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How to make passive income
8 passive income ideas and how to get started
Are you in control of your financial destiny? The answer to this question is always “yes!” No matter the state of the economy, current politics or world events, you control the amount of money you make. Current job not creating enough income? That’s no excuse. You can learn how to make passive income to secure your financial future. You can rise above and thrive – by creating a new you for the new world.
Tony says, “If you want to change your life you have to raise your standards.” This applies to relationships, career and finances alike. One way to raise your financial standards is with passive income ideas that allow you to add to your income with minimal effort.
What is passive income?
Passive income is money you earn without having to make a daily effort. According to the IRS, there are two types of passive income: trade or business activities in which you don’t materially participate during the year; and rental activities, even if you do materially participate in them.
Examples of the first type include passive income investments, like dividend stocks, real estate investment trusts or money market funds. This also includes business activities that don’t require your day-to-day involvement after the initial setup. The second type – rental activities – means building a real estate portfolio that provides you with rental income.
How do you know if your passive income ideas meet the threshold for material participation? If you spend more than 500 hours of your time per year on that business or activity, that counts as material participation. If your participation makes up the majority of time anyone spent on the activity, or if you’ve participated for more than 100 hours and your participation is equal to other individuals’, that also counts as material participation.
Anyone can learn how to make passive income. It’s a great way to take charge of your financial future and create stability in an unstable world.
Getting started with passive income
Don’t be fooled by the word “passive” – most passive income ideas do involve work, especially up front. Passive income isn’t about getting something for nothing. It’s about having a second, reliable source of income to help you create more financial freedom. While you’ll be doing more than kicking back and letting the cash roll in, once you’re set up, your passive income strategies will involve less work than your primary job.
For those wondering how to make passive income, it’s common to believe that you need a lot of money to get started. This is true for some passive income, such as real estate rentals or investing in or starting a business (although you can absolutely start a business with no investment). But there are plenty of passive income ideas that don’t require much money up front.
8 passive income ideas
The key to how to make passive income is to match your initial investment of time and energy to your risk tolerance level. (And of course, always do your research and consult an expert before making an investment or opening a new account). Here are some passive income ideas to get you started.
1. Real estate investment trusts
REITs are one of the best passive income strategies and an excellent way to get started in real estate investing. They are low-risk and don’t require a lot of money up front: You may be able to invest in an REIT for as little as $500. You buy shares in publicly traded real estate portfolios, and the REIT does the rest.
2. Real estate rentals
Rental activities are sometimes called “semi-passive income” because there is still work involved in being a landlord. However once you’ve purchased a building and established regular tenants, you likely won’t be doing enough work to put you over the material participation threshold.
3. Money market accounts
Money market accounts are one the best low-risk passive income investments for beginners. They’re similar to savings accounts, but their annual percentage yield (APY) is higher, and you’ll earn a better APY the more money you have in your account.
4. Index funds
Index funds invest in market indexes, which are broken down by company size, country, industries or styles, like fast-growing companies. Index funds aren’t the most exciting passive income investment, but they are easy to understand and reliable, making them another great option for beginners. Exchange-traded funds are a similar option with an even lower minimum investment required.
5. Business investments
If you have a bit of money to invest, look into becoming an equity partner in an existing business that needs capital. You can also start a semi-passive business like a laundromat, car wash or vending machine installation. Once set up, these businesses don’t require much involvement from upper management.
6. Using your expertise
There are passive income ideas that don’t involve investing – like using your expertise to create and sell content. Make a guide or an instructional video explaining a complicated product or topic, or create a course and post it online. You’ll receive income every time someone buys your video or signs up for your course, with no further effort required.
7. Creative pursuits
If your expertise is creative, you’re in luck. Discover how to make passive income by creating and licensing music, selling stock photography or writing a book or ebook. Turn your artwork into digital files to sell online. Create and sell T-shirt designs. You may be surprised how you can monetize your talent.
8. Affiliate marketing
Affiliate marketing is a way to get paid for promoting products, similar to influencer marketing. For this passive income idea, you’ll need a website or blog. You can create one on your own or, with a little negotiation, purchase an existing blog for about $1,000 to $3,000. Then choose products to review and promote – every time you make a sale, you’ll get a commission.