How to Generate Passive Income
Learning how to make passive income online can help free you from the traditional daily grind of 9 to 5 work. Passive income is a wide topic that encompasses everything from selling a few eBooks to managing real estate.
The Internet makes passive income even more accessible to those looking to break free of regular paychecks. With 90 percent of adults online regularly, it’s no wonder that people find online passive income ventures to be so tempting.
Setting up and maintaining avenues of passive income can seem daunting, but there are a lot of options out there to fit with any lifestyle or background. Here we’ll go over some of the most helpful types of passive income for those looking for reliable sources of income that aren’t tied to a 9 to 5 time sheet. You can experiment with these different options until you find the passive income path that’s perfect for you.
What is passive income?
A great way to get started with earning passive income is to define just exactly what it is.
Passive income technically refers to money made from real estate or a business that you are not directly involved in. For the purposes of this article, we’ll broaden the definition just a bit to include any income you make without being directly involved on a daily basis. This means side gigs / side hustles and online businesses where you’re getting paid without having to clock in every morning after a grueling commute.
Of course you always need to be involved to some extent. People over-glorify passive income to make it sound like you can just sit back and collect checks from the beach. But the truth is no business or venture is completely hands off. There’s always some level of management.
Just how “passive” is passive income?
Let’s say you have a property management company running your house, but that doesn’t mean you can throw your phone away and disappear to a jungle without ever checking back in. You would still need to be actively involved in managerial jobs like:
- Managing repairs and remodels
- Managing employees and contractors
- Keeping up with legal requirements
Online passive income can come from two different sources. You may be earning money online in an online business or simply working in an online industry. We’ll go over both options here. Some ways of earning passive income online are side gigs, while others are fully-fledged online businesses.
What are the most common ways to make passive income online?
The world is your oyster here, and you can make passive income on just about any corner of the Internet. You can rake in some extra cash from online ventures. Or you can start taking in a regular paycheck from an online business that you start and run yourself from the comfort of your own home office. Don’t worry if it sounds daunting, there are scalable options for every skill set and budget.
Ways to earn passive income
Here are some of the most common passive income ventures and what you can do to earn passive income online.
- Sell informational products
- Sell digital goods
- Affiliate marketing
- Build an affiliate marketing niche site
- Day trading
- Savings account
- Ads on your targeted niche website
- Rental income
Sell informational products
You’ve spent most of your life accruing unique knowledge and skills. Now it’s time to put that information to work for you! This can mean writing and publishing eBooks, creating online courses or selling other informational materials. You can sell your online classes via sites like Coursera or Skillshare, or you can run them through your own website.
Teaching isn’t just for university professors. People from all industries and walks of life can make money online by helping others hone their craft. As long as you can deliver solid information in a professional manner, you can sell a course on just about any topic.
Tip: Some informational products, like eBooks and white papers can double as marketing tools for your online business. You may even consider giving them away for free to qualified leads. This eliminates their use as passive income but turns them into high quality marketing tools, instead.
Sell digital goods
You can sell more than just eBooks digitally. A digital product is anything that exists virtually, with no physical components that need to be assembled or shipped. Examples run the gambit from media like podcasts and eBooks to web software.
The advantage of digital goods is that once you’ve created the product, you can sell as many as you want without increasing your costs, unlike traditional products which require raw materials for each copy made.
You can always choose to sell your digital goods through your own personal website, or you can opt into an established sales platform like Etsy.
Affiliate marketing is a great way to earn passive income online. It is especially great for those who already have an established online presence with traffic and an audience. By linking to products in your blog or on social media sites, you will get dividends from the sales those links attract. However, you don’t have to have a site with a ton of traffic to get started in affiliate marketing. There are several niche sites you can create to promote others products.
Amazon is known for its affiliate program and other sites like eBay and several online brands. You can also select products from an affiliate network like Commission Junction, ShareASale, and so on.
The rule for affiliate marketing overall is simple: be honest with your audience and sell a product you genuinely care about and is useful to your audience.
Build An Affiliate Marketing Niche Site
Your website can take in money from multiple avenues, not just traditional ads. If you’re curious to try your hand at affiliate marketing, you’ll be pleased to know it’s incredibly easy to sign up for most affiliate programs.
Typically affiliate programs are free and you simply click to receive the special link for use on your site. The hard work comes into the picture when you have to actually design and maintain your site.
Going niche is ideal. Picking a niche topic will help you establish brand authority and give you more room to rank highly for keywords. What defines a niche site? Specificity.
Let’s say you’re crafty. Instead of trying to start up a website or blog about all things arts and crafts, focus instead on something more specific. For example, crafts that can be made from used clothing. Then you can pump up your content with targeted keywords related to recycling clothing. You’ll also be in a prime spot to use affiliate links for crafting tools or sites that let people sell their finished creations.
REITs (Real Estate Investments)
If you want to get into the real estate game but don’t have the capital or the desire to start buying and managing properties, you can look into Real Estate Investment Trusts (REITs). These are companies that manage real estate ventures and you can buy into them much like how you might purchase dividend stocks. To further simplify the process and lower the barrier to entry, you can try eREITs, or online funds, that are crowdfunded.
I invest in Fundrise, an online investment option that you can buy into for lower minimums (typically 500-1,000 dollars). I have seen returns between 3-15% (and that 3% was during the height of COVID!). A much better investment than the bank and a one of the most passive ways to invest and watch your money increase.
I am a fan of investing in the real estate market over stocks due to real estate always increasing on average 3%, even with the upcycles and crashes. Stocks have much more volatility and are not asset-backed so if you lose money, you lose money. Also companies can go out of business or lose market share, whereas housing never loses its position as a necessity.
That being said, a lot of people are able to earn great passive full time or side income by trading stocks online. Sites like Forex.com allow you to try your hand at day trading.
Getting into the Forex market can be intimidating, but fortunately there are demo accounts for beginners. It’s advisable that you start with one of these limited demo accounts to get the hang of properly closing deals and managing leverage.
Not everyone’s a big risk taker, and that’s okay! There are still opportunities to put your money to work for you and you can earn passive income online without risking your whole savings. A less risky venture than stocks or REITs is a simple savings account.
You have a ton of options in this area, so take some time to shop around for the best deals and lowest fees. Betterment Cash Reserve is one option that offers a competitive APY with no fees.
You can earn passive income online by selling through Amazon or a similar site, such as eBay or Walmart.com. You have a lot of room to play around on these sites and design a custom online store that matches your lifestyle.
Some people pair with wholesalers and retailers to sell a consistent inventory of products while others use their Amazon stores to sell secondhand goods. To truly earn passive income with your Amazon store, digital goods are your best bet, because you can sell multiple copies quite literally in your sleep. So while you’re doing what you love, people are buying your goods and you don’t even have to bother with packing or shipping!
For digital goods like eBooks and online courses, you may also want to try sites like Payhip, which offers a set of promotional tools different to Amazon’s. Most sites do not have rules about exclusivity, so offering your goods on different platforms can help you cast a wider net for potential customers.
There are many types of online businesses that you can start, but one of the easiest to slide into without a lot of startup capital is dropshipping. When you operate a dropshipping ecommerce store, you don’t have to worry about buying and stocking inventory. When a customer orders a product, you will then order it from a third party and have it shipped directly to the customer. This way you bypass the traditional model where you store goods at your place of business or in a warehouse somewhere.
The most obvious benefit of dropshipping is that you don’t run the risk of losing money on unsold inventory. You’ll get to run your own store with none of the traditional overhead like renting out warehouse space or worrying over which products to stock the most.
How to start dropshipping
Your first order of business is to pick a niche. Dropshipping ventures are most successful when they don’t spread themselves too thin. You don’t want to try and be the Walmart of dropshipping. Instead, focus on a niche product to sell. Remember, you won’t be stocking inventory, which mitigates some of financial risk.
Next you will need to partner with a supplier. In order to keep your prices competitive, you’ll need to get in touch with a manufacturer or wholesaler directly. You won’t make much money by buying things at retail price and trying to resell them for even more.
Fulfillment by Amazon
Amazon’s advanced fulfillment options is another way of dropshipping to earn passive income online. With FBA, you are responsible for procuring your products and sending them to an Amazon fulfillment center. Then, when you sell the products on Amazon, they will be shipped directly to your customers without any additional work on your part.
This is just another way of managing a digital storefront without having to turn your garage into a product warehouse.
Ads on your targeted niche website
It doesn’t get much more passive than traditional ads. If you’ve got a website, there’s no reason you can’t make some money off of it! And you don’t need any expertise or special business skills to do it. Here are just two of your options:
PPC (Pay Per Click Advertising)
Signing up for Google AdSense means that relevant advertisements will be placed on your site. Then when people click on these ads, you get cash! Your profits on Pay Per Click advertising could be anywhere from $.05 to $5 for every person who clicks on the ad.
Directly selling ad space
Google AdSense is very intuitive, but it’s not the only way to put ads on your site. If you’d rather, you can cut out the middleman entirely and sell banner ads or other ad space on your site directly to companies. In doing this, you have more control over your pricing.
There are two ways to charge for ad space. The direct route is an upfront monthly fee that you negotiate with the advertiser based on your site’s average traffic. Alternatively, you can charge a CPM rate. This second option means you are paid a certain amount per every 1,000 monthly visitors to your site, and your paycheck goes up or down depending on your traffic.
How much money you make from posting ads on your site is going to depend on the kind of traffic your website generates. Obviously, the more eyeballs you get on your site each month, the more money you can make from your ads.
Establishing and managing a real estate portfolio takes a lot of time and a huge amount of investment capital. But you’ll be glad to know that it’s not a zero sum game. You don’t have to be the next Sam Zell to make passive income off of real estate.
The answer is renting the property you already own, or subletting your rental. This will provide you with extra income for your travels. If you’ve embraced the idea of living and working anywhere, you don’t have to don’t have to give up your traditional “home”. If you rent out your place while you’re fulfilling your workplace wanderlust, your property can essentially pay for itself. It may even earn a little extra!
This eliminates the worry of “what do I do about my house while I’m living or working abroad?”.
Why should I invest in earning passive income online?
Establishing and maintaining passive income still takes work. It’s not completely set-it-and-forget-it. But when you earn passive income, your paycheck is not strictly tied to your productivity for that day. With passive income, you’re typically reaping the rewards of hard work laid down in the past. This gives you much more flexibility over your work schedule.
For some people, passive income makes up the majority of their salary, but for most passive income earners, this money is used to supplement a more structured job. Passive income has a lot of perks!
What are the Benefits of passive income?
- Earn extra cash
The biggest appeal of passive income is that it provides extra money without compromising your regular job.
- Create a “buffer” of income between job changes
That dead zone in between quitting one job and starting the next can be frightening, but passive income offers you a safety net to carry you through transitional periods.
- Be your own boss
Most passive income opportunities are solo acts, meaning the only supervisor you’ll be answering to is yourself. It can be a nice change of pace for many people.
- Create financial security
Passive income can tide you over on a rainy day. If you lose your job or an unexpected large bill arrives, your passive income may be what makes the difference.
- Live anywhere
Passive income allows you to unshackle yourself from the traditional work environment. Earning enough passive income lets you have peace of mind that your finances are taken care of. You can spend less time punching the clock and more time being with your friends and family.
Best Passive Income Opportunities: Conclusion
Passive income is a great way to make extra money without overloading your daily work schedule. With most passive income plans, you can choose when you put in the work to create the passive income-generating product and then continue to make money off of it even after you’ve “clocked out”.
There is still maintenance work to be done, though. So I recommend investing in passive income that you won’t mind maintaining. For example, if you go with the eBook example, write about topics you’re genuinely interested in rather than just chasing trends.
You can also delegate and outsource. You may start off as a one-person show, but soon your passive income avenues will grow. Then you will be able to create a business structure that allows you the freedom to work where you want, when you want.
There’s a whole wide world of passive income out there, find your slice of it and take it!