Whether you’re hoping to make a little more money each month or are operating a side business, passive income may be a terrific approach to create additional cash flow. If you choose to take a voluntary leave of absence from work, if inflation continues to erode your buying power, or if you unexpectedly lose your job, passive income may help you make more money during prosperous times.
Additionally, creating wealth via passive income is a tactic that may be appealing to you if you’re concerned about having enough money saved for retirement.
If you’re considering developing a passive income stream, take a look at these tactics and discover what it takes to succeed with them while also being aware of the hazards involved.
1. Compose an electronic book
Writing an electronic book may be a great way to benefit from the cheap cost of publication and even use Amazon’s global distribution to bring your book in front of millions of prospective customers. Because they depend on your own knowledge, e-books may be quite short—perhaps between 30 and 50 pages—and inexpensive to produce. Using an online platform, you can rapidly create the book and test-market several titles and pricing points. However, most of the value is gained by including additional e-books in the mix, which attracts more clients and gives them access to a constant flow of information, much as when creating a course.
Possibility: An e-book may serve as a means of promoting your other products, such as audio or video courses, additional e-books, a website, or perhaps more expensive seminars, in addition to providing readers with useful knowledge and value.
Risk: There is a lot of competition in the e-book market; the Kindle alone has over 4 million digital titles. You must promote your e-book on your own website, via promotions on other websites, through media appearances or podcasts, and through other means if you want to gain a following. You could labor hard up front and get little in return, particularly in the beginning.
Can an e-book generate passive income? Indeed. According to John H. Graves, author of “The 7% Solution: You Can Afford a Comfortable Retirement,” you don’t have to be a writer alone; you also need to be a marketer. Graves argues that marketing is the key to book sales. Additionally, keep in mind that Amazon keeps 30% of book revenues for every dollar you spend on publishing and marketing it, advises Graves. Although e-books might be a fantastic choice, they are not a simple or reliable source of money. Writing many books, creating a company around them, or even integrating the book into your business to support the other components may all be beneficial.
2. Make an internet photography business
Although selling photography online may not seem like the most apparent way to start a passive company, you could be able to increase your efforts if you can consistently sell the same images. You may collaborate with a company like Getty Images, Shutterstock, or Alamy to do that. The site must authorize you before you can begin, after which you license your images for use by the person who downloads them. You are then compensated by the site each time your picture is used. You’ll need images that speak to a certain demographic or depict a particular scenario, and you’ll need to determine where the demand is. Photographs may include landscapes, models, imaginative situations, and more, or they may document actual occurrences that might be featured in the media.
Possibility: Having the ability to expand your efforts is one benefit of selling or licensing your photographs via a platform, particularly if you can provide images that will be in high demand. This implies that you could be able to sell the same picture hundreds or even thousands of times.
Risk: You could upload hundreds of images to a website like Getty Images, but none of them might result in significant revenue. You must continuously post photographs to determine what purchasers are interested in and ready to pay for, since a small number of them may account for all of your earnings.
Going out and taking pictures, processing them, and staying up to date with the events that might eventually drive your income may take a lot of work. Additionally, it might be challenging to stay motivated: Every subsequent picture could be your lottery ticket, but it’s very unlikely to be.
3. Develop an application
Making an application may be a method to spend effort up front and get long-term benefits. Your software may be a game or one that assists users in completing a challenging task. Once your software is out to the public, consumers will download it and you will be able to make money.
Possibility: If you can create an app that appeals to your audience, there is a lot of potential. You’ll need to think about the best way to make money with your app. For instance, you may charge customers a little amount to download the app or employ in-app advertisements.
To maintain the app’s popularity and relevance, you’ll probably need to introduce little enhancements.
danger: Using your time in an unprofitable manner is perhaps the largest danger here. You have less financial risk if you invest little or no money in the project. It’s a competitive business, however, and applications that are genuinely successful must provide consumers with an engaging experience or value. If your app gathers any data, you should confirm that it complies with privacy rules, which vary by country. Additionally, applications’ popularity might be fleeting, so your revenue flow can run out sooner than you anticipate.
4. Establish a YouTube channel or blog
Are you an authority on visiting Thailand? An expert in Minecraft? A swing dancing sultan? Turn your interest in a topic into a YouTube or Instagram channel and use sponsors or advertisements to make money. Choose a well-liked topic, even a little specialty, and master it. As you gain recognition for your captivating material, it may eventually provide a consistent revenue stream, but first you’ll need to develop a suite of content and attract an audience.
Possibility: By using a free or very inexpensive platform, you may employ your excellent content to grow your following. Your likelihood of becoming a person to follow increases with the uniqueness of your voice or area of interest, which will attract sponsors.
Risk: You’ll need to start by developing content and then continue to do so, which takes time. Additionally, having a strong interest for your subject matter can help you stay motivated to keep going.
The main drawback is that, if there is minimal interest in your topic or specialty, you may find yourself investing a lot of time and money with little return. You won’t know for sure unless you try, but your field of expertise could be too specialized to really attract a lucrative audience.
5. Make money online by selling designs
Selling products with your printed designs on them might be a lucrative endeavor for you if you possess creative talents. Companies like CafePress, Vistaprint, and Zazzle let you sell products with your own designs, such as t-shirts, caps, mugs, and more. On Etsy, you can even sell.
Possibility: You might begin by creating your own designs, gauge market demand, and then grow from there. You may be able to take advantage of the growing interest in a current incident by creating a shirt that satirically parodies it or reflects the mood of the moment. To promote your products, you may also create your own online shop using a platform like Shopify.
Risk: Investing your money in inventory is one risk, but you can minimize it by partnering with printing businesses that let you send goods without having to buy the goods yourself. (However, if you buy the goods yourself, you may be able to negotiate better prices.) You run the danger of spending a lot of time with little return.
Ideas for those looking to generate passive income
Because markets move, it’s critical to do thorough research, keep an eye on your assets, and keep an eye on variables that affect the market, such as interest rates. Additionally, you should be aware that additional income may cause you to fall into a higher tax rate.
Lynch states, “If I were in a high tax bracket and I was making passive income, I would probably be looking at things that are tax efficient like municipal bonds,” which are free from both federal and sometimes state taxes.
6. Invest in dividend stocks
Companies that provide dividend-paying stocks to their shareholders make payments to them on a regular basis. Owning stock entitles you to receive dividends, which are paid out by companies on a regular basis from their earnings. Since dividends are paid out per share of stock, your payment will increase as you hold more shares.
Possibility: Owning dividend-yielding stocks may be one of the most passive ways to generate income since the income isn’t tied to anything other than the original financial commitment. Simply put, the funds will be sent to your brokerage account.
Risk: Selecting the appropriate stocks is the difficult part. Companies that pay out very large dividends, for instance, may not be able to maintain them.
According to Graves, too many beginners enter the market without fully researching the firm issuing the shares. “You must research the websites of each company and become familiar with their financial statements.” Nevertheless, there are methods to purchase dividend-paying stocks without devoting a significant amount of effort to researching businesses. ETFs, or exchange-traded funds, are what Graves suggests using. Because ETFs diversify your assets, a company’s payment reduction won’t have a significant impact on the ETF’s price or dividend. These are a few of the top ETFs available. Another concern is that businesses may reduce dividends as a result of economic crisis. Diversified funds may not be as heavily hit.
7. Establish a chain of bonds
A bond ladder is a group of bonds that mature over a number of years at various points in time. You may reduce reinvestment risk—the danger of reinvesting your money when bonds provide too-low interest payments—by using staggered maturities.
Possibility: For many years, seniors and those close to retirement have been drawn to bond ladders, a traditional passive investment. After the bond matures, you may “extend the ladder” by rolling that principle into a new series of bonds, and you can relax and enjoy your interest payments. For instance, you may begin with bonds that are one, three, five, and seven years old.
Bonds with maturities of two, four, and six years remain after the initial bond matures in a year. You may roll out to a longer length, like an eight-year bond, or utilize the profits from the just matured bond to purchase another bond for another year.
Risk: Bond ladders remove one of the biggest hazards associated with bond purchases: the possibility that you may need to purchase a new bond when interest rates aren’t favorable when your current bond expires.
Bonds can carry additional risks. Corporate bonds are not guaranteed by the federal government, unlike Treasury bonds are, therefore in the event of a business fail, you can lose your principal. In order to diversify your risk and remove the possibility that any one bond might devalue your whole portfolio, you should purchase a large number of bonds. An increase in general interest rates may cause the value of your bonds to decline. which provide a diverse portfolio of bonds that you can arrange into a ladder to eliminate the danger of a single bond damaging your returns, are the go-to option for many investors due to these worries.
8. Put money into a savings account or high-yield CD.
Investing in an online bank’s high-yield certificate of deposit (CD) or savings account is one of the simplest methods to earn high-interest passive income. Making money won’t even need you to leave your home.
Possibility: You should quickly look into the finest CD rates or top savings accounts in the country if you want to maximize your investment. Interest rates offered by online banks are often greater than those offered by local banks. Additionally, your money will be safeguarded up to $250,000 per person, per ownership type, and per bank in the event of a bank failure if you choose an FDIC-insured bank.
Risk: Your principal is secure as long as your bank is FDIC-backed and your account stays within FDIC restrictions. Investing in a savings account or CD offers the safest return possible. Nevertheless, inflation may outweigh that return, or the interest rate you’re getting.
9. Establish an annuity.
Setting up a steady income stream with an annuity may be a wise choice. In a conventional annuity, you pay an insurance provider, which will either immediately or later give you a monthly income stream.
Possibility: Annuities may be set up in a variety of ways, according on your specific requirements. The insurance provider may arrange for an instant monthly payout, or you can designate the payment to begin, for instance, when you retire. Depending on the performance of the underlying assets, you may also set up an annuity with a variable payment or one with a fixed return.
Annuities may be set up to pay out for a lifetime or for a certain amount of time, such as 20 years. When you pass away, it could stop making payments, or it might keep making payments to your spouse. There are several choices.
Risk: Annuities are quite complicated and, once established, may lock you in for a very long period, but you may be able to exit one by paying a hefty penalty. To completely grasp the benefits and drawbacks of the particular contract, carefully read the tiny print.
10. Invest in a closed-end fund for municipal bonds
Municipal bonds provide investors with tax-free dividend income in return for funding state and local government initiatives. Many of these bonds are owned by a closed-end fund that specializes in this segment of the market. The fund then borrows money to purchase further bonds, increasing the total return. A closed-end fund is the most passive kind of income, much as investing in dividend funds or CDs.
Possibility: For those in high-tax states or tax brackets, a closed-end municipal bond fund may be an alluring option to generate tax-free income. Although a fund holds a range of different bonds, which helps to lessen overall risk, these funds usually offer higher dividends than an ordinary municipal bond since they employ leverage, which is risky in and of itself. In order to lower risk, closed-end funds should often be bought at a significant discount to their net asset value.
Risk: When interest rates rise, bond prices and, therefore, bond fund prices fall (and vice versa). However, the leverage of a closed-end fund amplifies this impact, meaning that in a downturn, the average fund will fall more than the average bond. In order to cover rising borrowing costs, the bond fund could also have to reduce its distribution, which would further depress the fund’s value. Because interest rates change often, a closed-end fund may be volatile.
Lynch cites this as the reason he would rather purchase municipal bonds directly than via a closed-end fund. “If I purchase a muni bond today and keep it for X years, I will know that it will provide me with X of my yearly income as a percentage. “I get my principal back at the end,” he adds. “In a closed-end fund that is traded on the open market, I will receive whatever anyone is willing to pay for it at that particular moment.”
Disclaimer: The only intention of this article is to provide knowledge and education. Financial, investment, or legal advice is not what it is. Returns from passive income are not certain, and there is risk involved. Before making any financial choices, readers should do their own research or speak with an expert.