One of the easier ways to build wealth is having multiple income streams. And one of the best income streams is passive income sources — in other words, the money you earn from doing (almost) nothing. But how do you build passive income sources, and how can it help you reach financial freedom? Let’s talk about it.
What are the 7 sources of income?
There are seven different income streams. These include earned income, profit income, interest income, dividend income, rental income, capital gains income, and royalty income.
Earned income
This is a primary income stream, and you have to put in hours to earn it (hence, earned income). This is usually through your day job. You can’t usually control how much you make, and it does have a cap based on how many hours you’re working.
Profit income
Profit income is what you earn as a business owner or freelancer. You make profit income by selling a service or product.
Interest income
Interest income is a sort of passive income. You earn interest income when you gain interest on the money you’ve saved or invested.
Related Video: How to Invest In Stocks For Beginners
Dividend income
Dividend income is another passive income stream. If you buy shares in a company that pays dividends, you earn money from them monthly, quarterly, or yearly, just for owning those shares.
Rental income
Property investment and earning rental income is in between active and passive income streams. It takes a significant investment of money and time from you at first. But after that, you can earn money from your tenants each month without really thinking about it, especially if you hire a property management company.
Capital gains income
You earn capital gains income when you buy and sell assets, like stocks. As an example, buying a share worth $100 and selling it for $200 earns you $100 in capital gains. However, this takes time, and keep in mind that you’ll most likely have to pay taxes on this income too.
Royalty income
Royalty income is what you earn when you create something that people use and pay for when they do. An example would be a song written by a musician. Yes, they earn money for the song itself. But if they own that song, companies and businesses have to pay them when they use that song in commercials, TV shows, or in other ways.
You can also earn royalty income on items like ebooks and self-published books. When you write a book, you can sell it forever, and earn royalties on each copy you sell. More on that later on in the article!
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What is passive income?
Simply put, passive income is income you earn with minimal labor to earn or maintain. In other words, you put in the time once, and you continue to earn money even if you aren’t working on that source of income.
What are some examples of passive income?
Some examples of passive income include;
- Rental income
- REITs
- Peer-to-peer lending
- Dividends from investments
- Interest from investments
- Dropshipping
- Turn-key businesses that don’t need to be actively managed; car washes, laundromats, vending machines, etc.
- Courses, books, and apps
These all take time to start on the front end, but usually don’t require too much of your time after they’ve been established.
What is the easiest source of passive income?
According to experts, the easiest source of passive income is income that you earn from investments you already made. This is because this income is automatically added to whatever you’ve already saved.
As an example, when the stock market grows, so do your investments (usually), without you having to do any extra work.
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How can a beginner create passive income?
There are so many different ways to create passive income as a beginner. But the first step is to figure out HOW you want to earn that money. Do you want to put in a lot of work upfront? Do you have money to invest upfront? Are you trying to create passive income without a lot of money? These are questions you need to ask yourself.
And you also need to ask yourself how much time you have to dedicate at the beginning. Starting a business takes time and money but can be outsourced to others, so you don’t have to work on it anymore (eventually). But investing doesn’t take as much time and energy but will require more money upfront to see worthwhile dividends and interest.
How can I start passive income with no money?
If you don’t have money to start a passive income stream, that’s okay. But you’re going to have to invest your time.
For example, ebooks and courses can provide a passive income stream, but it can take weeks (if not months) to create, market on social media, and earn money. However, there are ways to do this all for free, so you won’t have to invest any earned income to get started.
Keep reading to see other ways to create passive income with no money!
Related Article: 5 Traps Preventing You from Building Wealth
Top passive income sources to start building wealth
Are you ready to start your own passive income sources? Here are 11 ways to do it!
Open a high-yield savings account
One of the easiest ways to earn passive income is by putting your money in a high-yield savings account. By investing in an FDIC-insured account, you can earn upwards of 1.25% on the money you have sitting in your account.
Our favorite high-yield savings accounts are from Axos Bank and CIT Bank.
Buy an existing company
This will require an up-front investment, usually in the tens if not hundreds of thousands. But you’ll earn a part of the business’s income by purchasing or investing in an existing company as a silent partner.
Some examples of this include self-rental storage businesses, car washes, laundromats, and small markets
Become a peer-to-peer lender
You can earn money from a peer-to-peer or crowd-lending site, where you loan an individual money, and they pay you back with interest.
If you’re going to go this route, make sure you choose a legitimate company or website.
Buy rental property
Buying a rental property will also require money and time up-front, although not as much as an established business. But you can hire a property management company to deal with the tenants, so you can step back and earn income after your initial investment. You’ll also be able to decide if you want to rent out the property short-term (like an Airbnb) or long-term (with tenants).
Related Podcast: Achieve Financial Freedom by Investing in Multifamily Real Estate
Invest in real estate without being a landlord
If you don’t want to be a landlord or can’t afford multiple houses/businesses, you can still own property and earn money! You can do this by investing in a piece of property and earning a percentage of the income based on how well that property performs.
Like peer-to-peer lending, be sure you’re investing in a legitimate company and property. Sites like Fundrise are legitimate and have the data to prove they make their lenders money!
Invest in stocks that earn you dividends
There is no guarantee that investing in stocks that pay dividends will pay you passive income for years to come. This is the life and risk you take by investing in the stock market. But, if you’re able to invest in the right stocks, you can earn dividends often enough to pay you some passive income. And, you can reinvest those dividends into other stocks to earn more.
Become a blogger
Blogging does take time and money up-front, and it’s not as easy or quick to get rich (unlike what many bloggers will have you think). But, if you market it correctly and make it easy and fun for your readers, your blog could earn passive income in many different ways.
These include;
- Affiliate income – earning income or a commission from products you market for other companies. Companies like Amazon pay you to refer people to their products; all you have to do is include a link.
- Sponsored posts – This requires a one-time investment of writing the post for the company and getting paid for having it active on your site. Bonus points if you can add affiliate links.
- Purchasing an existing blog that’s already making money – this is great if you aren’t a writer, but does cost more money at first (to purchase the blog).
- Selling your own products, like a course – You can add products to a shop on your blog, like mini-courses, regular courses, or other items where you teach people or provide them with a solution, and they pay you for it.
As you can see, blogging has many ways to earn passive income. And you don’t have to utilize each option (although it is possible).
Related Podcast: How to Start a Six-Figure Blog
Rent something out
Trust us, you have something that people will pay you for. You don’t have to rent out a room in your home or buy a house for rental income. In fact, you can earn money from;
- Renting out your car on sites like Turo
- Using your driveway as a parking space with sites like Stow It
- Renting out your garage, shed, or other enclosed space as storage space with sites like Stache
- Rent out your bike with a site like Spinlister
If you have an item you can rent or space you’re not using, you can earn money from them without doing work outside of listing them.
Related Podcast: How to Turn Your Car Into a Money-Making Asset
Earn royalty money
Even if you don’t have any songwriting ability, you can make money by investing in other artists’ work. Sites like Royalty Exchange help you earn passive income by investing in these songs, movies, and trademarks.
You can also earn royalty money via selling your own self-published books on Amazon, or selling ebooks.
Sell digital products
If you’re an artist, writer, graphic designer, or creative in general, you can create passive income sources online by selling your work. This includes;
- Taking photos and selling them
- Creating a mobile app, like a game (this may require coding experience)
- Selling digital products like workbooks, planners, social media graphics, and more online
- Writing and selling ebooks
Sometimes, these digital products will require marketing or work behind the scenes before they start gaining traction. But, if you put in the work upfront, you could sell these products for years without making any additional changes.
Related Podcast: How To Make Money Selling Ebooks
Dropship or print on demand
If you want to sell products online but don’t want to make or store the goods yourself, you could try dropshipping or printing on demand.
With drop shipping, you don’t need to keep the products you sell on hand. Instead, you’ll set up the site to notify the warehouse you work with. They’ll receive the orders and then package and ship off those items. While they’ll take a cut from your profits, you’ll still earn an income on any items your site sells.
Printing on demand is fairly similar to dropshipping. But the difference is that you are creating custom products that people purchase. An example would be when an influencer or YouTuber creates “merch”, including t-shirts or mugs.
Time to find your own passive income sources!
