Updated May 10, 2018

Passive Income: 20 Practical Ideas to Build Wealth

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Making money while sleeping is the dream. But it does take upfront investment and hard work. Here are 20 ideas to bring in passive income.

Does making money without working for it sound good?

Read on. We discuss passive income, how to make it, and 20 suggestions to get started.

What Is Passive Income?

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Passive income is money you make while basically doing nothing. You'll have to invest some money or a big chunk of time up front to make it possible. But over time, your upfront work will pay 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?

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

Just look at Tommy Palm, creator of Candy Crush. His mobile game earned him more than $200 million per year in royalties. Even today, he still receives royalties despite leaving the company that produces the game back in 2015. Leading up to its success, though, Palm starved, literally. He went 6 months without a paycheck. But Palm's perseverance and passion for gaming pushed him through.

Palm is a great example of working hard for passive income. It's not all about letting a great idea go free, though. 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?

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Before you plunge ahead with your awesome idea, look over your finances. You need to be sure an up-front investment is something you can afford right now.

  • 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. These investments make you interest for doing nothing. They don't generate much interest, though. If your passive income can surpass this interest rate, you are on the right track.

Top 20 Ways to Create Passive Income

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Got a savings base to get started? Find some free time so that you can start 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.

    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. A payout ratio is the money companies pay in dividends compared to their total 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.

    What you need:
    • Money:
      • Up-front: $500+
      • Ongoing: N/A
    • Time:
      • Up-front: Enough to learn basic knowledge of stock market
      • Ongoing: Minimal monitoring.

    Investing in stocks is a great way to make passive income. The market returns 7% on average historically, so for every $10,000 you have invested you can expect an average passive return of about $700. This will obviously vary greatly year to year.

    Cal Cook, Consumer Finance Investigator at ConsumerSafety.org

  2. 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.

    What you need:
    • Money:
      • Up-front: $200+
      • Ongoing: N/A
    • Time:
      • Up-front: Minimal.
      • Ongoing: Almost no monitoring.

  3. Try a CD Ladder
    If you have funds in a savings account earning very little interest, look into creating a CD ladder. This is a concept where your investments in certificates of deposit will mature at staggered intervals over time. We call it a "ladder" because your CDs mature at different times, so you receive the proceeds of your investments over years. It's a form of fixed income and can be a great way to know exactly when you will receive certain amounts of money. Look into online banks that can offer you the highest rate of return. We review some of the best CD rates here .

    What you need:
    • Money:
      • Up-front: $3,000+
      • Ongoing: N/A
    • Time:
      • Up-front: Minimal.
      • Ongoing: Almost no monitoring.

  4. 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 Prosper, your investment in a loan can be as small as $25.

    What you need:
    • Money:
      • Up-front: $1,000 (Lending Club account minimum); $200 (Prosper)
      • Ongoing: N/A
    • Time:
      • Up-front: Minimal.
      • Ongoing: Minimal monitoring.

  5. 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.

    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. You get to choose which properties you invest in, putting you in control. This option offers a good rate of return.

    What you need:
    • Money:
      • Up-front: $5,000+
      • Ongoing: Significant
    • Time:
      • Up-front: Lots of time to find the right investment.
      • Ongoing: Lots if doing your own property management; minimal if paying a property manager or investing through RealtyShares.

  6. Rent Out Your Home
    You have a lot more flexibility these days in renting out your home. You can rent it for short periods of time, or you can rent just a room or the entire home.

    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.

    What you need:
    • Money:
      • Up-front: N/A
      • Ongoing: Minimal extra upkeep.
    • Time:
      • Up-front: Initial time to coordinate with Airbnb.
      • Ongoing: Minimal upkeep.

  7. Rent Our Your Car
    If you live in a major city and own a car, you might not be driving it all the time. Meanwhile, lots of other people in cities don't own cars, but they might want one sometimes. Why not rent yours out when you're not using it? A service like Getaround is free to join and lets you start making money off your idle car.

    What you need:
    • Money:
      • Up-front: N/A
      • Ongoing: Minimal extra upkeep.
    • Time:
      • Up-front: Initial time to coordinate with Getaround.
      • Ongoing: Minimal monitoring.

  8. 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.

    Think of your daily expenses. If you charge them, you can get a little back in return. Just make sure you're not building credit card debt, because the interest you will pay exceeds the 1% - 5% cash back you will earn.

    What you need:
    • Money:
      • Up-front: N/A
      • Ongoing: N/A
    • Time:
      • Up-front: Very little time to apply.
      • Ongoing: N/A

  9. Get Cash Back for Shopping
    If you ever shop online, use sites like eBates or other shopping portals. These are sites you go to first, before clicking through to where you're going to buy your stuff online.

    Some shopping portals are linked to particular credit cards, where you need a certain card to get cash back or points. Others, including eBates, are pure cash back regardless of how you pay. A site like evreward tracks all of the shopping portals' current offers, so that you choose the best deal for you.

    Standard deals offer between 2%-5% cash back on purchases, but eBates also often runs double cash back specials and other incentives.

    You make money only when you shop through your chosen shopping portal. 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.

    What you need:
    • Money:
      • Up-front: N/A
      • Ongoing: N/A
    • Time:
      • Up-front: Very little; just review the shopping portal site before making each online purchase.
      • Ongoing: N/A

  10. Really Save for Retirement
    Retirement income is the ultimate "passive income." With every dollar 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 every dollar you save today lowers your taxable income, reducing how much you have to pay the IRS now. Be sure to look beyond your employer's retirement plan to other options like IRAs.

    What you need:
    • Money:
      • Up-front: N/A
      • Ongoing: Significant, regular cash investments ($1,000+ yearly)
    • Time:
      • Up-front: Some time to learn about retirement investments.
      • Ongoing: Very little monitoring.

  11. 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.

    What you need:
    • Money:
      • Up-front: $500+
      • Ongoing: N/A
    • Time:
      • Up-front: Lots of time to initially develop your store.
      • Ongoing: Moderate marketing and monitoring.

  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.

    What you need:
    • Money:
      • Up-front: N/A
      • Ongoing: N/A
    • Time:
      • Up-front: Time to develop your photographs and upload.
      • Ongoing: Some monitoring.

  13. 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.

    What you need:
    • Money:
      • Up-front: N/A
      • Ongoing: N/A
    • Time:
      • Up-front: Time to develop your design and upload.
      • Ongoing: Some marketing and monitoring.

  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.

    What you need:
    • Money:
      • Up-front: N/A
      • Ongoing: N/A
    • Time:
      • Up-front: Very little time to apply.
      • Ongoing: N/A

  15. 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. Offer something unique yet enjoyable or educational, and the viewers will come. And if you can make ads appear on your videos, you could receive passive income. Try to stay away from trendy topics, but aim to be viral.

    What you need:
    • Money:
      • Up-front: N/A
      • Ongoing: N/A
    • Time:
      • Up-front: Lots of time to create your videos.
      • Ongoing: Mild upkeep.

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

    The most profitable is by mentioning other companies' products on your website, making a commission when your readers purchase a product from your link. You can either purchase someone else's site that comes with a strong following or you can create robust content yourself. Either method can provide passive income over time, but it will decrease as time goes on unless you update 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.

    What you need:
    • Money:
      • Up-front: $100 if developing your own site; $1,000+ if buying an existing site
      • Ongoing: $100+/year
    • Time:
      • Up-front: Lots of time to develop your own site; moderate time if searching for an existing site to buy.
      • Ongoing: Moderate investments in updating content.

  17. 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.

    What you need:
    • Money:
      • Up-front: N/A
      • Ongoing: N/A
    • Time:
      • Up-front: Lots of time to create the course.
      • Ongoing: N/A

  18. 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 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.

    What you need:
    • Money:
      • Up-front: N/A
      • Ongoing: N/A
    • Time:
      • Up-front: Lots of time to write e-book.
      • Ongoing: Regular marketing updates.

  19. 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 to create your own app.

    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 an addictive game.

    What you need:
    • Money:
      • Up-front: N/A
      • Ongoing: N/A
    • Time:
      • Up-front: Lots of time to develop your app.
      • Ongoing: Mild to moderate marketing and upkeep efforts to keep users engaged.

  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!

    What you need:
    • Money:
      • Up-front: N/A
      • Ongoing: N/A
    • Time:
      • Up-front: Lots of time to create a good or service people will pay for in the future.
      • Ongoing: Minimal monitoring.

What Skills Do You Need?

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This depends 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 subject matter expertise. A real estate investor may need to be a jack-of-all-trades. It depends on your plans.

Start by making a list of the following:

  • What skills do you have?
  • What are your passions?
  • In what areas are you an expert?
  • What can you afford to spend right now?
  • How much time can you invest, now and over time?

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?

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Money is an obvious reason for making passive income. But it's what money buys that determines why you want to do this. 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. 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, it is this activity something you can see yourself doing 5 or 10 years from now? This is important because 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:

Determine Your Risk Level

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Many opportunities for passive income include risk. Real estate investors risk property values depreciating. Writers risk spending a lot of time writing a book, only to have it make no money. Almost every opportunity has a chance for failure.

Consider what you can handle in terms of risk. Do you have retirement and emergency savings set aside? If so, you can risk a little more than if you were living paycheck-to-paycheck (which we don't recommend).

Give this consideration before choosing a passive income method.

Bottom Line

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Making passive income can be lucrative. Start 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.

Disclaimer: Opinions expressed here are those of the author's alone. Please support CreditDonkey on our mission to help you make savvy financial decisions. Our free online service is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content.

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