If you do not want to quit your job or start a business full time, there are some smart ways to earn a passive income in addition to your employment.
On this page you will find tips on how to scrape together your first million or earn extra money every month. Start generating passive income starting today. Sounds like a sales-pitch, but it’s true, with hard work of course.
List of tips on passive income.
There are many different ways to earn a passive income. Here is a list of some common methods:
- Sell any type of product.
- The product can be something you have developed and then can sell without you having to spend a lot of time on it.
- Write e-books and e-courses, or regular books.
- Capital investment (shares, mutual funds, other financial instruments).
- Invest in real estate.
- Rent a room in your home.
- Affiliate marketing.
What quickly strikes one when looking at lists of ways to earn a passive income is that most of the options are available to you regardless of whether you have any start-up capital.
Although you need a small amount of money to spare to start investing in stocks or mutual funds, even a large passive income can be established with small funds.
As your passive income increases, you will have greater resources to broaden your income stream, for example by investing in real estate (which in most cases requires slightly larger sums).
However, the best thing is that you focus on individual projects to begin with. Build a passive source of income, then you can build on with additional projects.
But what is a passive income?
Passive income is used to describe income that is paid out without the recipient having done any work that can be directly linked to the payment itself.
Interest, dividends and royalties, for example for books or music, are passive income.
Income from companies you own, but which you do not work in, or with, as well.
A passive income does not require active participation – in the daily operation – from the person who earns the passive income.
The basis for passive income must be created or compiled at some point. Of course, it requires work or investment in some form.
Some therefore want to claim that (completely) passive income does not exist, but it is a play on words.
Most people do not see the holiday pay as a passive income, even though it may fit the description above. It is therefore reasonable to put some time horizon on how long a passive income gives a return after we have done the basic job itself.
The perfect passive income has the following three characteristics:
- The effort we make, often long before we start making any money, to create our passive income should have a high probability of success.
- The return must be stable over “longer periods”.
- The income we have from passive income must forever be able to be reinvested in an effective way, if we do not choose to withdraw the income.
Since I live in Sweden, we also need to relate to the tax effects on our passive income.
The tax on passive income differs. More on that later.
If you have not yet grasped the concept of passive income, you can imagine that it is a type of income that makes you make money if you are dead.
Passive income contributes to income in the same way as all income, but has many benefits.
There are also a lot of myths surrounding the concept of passive income.
See the summary below.
What are the benefits of having passive income?
Having a passive source of income where you do not have to do active work can change your life. Here are some of the benefits.
- Financial security: Prepare for retirement, pay off debts or save for your children’s education with an extra source of income.
- Reduce stress and improve your mood: A steady income frees you from the stress that comes with insecurity. As you make more money, your mind shifts from “How do I survive?” to “How should I enjoy my life?”
- Strive for your passion: What are your dreams? Do you have a project you have always wanted to work on? With passive income, you can focus more on your passions and live a more fulfilling life.
- Geographical freedom: A passive income does not depend on where you are. You can travel anywhere in the world and money will continue to flow into your account. Who does not want to make money while lying on the beach?
- Temporal freedom: Do what you want when you want. When your income is not time-dependent, you can work the hours that suit you best. Or not work at all!
Disadvantages of passive income
- Highly questionable information and myth-making: make it difficult to find relevant information that will help you build your passive income.
- May require a lot of work: before they pay dividends, which makes it difficult to know if you are doing the right thing and if you will succeed.
- Some passive income: – income from service that cannot be wisely reinvested – is heavily taxed.
There are many different types of passive income and what suits one person may not suit someone else.
Of course, it can easily get messy if we use a term that can mean a number of different and quite different things.
But there is also the opportunity to see and learn from others in it by different angles will teach us more about how we can think about passive income.
This is exactly the whole we are going to look at here and see what passive income actually means from many different perspectives.
And then we will discuss how to get passive income in the smartest way.
How to create passive income?
You can create passive income in different ways.
You basically always need to make some form of initial investment. That investment can consist of money or work and lays the foundation for your passive income.
Passively, passive income can be divided into four broad categories:
- Product earnings
- Interest rates
How many passive sources of income should you have?
Start with a passive source of income.
Choose a method from the list below and focus all your attention on building it into a passive money machine. Once you have an income stream, you will have more time and money to be able to strive for others.
The number of sources of income you should have depends on you and your goals.
I recommend that you set a goal that 10% of your income should be passive. This requires less effort at first and allows you to start building your savings.
This is a reasonable goal for people who work full time.
Important tips on passive income
DO NOT CHOOSE a passive income method before reading these tips.
1. Diversify your passive income streams
There are two types of passive income.
I recommend that you choose a mix of these two:
Passive income from your capital
Use your money or your property to make even more money.
You can buy shares, rent out property or invest in a business and start making money right away. Some of these methods require you to have a start-up capital to get started. Others do not demand this.
I cover everyone in the list below.
Passive income from your skills
You can sell your skills to create passive income.
For example, you can write an e-book, put together a course or create a website. It takes more time to make money this way, but you do not need any money to get started.
2. Beware of scammers
No legitimate source of passive income can make you rich fast. But there are many scammers who want to make you believe that. Remember that if it seems too good to be true, it probably is.
Creating a real passive income requires dedication and time.
3. Do not forget your passive income streams
Once you have earned a passive income, this does not mean that you can forget about it and that it will continue to earn money forever.
You need to monitor and manage your sources of income (or pay someone to do it for you).
If you do not do this, your income stream may decline.
For example, if you have a popular website, you need to be aware of the competition to avoid losing customers.
4. Do what you can do, not what you want to do
If you can create passive income by following your passion, this is great.
But most of us do not know this.
Take advantage of the resources and expertise you have. Then it will be much easier to make money.
For example, imagine that you are good at accounting, and perhaps dream of writing a novel and being able to make money from sales.
However, it is much more likely that you will have greater success by writing an e-book on how to make more money on your tax return.
5. Always think long-term
Generally, you do not make big money in the short term through passive income.
But over time, they can grow and become real money machines.
Another way to say this: Be patient.
If you look to the future (5 years, 10 years and even 20 years ahead), you will have a much better chance of creating a more permanent income stream.
16 ways to earn passive income
How to create passive income and are there characteristics of passive income that make it more or less interesting?
1. Create a blog
If you are passionate about a hobby, you can start a blog or affiliate page that informs about your topic.
You can write interesting articles to help other people get started or guide them to great products and services. When you have traffic, you can sign up for GoogleAdsense and place some automated ads.
Every time a user clicks on an ad, you earn a penny which is then paid out to you every month.
You can also choose to use affiliate links to earn commissions on the traffic that leads to an end. The source of income is almost passive with recurring revenue, but you still need to update your blog occasionally and get good links to be visible in the search engine.
By law, you must also book and declare your income and then pay taxes. I cant answer how yo do this, because I dont now which country you are from.
If you are going to start your own page, WordPress is recommended as a CMS and a web host with a .com domain.
You then rent your own domain where you have 100% control, which means that you can also sell your website in the future.
2. Affiliate marketing
Affiliate marketing is a method where you make money by advertising other people’s products.
You do not need to have your own product or service to do this, which means that you have no costs, no obstacles to get started and no start-up fees.
There are millions of affiliate marketers who earn tens of thousands of dollars a month just by directing web traffic to amazon.com and other sites.
All you need to do as an affiliate marketer is create a website and advertise a product.
When someone visits your site and buys the product, you get a commission.
3. Start a YouTube channel
If you create your own YouTube channel where you teach knowledge or entertain people, you can make money from ad clicks or the number of subscribers who follow you.
Felix Kjellberg or “PewDiePie” as he calls himself, has earned over USD 20 million in his companies Pewdie Holdings AB and Pewdie Productions AB.
He entertains his viewers by filming himself playing computer games.
The advantage of YouTube is that the video format gets more attention and is easier for people to absorb. Another advantage is that you record a video in 5 minutes, which is faster than it takes to write an interesting article.
Since Google owns YouTube, they like to place videos at the top of search results.
4. Invest in cryptocurrency
Bill Gates has called cryptocurrency a “technological test of strength”.
This is the future of money and banks, and it is also a great way to make money on investments.
Today, there are thousands of different cryptocurrencies that you can buy and sell just like stocks in the stock market.
Because the value of cryptocurrencies fluctuates a lot, you can make quick trades and make your investments grow by up to 20% every month.
5. Peer-to-peer lending
In practice, you act as a bank and lend money to other private individuals.
In order for these people to borrow money from you, they pay an interest rate of over 6%, where you get the biggest cake and the loan intermediary a smaller part.
Investing in loans is risky because there are no collateral and the people who borrow from you may not repay the money.
The loan intermediary tries to limit the risk by spreading your capital over many people, but the personal risk and bankruptcy risk for the loan intermediary are still there.
Investing in P2P loans is still a very passive income that is a good alternative to a troubled stock market or low savings rates on savings accounts.
You can usually get a 5-10% return on your investment in P2P loans.
6. Invest in stocks
Investing in stocks is one of the most common, and easiest, ways to earn a passive income.
You then usually have a long-term investment strategy at the same time as you invest in well-established companies that regularly make dividends to their shareholders.
Below are some of the best ways to make money grow in the stock market:
- Dividends: Some shares pay dividends, which means a payment per share that you receive just because you have invested in them. If you buy 1,000 shares that give a dividend of USD 0.5 per share, you earn USD 2,000 a year as a simple passive income (dividends are made 4 times a year).
- Index funds: Investing in index funds is the safest and most passive way you can make money on current stocks. The annual return is around 7% and the fees are low.
- Mutual funds: Mutual funds involve a slightly higher risk than index funds, but they can generate greater income.
7. Own a larger company and receive passive dividends
Building a company takes time and energy, but for those who succeed, a larger company can become a passive income with both high salaries and high dividends.
Those who succeed in establishing a corporate culture and employing a good CEO can renounce operational responsibility and instead invest in being chairman of the board and owner.
By setting goals for its CEO and then following up the development with reports every month, the company can take care of itself.
The problem many entrepreneurs have is to let go of control and dare to trust others.
If you succeed, the family can take out lower salaries as board members and pick out high dividends every year.
Just a video if you wanna take a little break from reading:
8. Create an app
You do not have to be a genius to create an app and sell it through the App Store.
If you have a good idea, you can hire a developer to build your app for you.
Then you can upload it to the App Store and start making money.
9. Write an e-book
You have some knowledge of something that is valuable to others.
Whether it’s cooking, carpentry or fun facts about cats, someone wants to hear what you have to say. And they pay you for it.
You can write an e-book using Google Docs or Microsoft Word and sell it on Amazon or through your blog.
It’s digital, so all you have to do is upload it, set a price and spread the word. E-books also do not have to be long. Many profitable books contain less than 20 pages.
10. Sell your designs on Redbubble
Do you have an eye for design?
If so, you can make money selling your designs on print on demand sites.
People are always looking for something fun to add to their wardrobe. You dont even have to promote it, Redbubble does it for you. And you dont even have to be good at design, I use place it that let’s me use thousands of design for free.
A tip, that I tried but I gave up after 20 designs, is to download all the designs from place it and put it up on Redbubble. Your chances of getting sales will definatily go up by a lot.
11. Host Airbnb
If you live in a tourist-friendly area, you can earn good money from rental income through Airbnb.
Charging per night can make you earn 10 times more than compared to if you were to rent out monthly to a tenant. You can rent out an entire property or a room in your home.
Airbnb handles the financials and deposits your earnings directly into your bank account.
It’s easy to get started and costs you nothing!
Hosting Airbnb requires a lot of supervision and maintenance as new guests are constantly arriving. I recommend that you hire a manager for your Airbnb property.
12. Passive income from rental properties
Getting rental income every month from tenants is a dream for many.
Since the 1990s, there have been many private individuals who own multi-family houses or terraced houses in limited companies or as private individuals.
Some choose to live in one of the apartments themselves and others choose to live at a safe distance.
Tenants can be demanding and usually call about everything from light bulbs, blockages in the drain, air source heat pumps that do not work, etc.
They can also ring your doorbell on a Sunday night.
Properties also need regular maintenance of facades, roofs, windows, bathrooms and kitchens. It is good if you yourself are handy and can fix most things, then the profitability goes together.
13. Become a quiet business partner
Do you have a friend who needs USD 1,000 to start a home bakery?
You can give them money in exchange for a percentage of the ownership of their business (and of the profits). Many start-ups are looking for quiet business partners.
You can become the owner of 10-20% of a start-up company if you make a good investment.
If the company is doing well, then you have an unlimited income stream.
14. Create an online course
Creating an online course is similar to writing an e-book — but with much greater income potential.
A course can include everything, such as e-books, tutorials and videos. It is a resource for anyone who wants to achieve a certain thing or become an expert on something.
An example of a course might be: How to create a profitable website for affiliate marketing.
Many online courses are sold for thousands of dollars. If you have something valuable to teach others, an online course may be the best way to generate passive income online.
15. Put the money in a high interest rate account
This is the best way to easily create a passive income.
Your money is probably already in the bank, so why not earn some interest?
With a high interest rate account, you can earn around 1% in interest annually on your money.
It’s not much, but it’s literally making money on nothing. Over the course of your career, you can earn hundreds of dollars just by switching bank accounts.
16 Search the internet with Swagbucks
How much time do you spend on the internet every day?
By using the search engine on swagbucks.com you can get paid for the surfing time you already spend.
You may not think you’re that much online, but you probably are.
On average, we spend over 4 hours online every day! And this will be added quickly during the week. Many of Swagbuck’s users earn over USD 60 a month.
The probability that you will succeed in creating a passive income
Passive income is fantastic when they are in place and doing what they are supposed to.
But it can take quite a while to get there.
If then the probability that your bet bears fruit is very low, the method is less interesting, I think, even if it is theoretically possible.
Investing in an index fund, fixed income securities via Robinhood, or real estate feels to me like relatively safe cards compared to trying to sell a course online and believing that it will be a success.
We will spend more time criticizing the concept of passive income further down, but I can already say that the hype that is based on everyone being able to obtain a passive income via the Internet leaves something to be desired.
The very probability that you will succeed (which is low), the work effort required (often high), together with the earning potential in what you do (low) makes many digital business opportunities quite dubious.
Keep reading and I will develop further!
It is usually better to take an extra job, tax the money and deposit the surplus in shares, than it is to think that you will be able to earn a fortune by creating a passive income through a website.
But if it was to read more about the possibilities of making money online, you should not give up reading here.
I return to the question below.
Just to be careful, I make the following note:
It is of course possible to do away with yourself completely by investing in shares, but over time and by following relatively simple advice, you should be able to create passive income by investing wisely.
To reinvest their passive income
If you do not take out your passive income – because you may have the goal of building up your passive income over time to an ever-increasing amount – then it is a clear advantage if the passive income can be reinvested easily.
For stocks and fixed-income securities, this can be made ridiculously easy.
Funds, for example, reinvest your returns automatically. Income from e-book sales is not as obvious, to take an example from the Internet environment.
Of course, it is possible to take the income from their book sales and get a shadow writer who writes another book.
But nothing goes by itself.
Tax on passive income
If we continue to discuss the example with e-books – or courses online – then we have an example of something that is very disadvantaged for tax purposes.
Here are some of the expenses that could eat up your income:
- 25% VAT.
- Income from services:
- Social security contributions (just under 30%)
- Income tax 30-50%.
If I were to sell e-books, as a complement to my regular job, I would have to keep about 3 bucks for every 100 notes in sales.
If you compare it with the standard taxation that applies to Roth IRA, it is a clear advantage for equity investments.
To some extent, it is possible to influence the tax effects by having a limited company instead. For those who do not have any major passive income, however, it feels a bit overkill.
It may be your own extra task to see what it means for you if you do.
Renting a private home and investing in solar cells also have tax benefits. It makes them interesting. It may be that the most interesting passive income right now can be found around what you can do with your home.
A recurring thought when it comes to making money on the Internet is that we should do what we like to do and create a business around it.
Of course, this also applies to the idea of passive income.
If we succeed in generating income from our hobby, it is a natural step to reinvest the income in our particular hobby.
It is very advantageous to be able to take costs and purchases within the framework of a company.
Learn more about Passive Income (US) tax in the video below:
We have looked at different perspectives on passive income and discussed a number of examples.
There are two main tracks when it comes to earning passive income.
- We invest in something that we own and run ourselves but that can work without our constant presence. A website where we make money from ads, or solar cells can be examples of this.
- We invest and let others do the work. Equity investments are a typical example.
To round it all up, you probably know by now that to make passive income you have to invest a part of yourself, be it your time or your money. Whatever the case it will now be easy.
But if I can be of help I found this video on Youtube to get you on the right track, and the truth, on your passive income journey: