Over the years, I’ve been a huge advocate of passive income. The idea of making money and being hands-off is a great way to gain financial independence, diversify how you make money, and gives you more time back in your calendar!
Is it still hard work? You bet!
Starting to build passive income takes time. There’s often a lot of research, planning, and investment up front. Once you set it up though, you can earn your money for a lifetime with just a little ongoing maintenance.
If you want to learn some of the basics, feel free to go back and read my earlier post.
This week I’ll cover an end-to-end view of how you can set up passive income streams. For each one, I’ll also outline some skills required and some resources to help get you started. This post is in-depth, detailed and can help you start your own ideas.
Let’s not waste any more time!
How can you make passive income?
To make this easier to read, I’ve broken out the list of passive income ideas into three buckets.
- Digital products (a.k.a. you create digital tools that make you passive income)
- Businesses (a.k.a. you build a company that will earn you passive income)
- Monetary ways (a.k.a. you buy an investment that makes you passive income)
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Digital Products (a.k.a you create digital tools that make you passive income)
Category: Digital products
Resources: Siteground (blog hosting)
Do you enjoy writing? Do you have a unique perspective to share with others? Why not consider writing as a means to generate income!
As someone who is in this area, let me dispel any myths out there… Creating and maintaining a blog is not easy! You certainly don’t do this type of thing for the money. A lot of people go 2 or 3 years barely making anything at all.
So how does a blogger make money? The most common form is advertising – either through an “online broker” like Google’s Adsense or by building direct partnerships with brands you know and trust.
You can also earn what’s called “affiliate income.” By helping refer products that are relevant to your audience, you can collect a fee. At no extra cost to your audience, you can earn a commission if they buy the product.
You might be wondering, “How is income from blogging passive if it’s so much work”? It’s simple. The content you release will live long beyond the publishing date. Advertising tied to that content can generate income for years as long as you maintain website traffic.
2) Writing an eBook
Ever dreamed of being an author?
With the rise of the internet and online channels like Amazon, just about anyone can author a book. Pair that with social media and a website and voila! You’ve got your very own niche marketing outlet.
Sure you might not strike it rich (or maybe you do!) but either way, a well-written niche book can help unlock some healthy passive income.
3) Create a course
Category: Digital products
Are you an excellent communicator, and have a specialized skill? Why not consider launching an online course? There’s a big market out there for affordable, yet relevant digital courses.
Ordinary people, like you and I, are often looking to develop a very niche set of skills, either professionally or personally, without having to attend a formal workshop or college. And if you’re like me, you also don’t want to spend an arm and leg to take part in one!
That’s why online courses are perfect! As long as the course is relevant, specific, and actionable, it could work!
With the explosion of the internet, you and I have access to a much wider audience than say 20 years ago. Companies like Udemy and Teachable can help give you the tools necessary to get your course up and running quickly.
And the beauty of building an online course is that it can provide ongoing passive income with very little maintenance. Sure there’s a ton of effort to build content, but once that’s done, you’re only required to market it and optimize it based on ongoing feedback.
One word of caution with this though – to dive into this space, you often need authority on the topic you’re discussing. Sure anyone can create a course, but it’s those with an in-depth knowledge, expertise, and are highly visible that build the most popular courses.
Category: Digital products
I believe that this is one of the most significant “up-and-coming” mediums for people to share content. In a world where multi-tasking is the norm, people can quickly put in their earbuds and catch up on their favorite topic on-the-go.
Personally, I only started getting into podcasts about eight months ago. I didn’t quite see the benefit before. But now that I’m on it, I’m hooked!
So how does passive income fit into podcasting?
Well, most people make money two ways. Firstly, and most popular, you can place ads in the beginning, middle or end of your podcast. Businesses pay you a fee to speak authentically about their product (quite often it’s not scripted, and the host refers to “speaking points”). Prices vary by industry, and the type of audience you’re going after, but you can make on average between $20-$25 per 1,000 downloads.
A second way to earn income through podcasts is by asking your audience for a regular donation. For your audience, this gives them a way to help support you and show appreciation for what you’re doing (especially if you don’t put ads in your message). It gives loyal listeners who value your content a chance to pay you back. A small donation (like $1 per episode, or $1 per month) for useful content isn’t much in the grand scheme of things.
Businesses (a.k.a. you create a company that will earn you passive income)
1) Build an e-Commerce store
Resources: Shopify (online store platform)
Now this one is probably the hardest on this list. Why?
Typically you should have a product in mind and built before selling. And if you’re not selling your own product, and instead of acting as a re-seller, you need to be clear how you’re going to buy your product cheaply.
I’m not saying it’s impossible. There have been a lot of people that have built successful businesses in e-Commerce, but you need to hit the right niche!
The most crucial element in building an e-Commerce store do your research! Know the product specifics, and the finances inside and out. Develop a business plan and ensure the math adds up.
Unlike many things listed here, you’ll also likely need to spend a lot of money before you see any return. That being said, if you can crack the nut, there’s a lot of good money to be made running an e-Commerce site!
2) Become a silent partner (limited partner)
What’s better than owning your own business? Owning it and not having to do anything for it!
That’s what a limited partner or “silent partner” does.
Instead of running the day-to-day aspects of the business, a silent partner offers strategic experience, or often money, in return for a piece of the profits.
This is very different from a loan. As a silent partner, you have a vested interest in the outcome of the business and you also don’t have a claim to your money if things go sideways… you’re in it as an owner, not a lender! You’re putting up money for a piece of future profits.
To do this, you might invest in a start-up… or even a friends business. In either case, a silent partner needs to do a lot of upfront research to be successful. They also need to be very clear in building a proper legal agreement, so both parties are protected.
Monetary ways (aka you buy an investment that makes you passive income)
1) Real Estate
Category: Monetary investment
Real estate is an excellent way to earn passive income… especially if you like to invest in something that’s tangible.
When most people think of investing this way they think of Rental Property. It’s no wonder, given the recent rise in home prices!
Typically these investments are leveraged (you own a part and borrow the rest). That means you can make a lot of money on your investment if the price moves in your favor!
The two challenges with this type of investment though are you can’t sell it very fast, and it can be expensive to buy/sell. You certainly wouldn’t do so every 3-5 years! Because of this, owning a rental property might not be for everyone.
Another popular way to make passive income through real estate is investing in REITs (Real Estate Investment Trusts). These are real estate companies that trade on the stock exchange, making it easy to buy and sell anytime.
REIT’s own several pieces of real estate and across several sectors (including commercial). This helps you diversify your investments. REIT’s are also required by law to pay out over 90% of their income to its investors, meaning you can count on a regular steady stream of revenue from them.
Both rental properties and REIT’s are good ways to generate passive income. They differ in several ways though. One is hands-on, while the other is much more passive. One is focused on one property, while the other is diversified. Neither option is better than the other… they’re just different. Ultimately you’ll have to make the call on which you’d prefer!
2) Dividend Stocks
Category: Monetary investment
What are dividend stocks?
These are stocks that are regularly returning some of their profits to investors. Maybe every month, or every quarter. Contrary to popular belief, not all businesses do this!
Some fast-growing businesses would rather keep those profits and reinvest them instead of passing them to you and I, so they can grow faster (think tech companies).
Buying dividend stocks are a great way to generate passive income. Not only are you often buying a piece of a high-quality business, in hopes for the share price to go up, but you also get a piece of its profits regularly.
If a business is growing, why shouldn’t I benefit from it now, rather than waiting one day to sell my stock? Because of this, I think a good dividend producing stock is critical in any investment portfolio.
Related post: The gems of the stock market – dividend growth stocks
3) Peer-to-Peer (P2P) Lending
Category: Monetary investment
P2P lending is a new trend out there. It’s an investment that you can make by lending money to people or businesses through an online “marketplace.” Ordinary people like you and I can issue a loan (or most likely part of a loan) to someone else. This idea has existed in the US and Europe for some years and just starting to make traction in Canada.
P2P lending offers investors the chance to earn a higher return than they might with a bond (some sites are showcasing 6-8% return!). Performance is often tied to higher risks though, as most of the loans through P2P lending are not guaranteed.
As an investor, you have a choice of which loans you’d like to fund so you can do your research before signing up. Because of this, it’s often smart to invest in 20+ loans to diversify your investments.
P2P passive income can be complicated though. To make sound investing decisions, you’ll likely have to know your way around numbers, including financial statements. The extra time and energy required to manage it can be rewarding though.
SWP Action Steps
As I close Part 2 on the series on passive income, I hope I’ve been able to shed some light on why passive income is important. I also hope I’ve raised a few ideas that you can run with in the future.
As you plan your passive income streams, I’d ask you to keep in mind three things:
- Know yourself and do your research – Not all passive income streams are right for everyone. Be honest with yourself. If you don’t like writing, don’t start a blog.
- Make sure you’re in it for more than money – Money as a motivator gets old and when a lot of passive income streams require you to be in it for the long-game. You need to make sure something other than money is keeping you going.
- Don’t be afraid to start – One of the most important things is to get started. Will things be perfect right away? Absolutely not. Don’t let fear hold you back from what could be an excellent opportunity waiting.
Think it through
- What skills do you have that may lend itself to one of these passive income ideas?
- Do any gaps exist that you want to learn a little more about?
- What would prevent you from starting a passive income stream today? How can you work to overcome it?
- The gems of the stock market – dividend growth stocks
- Successful investors think differently – they think like an owner
- The high cost of waiting to invest – why are you waiting?
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