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In some ways, earning passive income is living the dream. Rather than having your income tied to work hours or freelance projects, you can bring in cash while spending time with your family, enjoying your hobbies or traveling.
You can earn passive income through a variety of means, including from buying rental properties, selling online courses or getting paid to refer friends and family to your favorite products.
However you choose to approach it, establishing passive income streams can help you achieve your long-term financial goals and become financially resilient. You can use the added income to add to your retirement savings, pay down debts or put toward a down payment on a house. And, should you lose your job or need to leave the workforce for an extended period, you'll still have money coming in to cover expenses.
What Is Considered Passive Income?
Passive income is money you earn without actively working. It typically requires some work (and investment) upfront, but requires little day-to-day maintenance. For instance, if you're a graphic designer who sells premade designs online rather than working on a project basis for clients, you're earning passive income. Or, if you're a consultant, creating a course people can purchase rather than offering live trainings or one-on-one sessions might be a path to passive income. Investment earnings are also considered passive income.
You may owe taxes on passive income, depending how much you earn and how much time you spend on any residual business. However, the tax rules may vary based on the type of passive income sources you have. To avoid overlooking any obligations or deductions, you may want to work with a tax expert when it's time to file, especially if you have multiple income sources.
Quick Ways to Earn Passive Income
If you want to start earning passive income quickly, there are a few ways to go about it. The options below require a minimal financial investment, so if you're tight on cash, you can still get started right away.
- Open an investment account. There are more options than ever for diving into investing. You can take a traditional approach and set up a fund through a bank or investment advisor, or you can use a mobile app to start investing immediately. There are even micro-investment apps that build up your investment in small increments over time. The Acorns app, for example, links to your checking account and rounds up every purchase you make to the nearest dollar, putting your spare change into your investment fund. That can be a low-cost way to start investing, and you can ramp up your deposits as you earn more money. Investing comes with significant risk, so it's best to only use extra income you don't need to put toward other necessities.
- Rent out a parking space or spare vehicle. If you live in a city with a parking shortage, you might consider renting out your street space or a spot in your driveway or garage. No one likes to walk a mile from their car to the office, so you may be able to earn a few hundred dollars each month just by letting someone park at your home on weekdays. You can also rent out your vehicle through car-sharing apps such as Turo and Getaround. Another option is renting your vehicle out to Uber and Lyft drivers through HyreCar. At the very least, you may be able to cover your monthly auto loan payments by making your car or parking spot work for you.
- Use a cash back rewards credit card. Many credit cards come with a cash back rewards feature, which is a great way to earn money while you shop. Look for a card that offers rewards in categories you often use, such as groceries or restaurant meals. That way, you can accrue extra cash every time you use the card. If you're not sure which cash back card to choose, Experian's card comparison tool can help you find an option.
- Sign up for cash back or coupon apps. A number of sites, such as Rakuten and Ibotta, allow you to earn cash back by using their browser extensions and earning rewards when buying from a wide range of brands. You can also sign up for coupon sites and apps (think RetailMeNot, Honey and Coupons.com) that provide promo codes and deals for a variety of products.
How to Make Passive Income When You Have Extra Time and Money
If you can make a larger investment in your passive income venture, consider these options:
- Set up an affiliate marketing business. Affiliate marketing allows you to earn money by promoting products. When you create an affiliate account with a brand, you receive a customized link you can share with friends, family, blog readers or a social media audience. When they use the link to purchase the product, you earn a commission. If you already have a well-read blog or a social media following, you can begin incorporating affiliate links in your posts. (Keep in mind: You'll likely have to disclose that you'll earn money if they use the link in accordance with U.S. law.)
- Buy a rental property. Purchasing a rental property can be a great way to earn passive income, particularly if you buy in a popular vacation area or an in-demand neighborhood. You'll want to research the market thoroughly beforehand, including the average rent on similar properties. If the property is supposed to supplement or replace your current income, you'll need to charge enough to cover your mortgage payments and then some. It's also important to consider who will maintain the property and address tenant needs, particularly if you don't live nearby. But under the right circumstances, a rental property can be a great option for earning passive income.
- Rent out part of your home on Airbnb. If you have a spare room that rarely gets used or an apartment over the garage that currently functions as a storage space, you may be able to earn income by fixing it up and renting it out on Airbnb or other vacation rental platforms.
- Create a series of books or an online course. If you have a special skill or area of expertise, you can create a book or series of books to sell to professionals or consumers. Or you can film courses or seminars and sell those online through sites such as Udemy. After the initial work is done, you may reap sales long into the future.
- Become a peer-to-peer lender. Peer-to-peer (P2P) lending platforms, such as Prosper, allow you to loan money as part of a pool of lenders. You earn interest on the loans as the borrowers pay them back.
Additional Ways to Make Money Fast
Establishing passive income can take some time and possibly a big initial investment. But there are many ways to free up room in your budget or make money fast.
- Shop generic. Trim your grocery budget by buying store brand products and only picking up produce and meat that are on sale.
- Find a side gig. Driving for a ride-hailing app or becoming a shopper through a service such as Instacart can help you earn extra money outside of your full-time job.
- Negotiate your bills. If you have auto insurance and homeowners or renters insurance, request quotes from several providers to see if you can get a better rate. Your current insurance company may also offer special discounts if you bundle policies with them. If you're struggling with credit card debt, you can call the card companies and ask to negotiate your interest rate or adjust your repayment plan.
- Take out a personal loan. An unsecured personal loan can provide you with a lump sum of cash to deal with emergency expenses or to streamline your debt and reduce your monthly payments.
Once you've created steady passive income streams, you can build up your savings and lower the chances of needing to make money fast under pressure. Diversifying your income not only helps you avoid a crisis if your employer shuts down or you need to take time off work, but it also gives you more freedom. You may feel more comfortable taking risks, such as starting the business you've always dreamed of, knowing that you have enough money coming in regularly to afford your basic needs.
If you've never explored passive income options before, you may want to start with one or two ideas and learn as you go. But ultimately developing several sources of income can provide you with greater financial security and opportunities.