time we put money into a bank account, we earn interest (unless your bank is offering you negative interest rates, which is possible but uncommon). The amount of interest you earn differs on the bank you choose and the type of account you are placing your money in. For example, a fixed (or "time") deposit account will usually offer a more attractive interest rate than a savings account at the expense of needing to leave your money untouched in the account until the given date. On the other hand, the savings account offers a lower interest rate but higher flexibility in withdrawals.
If you’re already investing, chances are that you started with shares! In short, shares represent part ownership of a company and are normally traded on a stock exchange.
Purchasing a share makes you a "shareholder" of the company, and you are then entitled to receive a share of its earnings, i.e. dividends, should the company choose to give any out. If the company does do so, it is usually distributed regularly, perhaps quarterly or semi-annually. It may not be much at first, but as your capital grows over time, and if you are invested in stable or growing companies, this stream of dividends could become a very significant source of passive income. And, though you should review your investment portfolio regularly, it really is passive. After all, you're paying the management of those companies to make business decisions for you. You're the boss!
Bonds are another type of common financial instrument. If you buy a bond from a company or the government, the money you’re paying acts like a loan to the company or government that will be repaid when the maturity date arrives. Pretty much all bonds have coupons attached. Coupons are regular fixed payments made to the bondholder, and this can also be another excellent form of passive income for investors. Though in most cases a lower return instrument than shares, bonds can still be an attractive long term investment as they tend to be more stable and, in a crisis, safer. Most bonds are bought and sold in quite large minimum sums, so it's quite common to "have bond exposure" through bond funds or in balanced funds (which include both bonds and shares).
Properties come in two forms: immovable and movable. Immovable properties will be your house(s) and other real estate properties... what people normally think about as "rental property". Moveable properties include machinery, cars, boats and even simple things. As long as you’re able to find a customer, you can earn rental income!
Photo by Harmen Jelle van Mourik on Unsplash
However, we urge you to be cautious since you will be passing your personal property to a relative stranger. It is optimal to have a legally binding, signed agreement between yourself and the customer, but this is usually only common for immovable (and more expensive movable) properties. If there is no signed agreement, there is little guarantee that the other party will return your property in an optimal state... or at all! You may want to consider third-party apps that will make it easier to find a buyer and enforce the rental agreement.
If you make music, art, novels, or essentially anything that can be copyrighted, you can make royalties off them. Royalties are fees charged to parties who want to use your work. For example, if you have already written a novel, you sign a contract with a publisher and receive royalties when book sales are made (this is a lot harder than it sounds, by the way). The same goes for other types of creative content. Once you get them copyrighted, either through a third-party publisher or yourself, you are legally entitled to receive royalty payments if another party wants to use them.
On the other hand, if you cannot secure or do not want to go through the trouble of securing copyright for your content, you could always post it online as free content. On some platforms, such as YouTube, registered content creators get paid depending on the traffic generated by their content. As such, passive income will flow in as long as your content stays up and continues getting viewership.
Membership or donation platforms such as Patreon and Kofi also allow content creators to earn a more stable form of income from their fans and supporters. On these platforms, supporters can subscribe to exclusive content or simply pledge an amount of money (recurring or otherwise) to their favourite content creators as a form of financial support to keep the free content coming.
The beauty of digital products is that they are “reusable” in a sense. Have a template that people may be interested in? Have some knowledge on something intriguing that you might be able to make an online course on? Many digital content can be sold to a mass audience, so you only need to create the content once.
Here are some examples you can consider:
If you already have a stable and loyal audience, it’s time to consider affiliate marketing! Affiliate marketing means you will be tasked to promote a product or service in exchange for commissions. Suppose you’ve ever seen your favourite TikToker or Instagram celebrity post about a certain product, full of endless praise and alongside a link or a referral code. In that case, that’ll be affiliate marketing at work. They are promoting the product, and in return, they get a sum of money in return for every click of the link or usage of the referral code. Basically, it's just sales commission for transactions done online!
The easiest thing in the world! 'All you have to do' is figure out what people already want and offer it online at a huge markup, then get the manufacturer to send it to the customer, and you keep the profits (without having to deal with a warehouse full of the stuff, staff, shipping labels and returns).
To be fair, the key facts mentioned are more or less correct: there is no inventory capital and expenses or logistical headaches to worry about.
However, there remain the tasks of:
The key questions you need to ask yourself are:
a) how much will it cost to acquire the customer (on Facebook, Google etc.)
b) whether you will be able to keep the customer without spending loads more on marketing every time
The basic premise is to meet people's demands but without the same level of product manufacturing, marketing or retail overhead expenses.
The business focuses on improving product quality/lowering production costs, whilst the salespeople earn a lucrative and flexible income - which can either replace or supplement their regular earned income.
Basically, the only way to earn big bucks is by recruiting enough others to join the scheme, meaning you are driven to sign up more and more people under you, which may seriously damage your relationships with friends and family.
Completely untrue. Money doesn’t just pop out of nowhere; some income streams may be very low maintenance, such as your investments, but most will still require constant attention and a decent upfront commitment. Let’s take a look at the examples we have brought up above.
Let’s not get ahead of ourselves. If you’re just starting on something new, expect to earn a pittance from it. You need to have patience and build the passive revenue stream from the ground up. It’s like in your regular line of work. You start from the bottom with low pay and then work yourself up the corporate ladder. For investments, you will be relying mainly on the concept of compounding interest. That’s straightforward and mostly guaranteed. For side hustles, you will rely on getting supporters and making a name for yourself. Now, this… is less guaranteed.
Making a name for yourself will be difficult in this day and age. After all, you’re facing millions of competitors. Be warned that most people don’t ever get off the ground. It’s best to keep your expectations realistic.
Some passive income streams require an upfront asset. Instead of finding examples of how to earn passive income and then trying to secure a specific asset to emulate those examples, why not just use what you already have?
It’s like using your current assets, but instead, use your current hobbies. Any hobby can be made into a side project that may be a big hit and create a passive income stream for you. Sure, work will need to be done, but is it really work if you enjoy it?
Passive income sounds fantastic. Almost too good to be true... well, in a way, it is! But because it's such a wonderful thing to build for yourself, it's also very tempting to fall for the schemes we see being sold to us on social media. Remember, these are paid-for ads. Social media and search company algorithms determine who is most likely to buy what, and that's what is sold to advertisers at an enormous profit. Not everything is a scam, but don’t fall for passive income ideas that promise overnight super returns for little to no effort. If a passive income business idea "Seems Too Good To Be True..." you can complete the rest. Do your research. Be especially wary if they charge big fees (after the so-called "free" webinar!) or require a lot of capital upfront (especially if you get yourself loaded up with debt to fund it!).
GENERATING PASSIVE INCOME. COMPLETED. ✅
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