June 19, 2017

Passive Income: 20 Practical Ideas to Build Wealth

Read more about Investing

Does making money without working for it sound good? If so, read on. We discuss passive income, how to make it, and 20 suggestions for getting started.

What Is Passive Income?

Passive income is money you make while basically doing nothing. You'll have to invest some money or a big chunk of time to make it possible - but when done right, you can collect funds while your hard, upfront work pays off.

For example, rental income and book royalties are types of passive income. Once they're set up, you don't have to be actively involved - you just get to keep track of the money coming in.

What's Involved?

You may need to put in an upfront investment. Or some sweat equity. Most definitely, you'll need some patience.

Investing time and money is necessary for many passive income streams. Educate yourself on the options and necessary investment first. Then you can decide if it's right for you.

Passive income rarely happens overnight. It requires a bit of sacrifice too.

Just look at Tommy Palm, creator of Candy Crush. Today, this mobile game earns Palm more than $200 million per year. Leading up to its success, though, Palm starved, literally. He went 6 months without a paycheck. Palm's perseverance and passion for gaming pushed him through, though. A few years later, he is rich and famous because of Candy Crush.

Palm is a great example of working hard for passive income. But don't think it's all about letting a great idea go free - some activities will require your active involvement (but not as much as your day job). Keep in mind:

  • Rental properties need repairs
  • Investment portfolios need maintenance
  • Online businesses need upkeep
  • Ongoing marketing may be necessary
  • Any income will need to be tracked and reported to the IRS

Do you have the time and resources for setting up a passive income side gig? If the answer is yes, read on.

How Do You Start?

Before you plunge ahead with your awesome idea (we'll get you started on that in a moment), look over your finances to be sure an up-front investment is something you can afford to take on at the moment.

  • Pay off credit card debt: If you get swept up in a new venture and ignore your debt, you'll end up with interest eating away your profits. Work on paying your debts down first.

  • Build up your savings: You shouldn't go broke trying to build your passive income. Instead, be sure you're saving a good amount. Set up automatic withdrawals so that your 401(k) and emergency fund are regularly funded.

  • Create a benchmark: Your passive income should exceed a basic investment's rate of return. Look up today's 10-year bond rate or average CD rates. You could make interest by doing nothing on these investments. They make you next to nothing, though. If your passive income can surpass this interest rate, you are on the right track.

Top 20 Ways to Create Passive Income

Got a savings base to get started? Squirrel away some free time so that you can get going on any of these great ideas for creating passive income.

  1. Buy Dividend Stocks
    Established and stable companies may pay dividends - GM and IBM are good examples. But you'll need to do some careful research to make sure you're making a wise investment, and keep watch on the companies as you could lose money.

    The dividends aren't the profit (or loss) you make from buying and selling stocks. Many companies pay dividends quarterly. They pay them out after paying their bills and reinvesting in themselves.

    Note: Companies with a 70% payout ratio generally offer the most stability. This is the money they pay out in dividends compared to their profits. Companies paying out 100% of their profits may be unstable. It's usually a better sign when companies retain some of their profits for themselves.

    You don't need to be a financial guru to purchase dividend stocks. But you should have a basic knowledge of the stock market system. The guidance of a reputable stock brokerage can help too. We did some of the research for you here.

  2. Become a Peer-to-Peer Lender
    Lending has taken on a whole new look today. You don't need your local bank for a loan. You can even provide funding for the loans. There are several P2P platforms, such as Lending Club and Prosper. Investors interested in high rates of return often use these platforms. You may see returns between 5% and 10% on peer-to-peer lending loans.

    There is a high risk for default with P2P loans. Borrowers may stop making payments. Companies like Lending Club and Prosper help, but defaults still happen.

    Investing in multiple loans can minimize the risk. With Lending Club, your investment in a loan can be as small as $25.

  3. Automate Your Investments with a Robo-Advisor
    If finance isn't your forte, consider a robo-advisor. Companies like Betterment offer automated investment programs. You answer a few questions about risks and goals. The software program then creates an investment portfolio.

    Because you must save money to invest, managing costs is important. Betterment offers low-cost investments and several pricing tiers. One tier includes time with an in-person financial advisor. Betterment also helps minimize an investor's tax burden.

  4. Try a CD Ladder
    Interest rates are expected to go up, which could be bad news if you're looking to take out a loan, but it could be good news for CDs over time. If you have funds currently socked away in a savings accounting barely earning any interest, look into creating a CD ladder, where your investments in certificates of deposit will grow over time. Look into online banks that can offer you the highest rate of return.

  5. Write an E-book
    If you've got specialized expertise and a craving to write it all down, an e-book could bring you some cash. Self-published e-books are still the rage, and technology today makes publishing one pretty simple.

    Once you get your manuscript finalized and design a cover, you upload the book to a self-publishing tool. We like Amazon Kindle Direct. Then you've got to market it to make sure people are aware of your e-book.

    For self-published authors who do not have a following, non-fiction e-books, such as "how-to's," tend to do better than fiction e-books.

  6. Share Your Expertise in an Online Course
    Do you have a hobby or passion you know well? Chances are others don't have the same knowledge and may pay for a course on it. This could be passive income at its finest.

    There is very little maintenance in online courses. You create the course one time and then watch it sell. Of course, additional courses help further your income.

    Several websites offer the platform for your online course. Udemy and Teachable are among the most popular. Using an already created platform gives you the audience you need. Selling packages of varying prices can help you appeal to the masses.

  7. Become an Affiliate Marketer
    Affiliate marketing offers 2 ways to make passive income.

    The most profitable is by mentioning other company's products on your website, and you make a commission when your readers purchase a product from your link. If you can purchase someone else's site that comes with a strong following or you can take the time to create robust content yourself, this can provide passive income over time, although it will decrease as time goes on if you can't keep up with the content.

    Another way is with ads, such as with Google AdSense. You earn money when your readers click on an advertisement. You won't make as much money that way, but less work is involved.

  8. Make YouTube Videos
    Billions of people watch YouTube. In fact, there are billions of views a day. This is another built-in audience ripe for new content.

    You can create videos about anything. What are you passionate about? What do you know a lot about? Consider what you know that others don't. There's no sense in creating a video hundreds of others have already done. Offer something unique yet enjoyable or educational, and the viewers will come. And if you can tie an affiliate marketing component to it, with ads appearing on your videos, you could reap the benefits in passive income. Try to stay away from trendy/newsy topics, but aim to be viral so that your videos take on a life of their own.

  9. Create the Next Candy Crush
    Okay, maybe you can't quite mimic the success of Candy Crush. But you can use Tommy Palm as inspiration.

    Got a great developer friend with whom you can split the proceeds on your super-awesome idea? Or do you have some tech talent yourself? Look for a problem you can solve or a service you can provide that people will be willing to pay for (ideally through a subscription or a significant price per download).

  10. Create an Online Store
    A store sounds like a lot of work. But if inventory isn't necessary, then it suddenly sounds a lot easier, right?

    With drop shipping and the use of a site like Shopify, anyone can start an online store. Shopify provides the e-commerce platform for you to sell your stuff. When a customer buys a product, Shopify notifies the manufacturer. They ship the product to the customer and everyone receives payment.

  11. Sell Your Designs Online
    If you have an artistic flair, put it to work for you. You don't even need your own website. Sites like Etsy offer a user-friendly platform to sell digital files of your designs, such as invitations or cards. This means no inventory or shipping.

    Buyers simply purchase your design and download it to their computer.

  12. Sell Your Photographs
    If you have photographic talents, sell your photos on Shutterstock or iStockphoto. Just one picture can earn good money if you have enough downloads.

    Of course, there's no way to predict how well a photograph will do. Increase your sales by uploading an entire portfolio. Keep in mind, though, that each company offers a different payment structure. Read the fine print and choose the one netting the greatest profits.

  13. Really Save for Retirement
    Saving for retirement - really saving, not just accepting whatever paltry percentage your employer takes out every paycheck - is the ultimate in "passive income." With every amount of money you set aside, you are saving for your future income, when you can finally get out of the 9-5 grind.

    It's hard to think about when you're young, but you can get some of the benefit now by lowering your taxable income and thus reducing how much you have to hand over to the taxman in the present day. Be sure to look beyond your employer's retirement plan to other options like IRAs.

  14. Advertise for Companies with Your Car
    Your car can make you money without you becoming an Uber driver. Many companies pay people for advertising.

    Apply with companies, such as Carvertise or Pay Me for Driving. Before you start, they must approve you. It doesn't depend on your driving record. It really comes down to where you live and where you drive.

  15. Get Rewarded for Using Credit Cards
    Shoppers rejoice! You can make money just for shopping with your credit card.

    You must shop for the right credit cards first. You can make 1%-5% of your purchases back in the form of points or cash with the most popular cash back credit cards.

    Think of your daily expenses. If you charge them, you can get a little back in return.

  16. Get Cash Back for Shopping
    If shopping is your favorite hobby, use sites like eBates. This site offers rewards for your purchases. Standard deals offer between 2%-5% cash back on purchases, but eBates also often runs double cash back specials and other incentives. They also offer a $10 sign-up bonus.

    You make money only when you shop through eBates. You've got to remember to go through the site first to get to your favorite store - or you don't get cash back (the amount varies by retailer).

  17. Invest in Real Estate
    Investing in real estate can be tricky. When your tenants don't renew their lease, you have to find new tenants. You also have to manage the upkeep of the property. You can hire a property manager, but this eats into your profits.

    If you have to take out a mortgage, you minimize your profits. If you are in it for the long run, though, you can pay the loan off and make a profit.

    Another option is real estate crowdfunding through RealtyShares. Think of it as peer-to-peer lending for the housing industry. Private investors provide the funds borrowers need on their terms.

  18. Provide the Funds for Real Estate Investors
    You can also be on the opposite side of the spectrum. Rather than purchasing properties, you can provide the funds borrowers need.

    You can offer the crowdfunding through RealtyShares. You get a say in which properties you invest in, putting you in control. This may help minimize your risks. Just like P2P lending, this option offers a good rate of return.

  19. Rent Out Your Home
    You don't have to rent your home out long-term. You can offer a temporary rental.

    With sites like Airbnb, travelers can rent your room as needed. You determine the timeframes and the price. Airbnb advertises the room for you with pictures and descriptions you provide. Travelers then see your advertisement.

    If they stay with you, Airbnb handles the payment. They pay you within 24 hours of your guests' check-in.

  20. Strive for Royalties
    Write some music. Write a great book. Design a T-shirt through CafePress. Find a way to make something valuable that people love, and you could collect royalties over time. Some writers receive checks for their past creativity decades after their hard work!

Making passive income can be lucrative. Start out with one idea that you know you can spend time on and that you know enough about to do well. Have fun with it, and see how it goes. Be open to trying and failing - and be open to learning along the way. Every venture could set you up for more passive income over time!

What Skills Do You Need?

The necessary skills depend on the type of passive income you create. Someone trading stocks needs a basic understanding of the stock market. A person writing a blog needs a niche. A real estate investor may need to be a jack-of-all-trades. It depends on your plans.

Should you follow the masses? You probably shouldn't, unless you don't mind smaller payouts. Instead, choose a niche.

Start by making a list of the following:

  • What skills do you have?
  • What are your passions?
  • In what areas do you have exceptional knowledge?
  • What can you afford to spend right now?
  • How much time can you invest?

Once you start your list, begin brainstorming. You may come up with ideas you never considered before. Here's an example:

Let's say you have a knack for writing and a passion for DIY projects. You can combine the two and create passive income. Making products and selling them is active income. Instead, create a blog and monetize it or write an e-book on DIY. You do the hard work upfront (writing). Down the road, you collect the royalties (passive income).

What Is Your Why?

Money is an obvious reason for making passive income. How will you use the money? Do you have a shopping habit? Are you saving for retirement? Think of the reasons you want the money. This will help you create a plan. Create a list of the following plans:

  • Short-term: things you will do in the next year
  • Intermediate: things you will do in the next 2 or 3 years
  • Long-term: things you will do in five or more years

Next, you should consider your reason for doing this. Is it something you enjoy? Is it something you can see yourself doing 5 or 10 years from now? This is important.

Longevity is the key to successful passive income. Like we said before, your money won't come in overnight. It takes time and patience. Your why should drive you in your endeavor.

Some avenues for passive income require more than time. They also require a desire for change. Here's an example:

Let's say you write a blog. In your mind, your goal is to make money. You monetize the blog and wait for payment.

Your audience thinks your goal is to help them. No matter the topic of your blog, your audience thinks you care about their needs. You have two different lines of thinking here.

If you seem too greedy, readers leave. Focus on making your why about helping others. The rest will fall into place.

Choosing the Right Niche

Taking the easy way out, you can pick the latest hot topic. You may make a profit doing this. It will only last for a while, though. You can follow the trends, but find a unique aspect about them. Look for the pain point others missed. What needs are currently ignored? This niche may provide a greater profit.

Determine Your Risk Level

Many opportunities for passive income include risk. Real estate investors risk values depreciating. Writers risk their book flopping. Almost every opportunity has a chance for failure.

Consider what you can handle in terms of risk. Are you investing your life savings (which we don't recommend)? If so, you need a low risk opportunity. Do you have retirement and emergency savings set aside? If so, you can risk a little more.

Give this serious consideration before choosing a passive income method.

More from CreditDonkey:

How to Invest Money

How to Invest Money


How to Build Wealth in Your 20s


10 Smart Ways to Invest $1,000

More Articles in Money Tips

Investing

How Much to Contribute to 401k

You know you should save money for retirement. But how much should you save and where should you save it?

Leave a comment about Passive Income: 20 Practical Ideas to Build Wealth?

Name
Email (won't be published)


June
23
2017

How Do Student Loans Work

College is costly. There are many ways to help you pay for it, though. Here are the basics on your options - from scholarships and grants to federal and private loans.
More Articles in Money Tips







About CreditDonkey®
CreditDonkey is a stock broker comparison website. We publish data-driven analysis to help you save money & make savvy financial decisions.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed on this page are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

†Advertiser Disclosure: The card offers that appear on this site are from companies from which CreditDonkey receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). CreditDonkey does not include all companies or all offers that may be available in the marketplace.

*See the card issuer's online application for details about terms and conditions. Reasonable efforts are made to maintain accurate information. However, all information is presented without warranty. When you click on the "Apply Now" button you can review the terms and conditions on the card issuer's website.

CreditDonkey does not know your individual circumstances and provides information for general educational purposes only. CreditDonkey is not a substitute for, and should not be used as, professional legal, credit or financial advice. You should consult your own professional advisors for such advice.