Our experts answer readers’ investing questions and write unbiased product reviews (here’s how we assess investing products). Paid non-client promotion: In some cases, we receive a commission from our partners. Our opinions are always our own. Popular passive income ideas include online courses, as well as renting out property, tools, and equipment to others. Payout amounts for passive income streams like royalties can vary depending on the medium. Even though the goal is passive income, there may be a bit of active work required at the start. Passive income is all about earning money with minimal ongoing effort. Implementing a passive income strategy provides a way for you to make money while you sleep, travel, and pursue other interests. Remember that passive income isn’t an instant get-rich-quick type of scheme. Rather, it requires thorough planning, research, and labor. But if you’re willing to put in the work now, you can unlock a powerful wealth-building tool for increased financial freedom later on. Quick tip: Additional funds earned through passive income streams can be deposited into some of the best retirement plans for tax advantages and long-term wealth building. Additional passive income can offer increased financial freedom and early retirement when paired with normal active employment income sources. Understanding passive incomePassive income streams allow you to collect money from something you own — a rental property, dividend-paying stock, or even your automobile — with little sustained effort. That said, many passive income ideas require a significant upfront investment of time and labor to generate profits later on. Compared to active income streams (such as earning a salary or hourly wages through employment), passive income requires less day-to-day labor. It also offers increased flexibility so you can free up time for hobbies and other interests. “All passive income projects involve some form of time, energy, or financial commitment on the onset,” says Tiffany Grant, a financial literacy evangelist and host of the Money Talk With Tiff podcast. “Sometimes people will give up before it has a chance to truly take root and grow.”However, money earned through royalties, investments, and online business ventures isn’t guaranteed revenue. Unlike a paycheck from an employer, there’s a chance that your passive income sources will stop generating sufficient funds as they are susceptible to external factors like market conditions, third-party affiliates, and general consumer interest. While you may eventually accumulate enough consistent passive income sources to call it reliable, I wouldn’t quit your 9-to-5 quite yet. In fact, passive income sources for retirees are most beneficial when paired with traditional, active income strategies. Strategies for generative passive incomeIncome from investmentsDividend stocksDividend stocks pay out a portion of a company’s earnings to shareholders on a regular basis, usually quarterly. Generating passive income through dividend stocks is easy since most of the best online brokerage apps offer dividend payments or reinvestment as a perk. However, passive income through dividend stocks is not guaranteed, and its success is largely tied to market conditions. Dividends also don’t tend to generate substantial income unless you invest a large chunk of change. Coca-Cola (KO), for example, paid a quarterly dividend of $0.44 per share in 2024, which provided $1.76 for each share investors owned throughout the year. Let’s say shares of Coca-Cola were selling for $60. You would need to buy nearly $410,000 worth to make $12,000 in dividends for the year.BondsWhen you purchase a bond, you’re essentially lending money to an issuer (usually the government or a company) for a set period of time. In return, you earn regular interest payments along with the total principal balance when it reaches maturity.There are different types of bonds and bond funds, each with its own risks and interest rates. Government bonds, for example, are issued by the US Treasury and are recognized as one of the least risky investments. But safer investments generally produce less income than comparatively riskier options like corporate bonds. Peer-to-peer lendingPeer-to-peer lending (P2P) allows individuals to borrow and lend money directly to one another without the use of a traditional bank. Your peers essentially act as a bank, providing money to borrowers who receive interest in return. Money borrowed through peer-to-peer lending is generally between $1,000 and $25,000 and typically takes place online through a digital platform or marketplace. High-yield savings and CDsStoring cash in a savings account or investing in certificates of deposits (CDs) doesn’t usually yield high enough returns to be considered a valuable source of passive income. But as a result of the Federal Reserve raising interest rates, high-yield savings and CDs were paying between 3-5% in 2023. Both come with the added benefit of FDIC protection and without the worry of market risk and volatility. This means that a depositor can earn a predictable return on the money added to the account.Note: CDs have a maturity date, and if withdrawn before maturity, you could incur an early withdrawal penalty, depending on the bank. Additionally, most high-yield savings accounts have a limit on the amount of transfers and withdrawals each month.Real estateRenting out a property or a portion of a property can be an excellent way to generate passive income or offset the cost of owning the property. You can access real estate investments for passive income online. Also, platforms like Airbnb and Vrbo are some of the most common platforms used to list your property’s availability to potential guests. Before you rent, whether through an online market or on your own, you may want to familiarize yourself with any rules and regulations in your area. There may also be other potential costs that should be factored in, such as property maintenance issues that may require you to hire someone.Online business venturesOnline courses and productsYou can try creating digital products for income by selling ebooks, software, sewing, and other fiber arts patterns online.”Since I already knew how to create guides, infographics, and templates for my students in the classroom, I implemented the same strategy to monetize my ebooks, newsletters, and other forms of digital assets,” says Melissa Jean-Baptiste, a former educator and founder of the Millennial In Debt financial literacy blog. “I didn’t have to go learn all new skills or take an expensive certification. Instead, I again leaned into my education skills and used that to make money passively with zero to very little overhead,” she adds.That said, creating high-quality digital products can be time-consuming. It also requires a level of skill and craftsmanship to conceive profitable items.Affiliate marketingAffiliate marketing is an online business model that allows an individual to earn a commission from sales through referrals. Through this method, affiliates use their website or social media accounts to promote products or services for other companies. When a visitor clicks on a link and makes a purchase, the affiliate earns a commission. “I love that I can get paid for promoting products and services that I know and love,” Grant says. Keep in mind that if you’re using affiliate referral programs, you should disclose this to those you’re marketing to. The potential income through affiliate marketing can vary by industry as well as the brand. Some companies may pay between $5-25 for every person who signs up through your link, while others may pay $75 or more. Royalties from intellectual propertyRoyaltiesRoyalties are payments made to individuals or businesses for the ongoing use of their intellectual property, such as music, books, patents, and trademarks. These payments are typically a percentage of total sales generated using copyrighted material. How much you can make through royalties will largely depend on the type of product you produce as well as the frequency in which it is used. For example, if you self-publish a book, you have the ability to change the price and have great control over your income potential. Keep in mind that royalties on music function differently. On some music streaming platforms, it could take, for example, 250 plays before you make a single dollar. Notoriety and marketing also majorly affect how much money you can make. Renting out possessionsRenting out a carLike renting out a home or a room, you can also rent out your car to generate income. Platforms like Turo enable people to list their cars for rental and earn rental payments. However, how much you can actually make varies by car type, condition, availability, and mileage. There may be some upfront costs in terms of cleaning and maintaining the car, but once listed, you can begin generating income. Remember also that some rental markets are better than others and that the type of car you list could be more attractive to certain buyers than others.Renting out tools and equipmentLike peer-to-peer lending or renting out your car, you can rent tools like saws, drills, and ladders at an hourly rate. Online marketplaces, like ShareGrid, allow folks to rent out camera equipment. Rental, another online marketplace, offers a much broader range of items to rent out, such as baby strollers and bikes. Ensure to consider maintenance costs for rental equipment and have the appropriate insurance. With the right rental market and demand, there may be opportunities to scale and expand your earning potential. Benefits of passive income strategiesWhat makes passive income strategies so appealing are the benefits, such as: Requires less ongoing effort: Compared to working full-time, passive income requires significantly less time and effort. Most passive income sources, like digital goods and content, are front-loaded, meaning they entail more up-front to get started. After that, it’s just a matter of occasional maintenance and monitoring. You will have more control over how and when you work, as well as the freedom to engage in hobbies, travel, and spend time with loved ones.Financial freedom and flexibility: The additional cash flow from passive income sources can offer financial freedom and flexibility when paired with traditional employment. You may be in a better position to pay down existing debt, meet your financial goals faster, or even retire early.Provides a safety net: Multiple income sources offer a financial cushion in case of unexpected events such as a job loss, sudden medical bills, or a struggling economy. While passive revenue comes with its own risks, having another source of income to fall back on in case another doesn’t work out provides increased financial security.Tax benefits: Depending on the types of passive income strategies you participate in (and how much you’re making from them), you may qualify for certain tax deductions or lower tax rates. Consult a financial advisor or CFP for professional insight into your individual situation. Drawbacks of passive income strategiesWhile the concept of earning passive income sounds attractive, it’s crucial that you understand all the risks involved and that you manage your expectations accordingly. Some of the major drawbacks of passive income strategies are:Unpredictability: The success of passive income strategies can be unpredictable and are generally out of your hands. With investing, for instance, you won’t be able to control how well the market does or how your assets will perform. Thorough research can help, but unexpected economic downturns and changes in regulations can significantly impact your ability to accrue income. Competition: When it comes to selling online content like educational resources, music, and ebooks, the competition can be steep. Even if your product is good, there’s no guarantee that consumers will be interested (or even notice it). Lack of structure: Although freeing yourself of the normal 9-to-5 working hours offers increased flexibility in how you spend your time, you may struggle to monitor your time effectively. You’ll basically be your own boss, which requires you to lay out a consistent and reliable work-life balance without any oversight. Some individuals may thrive under these conditions, while others may end up overworking (or under-working) themselves, causing psychological or emotional implications. Ongoing maintenance: Despite being called “passive,” these income strategies require ongoing maintenance and management to remain profitable. You’ll need to keep up with market conditions, marketing strategies, performance tracking, and general upkeep.High startup cost: Getting set up often requires money upfront and substantial time and knowledge. This may be a barrier for some people with limited resources. Remember, there’s no guarantee that you’ll be able to generate substantial wealth or that the money will continue to flow in the long run. Getting started with passive income Getting started with passive income requires careful planning and understanding of your goals and limitations. Don’t rush the planning stage. Identify your goals, resources, and risk toleranceFirst, identify your financial goals. Are you looking to make a little extra money on the side, build long-term wealth, or retire early? You’ll also want to take note of the resources readily available to you, including available time, money, existing skills, and other assets. Risk tolerance is another important factor. Are you in a financial situation to make potentially risky investments? Or should you pursue safer, less volatile income streams with lower growth potential? Choose a passive income strategyOnce you know what you’re aiming for, you’ll have a better idea of how you can achieve it. Based on your existing skills, knowledge, and resources, decide on a passive income strategy that compliments your current situation. For example, someone with experience and knowledge of rental properties may consider investing in real estate properties. Only someone with sufficient funds and who can dedicate enough time and effort to upkeep the property should pursue this option.Make sure to do the approach research and understand all the potential risks involved in your passive income strategy. Seek professional guidance if necessary. Be patient and realisticEstablishing a consistent and reliable passive income stream takes time. It won’t happen overnight. In the beginning, you will probably need to put in a lot of time, effort, and possibly even money before you see any results. The “passive” aspect of a passive income source generally comes later. Stay informed on market trends, consumer interest, and the economy as it impacts your products or services. Passive income — Frequently asked questions (FAQs) The initial amount needed to start generating passive income can vary widely depending on your chosen passive investing strategy. Renting out a real estate property, for example, requires a larger sum of money than investing in dividend stocks. That said, income-generating strategies with a larger initial investment tend to be more lucrative later on. Passive investing isn’t always truly “passive.” While some passive income streams require consistent minimal effort after the initial setup, other passive income strategies may require more extensive hands-on maintenance or monitoring. You may be able to replace your full-time job with passive income with strategic planning and successful execution. However, this typically requires a sufficient amount of time, effort, and labor. Plus, not all passive income strategies generate enough cash to live off of. Passive income is taxable, often at different rates depending on the source. It’s important to consult with a tax professional to understand specific tax obligations and planning. The IRS has specific rules regarding passive income to determine how much an individual is involved in income-producing activity. The best way to minimize risks when generating passive income is by diversifying your income sources. You should also thoroughly research the ins and outs of these income sources with continuous education. You will likely need to occasionally adjust your strategies based on how they are performing. Tessa Campbell Junior Investing Reporter
https://www.businessinsider.com/personal-finance/best-ways-to-earn-passive-income