What Is Passive Income? 10 Ideas for Earning More Money (Even While You Sleep)
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Most of us would love to earn more money, but we’re often limited by the wages our careers offer and the hours we have in each day for extra earnings. Passive income, however, allows us to earn more money without actively working for every dollar—even when you’re asleep or at the park with your kids.
“There are only so many hours in the day to work and actively earn money, whether at your job or through a side hustle. With passive income strategies, though, you can earn even more money while you sleep, commute to your day job or enjoy a family vacation, with little to no daily effort required.”
— Stephanie Colestock
Read on to learn more about what passive income is, why it matters and the best ways to make passive income.
Vault’s Viewpoint
- Passive income allows you to earn additional money without requiring much (if any) additional, active effort.
- These passive strategies can maximize your income, even if you’re limited by time.
- Many passive income approaches utilize investments or the sale of non-physical products.
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What Is Passive Income?
Passive income is money that you earn with minimal (or no) active effort or involvement. This means that you don’t have to directly work to earn those funds by going to a job, creating a product or offering a service.
How Does Passive Income Differ From Active Income?
There are two primary types of income: active and passive.
Active income is where you trade your time for your wages. This typically looks like a job where you earn either a salary or an hourly wage. You trade your work days for a paycheck; if you don’t work, you don’t get paid, and you may also be able to work more hours in order to earn more.
Passive income, on the other hand, is money that accumulates without the direct trade off of your time. This may come in the form of asset appreciation (therefore building your net worth) or actual dollar earnings. While it may take additional time to set up passive income strategies, check in on them or even update them over time, you aren’t trading your hours for dollars the way you do at a day job.
Why Passive Income Is Important
Each of us has limits to our maximum active earning potential, with our available time usually being the most limiting factor. This is where passive income comes into play.
With passive income, you can earn more money without actively trading your time for those earnings the way you do with wages from a job. These passive income sources usually include investments, digital products or automated gains that require little (or no) hands-on effort from you.
This way, you can make more money without trading more of your time for those earnings. In many cases, you can even make money in your sleep, on vacation or while you’re at your day job.
10 Ideas for How to Make Passive Income
Want to start earning passive income? Here are 10 great passive income ideas and strategies to consider and how each one can help you grow your net worth.
1. Save for the Future
High-yield savings can be one of the easiest ways to not only plan for the future and save for a rainy day but also earn passive income in the process. There are a few different types of passive income savings products to consider, like:
Each of these accounts can offer a higher annual percentage yield (APY) than you’d get keeping that money in your everyday checking account or under your mattress. By looking around at online banking institutions, you may even be able to find rates that are five to 10 times higher (or more) than the national average. Plus, interest is earned the entire time that your funds are sitting and growing—without you needing to risk your money or actively do anything.
2. Invest in Your Future
While investing is inherently more risky than putting money into a savings account, it can also be a great way to grow your savings and earn a return for the future. Your investments can include a workplace 401(k) (especially if you have a company match), 403(b) or even a private portfolio held at the brokerage of your choosing.
With the right portfolio balance, you can maximize your earnings in the form of dividends and securities returns. As you get older and closer to retirement, you can shift your portfolio allocation from more stocks (higher risk, higher opportunity for return) to more bonds (lower risk, lower return).
3. Invest in Someone Else’s Future
Another way to earn a passive return on your cash is by using it to support another business as an investor or a silent partner. By doing this, you’re simply providing capital for a new or expanding business; you aren’t responsible for making any decisions or being involved in daily operations.
In exchange for providing the startup business with capital, you’ll receive equity (partial ownership) in the company based on its valuation and how much you’re willing to contribute. When the business turns a profit, you’ll receive a portion of those net profits proportionate to your equity stake. This can provide you with ongoing passive income, though you can also sell off your equity down the line if you decide that you need access to those funds again.
4. Buy Real Estate
Real estate is one of the most popular forms of passive income, though it can also be a blend of truly passive and sometimes active, depending on how you manage your real estate portfolio. Real estate investments can be rental properties, such as single-family homes or multi-family complexes. You can also invest in commercial real estate, raw land or even opt to flip homes (the process of buying, renovating and selling) for a profit.
Whether you buy real estate to sell at a profit in the near future or plan to hold onto the property as it appreciates over time, this can be a great way to earn passive (or somewhat-passive) income.
5. Buy Into a Real Estate Portfolio
If you don’t want to deal with the hassle and risk of owning a property outright, you can also invest in real estate using your investment portfolio. Real estate investment trusts, or REITs, consist of companies that own a variety of different real estate projects. REITs may own commercial buildings—like hotels, office buildings or blended residential shopping centers—or residential buildings like apartment complexes.
When you invest in a REIT, you are buying shares of a portfolio. The trust then uses that money to fund and manage the project, and you’ll receive a portion of the profits in the form of dividends. If you ever want to get your investment back and get out of the REIT game, you can sell your shares for their current value and walk away without worrying about marketing and selling a property, finding a buyer, transferring tenants and the like.
6. Maximize Property You Already Own
While not entirely passive, one option to earn extra income without taking on another job is to utilize property you already own for passive (or passive-ish) income. This might include renting out a room in your primary home to short- or long-term tenants or building an accessory dwelling unit (ADU) in your backyard to rent to tenants. You could also put some or all of your property on a platform like Airbnb or VRBO to use as a vacation rental for others, especially if you own a second home.
Other property rental options include renting out your car through Turo, renting out your backyard to pet owners through an app like Sniff Spot or even renting out your pool through Swimply.
7. Start a Blog
If you have an interest in a particular topic and enjoy writing, you can start a blog that can earn you passive income over time. Blogs primarily earn affiliate income, either through page views, downloads or clicking through on published links to affiliate companies. Once blog posts are published, they can continue earning affiliate income indefinitely without the need for additional active work.
8. Create a Course
Is there something you’re particularly good at or knowledgeable about? Maybe you have a particular skill or are good at explaining difficult concepts to others. In this case, creating a course could be an excellent way to earn recurring passive income.
You can create an online guide, make a downloadable e-course, write a book, set up a series of video lessons and more. Once these courses have been created and published, you’ll earn passive income each and every time someone downloads them. You can either publish on your own website or on platforms like Udemy, Skillshare or Teachable, depending on the format and topic.
9. Lend Your Own Money
Lenders are typically banks and other financial institutions, but if you have money just sitting around and waiting to grow passive income, you could also become a lender. Peer-to-peer platforms are one of the easiest (and most popular) ways to lend your own money, and they offer great opportunities to invest in both individuals and small-business owners.
When crowdfunding or P2P lending, you can usually choose between an automatic investment model or hand-pick the loans you want to invest in. Returns can vary based on the amount you lend, the investment return timeline and even the risk involved in the project.
10. Automate Your Stock Trading
Buying and selling stocks can be a great way to earn money on share fluctuations. You can either teach yourself how to trade or automate the process to earn returns in a hands-off way.
Many online and app-based brokerages offer automated stock trading. You can also utilize features like limit orders to buy and sell shares at predetermined prices without ever needing to watch market trends.
Frequently Asked Questions
What Is the Best Passive Income for Beginners?
The best passive income strategy for beginners is one that is both easiest to get into and easiest to manage. For many passive income earners, this could mean investing in things like REITs, which offer a clear return strategy without the need to manage assets on a regular basis.
How Can I Make $1,000 a Month in Passive Income?
Once you’ve established one or more passive income streams, earning $1,000 or more in passive income is absolutely possible. This can be done with a combination of investment dividends and returns, the sale of non-physical products (like e-courses, books, digital downloads, etc.) or affiliate income, among others.
Is It Possible to Make Money While You Sleep?
Once passive income strategies are implemented, it is absolutely possible to earn money without active input or effort. This means you’ll be making passive income while you sleep, travel, spend time with loved ones or even work at your day job, further amplifying your efforts and earnings.
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