What Is a Passive Income?
Passive income is defined as earnings you get from a rental property or some other enterprise in which you are not actively involved. Essentially, it is money that doesn’t require you to do a lot of “active” work to earn. The main goal is to basically earn money while you sleep.
To do this, you might have to invest time or some money to create something upfront, and then this will help you to generate income down the road, with only a little additional effort along the way.
Here are the Top Ways to Earn a Passive Income
1. Investing in Rental Properties
Real estate investing is one of the best known ways to earn a passive income. With a little bit of investment, you can buy and rent out homes, offices, apartment buildings, and other types of real estate. Then you will be able to earn rental income each month, and even hire a property manager to manage day-to-day issues with tenants and collect any payments.
What is the investment required? – Having a rental property requires a bit of work and financial investment at the start.
How much can you earn? – Depending on how many properties you own, the types of tenants, and the rent amount, you can make a significant amount of money through rental properties.
What to keep in mind? – There are a few financial risks to owning a property, such as being unable to find tenants, or face an increased mortgage. So, ensure that there is a market for your property before you invest.
2. Rent out your Home
If you are unable to invest in a separate property to rent, you can rent out your current properties by partnering with a rental company like Airbnb. This method will work well if you have spare rooms, or you have to be out of town for a while. You can even rent out your car to make a bit of extra money.
What is the investment required? – This requires very little investment and minimal extra work.
How much can you earn? – Your earnings will be determined by the size of your property and the rental company you partner up with.
What to keep in mind? – While there is very little financial downside here, you should always be careful when letting strangers stay in your space.
3. Investing in Stocks
When you make a stock investment, essentially, you purchase shares of a company. And when those shares appreciate in value, you will get payment (or dividends) at regular intervals from the company. Since these dividends are paid per share of stock, the more shares you own, the higher your earning.
Many people are wary of investing in the stock market as there are no guarantees. But, if you diversify your portfolio and reduce risk, it can be a great way to earn you a passive income slowly over time.
What is the investment required? – When you invest in the stock market, you might have to put in some work at the start to find the right stocks to buy. Apart from this, you will also need to make an upfront monetary investment.
How much can you earn? – Profitable shares will result in high dividends for you, and can be a great way to build lasting wealth.
What to keep in mind? – There is always a bit of risk in investing in the stock market, as when the companies are not doing well, or during times of uncertainty, the value of your shares may reduce. But, you can minimize this risk by opting for investing in exchange-traded funds (ETFs) or high-dividend stocks from financially stable companies.
4. Selling Digital Products
Digital products refer to types of downloadable or stream-able media. These include templates, plug-ins, PDFs, printables, e-books, audio or video courses, or UX kits. The content of these products can vary greatly, from recipe collections to design templates and wireframes. Once this product is created, you can generate a passive income by distributing and selling them through sites such as Udemy , Skillshare or Coursera!
What is the investment required? – To have a product to sell to others, you need to put in a little bit of work at the start to create the product.
How much can you earn? – Digital products have high profit margins since you only need to make the asset once, but you can sell it as many times as you want online.
What to keep in mind? – Since there are a lot of products out there on the internet, you might have to create something unique, or something that addresses a specific market to make good money from it. You also need to know how to market your products.
5. Affiliate Marketing Schemes
Affiliate marketing is a way that you can help brands that are looking for ways to spread the word about their products. You become an affiliate to a given brand or company like Amazon, and you promote their products to your followers or readers, including a link to the products on your site or social media account.
Then you can earn a passive income from commissions for marketing their products online by gaining a piece of the profit from each sale you help to make. Thus, the more people who buy these products using your specific link, the more money you get.
What is the investment required? – While this might involve very little monetary investment, you will have to put in a significant amount of time at the start to build up a large social media following a website, blog, or growing an email list.
How much can you earn? – Affiliate marketing is a growing industry, and thus there is a lot of scope for high earnings.
What to keep in mind? – There is very little cost or risk to joining an affiliate program, and you can also easily scale up by promoting new products to your audience
6. Become a POSP Insurance Agent
A POSP, or Point of Salesperson, is an insurance agent. They work with insurance companies to sell insurance policies to customers as per their personal needs. While this requires an initial active involvement, you can also earn a passive income when these customers renew their policies.
You can find out more about the steps, requirements, and regulations for becoming a PSOP Agent here.
What is the investment required? – If you work hard initially and build up a good customer base, you just renew policies with very less effort and earn a passive income.
How much can you earn? – Your income would be based on a commission, and so, the more policies you sell, the faster you can earn a high income.
What to keep in mind? – There are not a lot of risks to becoming an Insurance POSP. Anyone with an aptitude for selling can become a POSP Agent, as long as you have a smartphone and a good internet connection. However, it is always good to remember to read up on the company you are joining, and to read any contract before signing.
Things to Know about Earning Passive Income for Beginners
A lot of people who want to make a bit more money turn to part-time jobs, freelance work, or other projects on the side. However, these require you to put in the regular and active effort. So, a better option would be to stop spending so much of your time, and to look for how to earn a passive income.
If you’re a beginner to passive income, here are a few things to keep in mind before you can start investing and making money.
It is not a “get-rich-quick" scheme – With a passive income, you can earn money without much active work, but you are not getting something for nothing. You still need to put in work or investments upfront, and this will generate income, produce dividends, interest, or appreciate in value, providing you with financial security over time.
You still need to do some additional labour – Even though most of your work and investment will be done at the start, you may still need to do some additional labour. This might involve keeping your product updated, your rental property well-maintained, or check on your stocks and investments, in order to keep the passive income flowing.
Passive income is taxable – While this kind of income is taxed differently from an active income (like your salary), it is going to be subject to taxes.
