Earning Passive Income Can change a person’s life. Imagine what it’s like to earn hundreds or even thousands of dollars each month without having to work for it.
Seems like BS right? Wrong! More and more people are coming to learn the importance of using passive income to boost their finances in uncertain times.
What Is Passive Income?
Passive income is money you make that you don’t have to work for. Investments in financial assets like dividend stocks, index funds and exchange-traded funds (ETFs) are a common way to earn passive income.
Even the interest earned in a High Interest Savings Account counts as passive income.
Cash flowing rental property or things like an online business or website are also sources of passive income.
Passive income comes from the things that we own. These assets produce income on their own, without our direct involvement. When you own assets that generate passive income, you essentially make money while you sleep!
Passive Income Protects Us From Economic Shocks
As crazy as 2020 has been, I think it taught everyone some important financial lessons. These include the importance of an emergency fund, diversified investments and, of course, the value of earning passive income.
The vast majority of people were caught completely unprepared for the kind of financial hardship that we’ve seen this year with businesses closing down and the entire global economy screeching to a halt.
Coming off the longest bull market in history, with record low unemployment, it was surprising to see that so many households were still living paycheck to paycheck.
Part of the problem is that a lot of people don’t take the time to learn about investing and personal finance. Schools just don’t teach that stuff which is too bad because it really is an essential life skill.
What’s worse is that there is a general feeling that you need to be rich to invest and build wealth. In reality nothing could be further from the truth. An average middle class household can achieve a healthy nest egg simply by investing a few hundred buck each month – that’s $25 a week for a person or $50 for a couple.
Saving and investing in assets that produce passive income is key for achieving long term financial security.
How to Start Earning Passive Income?
There are many different ways to earn passive income. But the 3 most common ways are as follows.
Owning Financial Assets
Financial assets are things like stocks, bonds, mutual funds, ETFs, deposit certificates (CDs, GICs) and even high interest savings accounts. These assets produce passive income in the form of dividends, distributions and interest payments.
Financial assets are great for producing passive income but it takes years of steady investing before the money from this source really adds up.
To get started investing in financial assets you need an online brokerage account. I’ve used quite a few of these over the years and have settled on Questrade. If you’re interested in this check out my Questrade Review.
Build An Online Business
Earning online passive income from a website or E-Store is probably the best way to really start earning passive income. This method requires a lot of up front work in that it takes time and effort to build an online business that generates enough traffic to really start making money.
In my opinion, an online business offers the best way to start earning passive income. Startup costs are really cheap (ie. about $100-$200 per year) and the sky is the limit when it comes to making money.
I use Bluehost for my website and I can’t say enough good things about them. They make it really easy to build your website and have great tech support if you ever need them.
If you’re like me and have no experience or interest in coding or in web development and just want to write great content, then Bluehost is for you. Be sure to check out my guide on how to start your own website.
Passive Income from Affiliate Sales
The most common ways for people to make passive income online involve affiliate marketing, ad revenue and product sales. Affiliate sales come from recommending products that you use to your readers. Some websites earn thousands each month from affiliate sales.
Online Ads Produce Passive Income
Ad revenue comes from online ads that people see when they visit a website. As an owner, you get paid a little bit for the display ads and even more when someone clicks on an ad. I think the vast majority of passive income from websites comes from running these ads.
Passive Income from Product Sales
Selling products online whether through things like e-books, online courses or subscription are another way that people earn passive income online.
Owning Rental Property
Investing in rental properties is another popular way to earn passive income. I put this one last on this list because it has a higher barrier of entry than the others.
Rental properties costs a lot of money so not everyone can afford to do this.
That said, rental properties can be great sources of passive income for the right person.
The past 20 years have seen an explosion of TV programs that peddle real estate investing in one form or another as an easy way to make money.
The truth is that while owing real estate can be a great way to make money, it’s really not all that passive in that rental properties are actually a lot of work. It takes time to select tenants and there’s always lots of things to do when you have a vacant unit that you’re trying to rent out.
If you want to avoid the dirty work with rental properties, you can hire a property manager but it will eat in to your bottom line.
Some savvy real estate investors made a killing renting their unit out on Airbnb. Once things return to normal, I’m sure this trend will continue.
Thanks for reading this article on earning passive income.
Please note this post contains affiliate links where the blog may receive a small commission on any sales from Questrade and Bluehost.