Three Types of Passive Income

There are three categories of passive income types that allow you to earn a continuous income for many years to come with minimal effort to maintain. Depending on your unique scenario, what you have to offer may vary. However most people likely have one of these three things, whether you are investing (1) your money, (2) your stuff, or (3) your time.

1: How do I earn a passive income with money?

In this scenario, you have money upfront that you can use to make additional money in the future leveraging the value of compounding interest. There are many ways to do this that range from high yield savings accounts to lending money to a friend and making an income from it.

Lower Risk: An easy and lower risk option to consider if a high yield savings account or certificate of deposit. In these scenarios you have high confidence on a return for your investment, however that return may be pretty low since the risk is low. If you invest $2000 into a certificate of deposit for 2 years with a 0.85% return, you could earn $34. If you invest $5,000, that could be $85.

Medium Risk: Since savings accounts or certificate of deposits can typically have lower returns, you may be interested in invest in bonds that are still relatively low risk, but could provide a return closer to 3%. In this scenario, if you invest $2,000 with an expected 3% return, you could earn $120 for 2 years. With $5,000 invested, this could be closer to $300 for 2 years. There are many options to invest in index funds or mutual funds that focus on bonds and are considered lower risk. While you may not have as much accessibility to the money as a high yield savings account, this can provide some additional returns assuming you’re comfortable investing your money.

Higher Risk: Another option is considering something higher risk such as stocks. In this scenario, you may see closer to 7% or more for your returns. Say you invest $2000 for 2 years, you could earn almost $290. If you invested $5000, you would make close to $725 over 2 years. The best part? If you reinvest that money, you will make even more as you earn interest on your interest. Investing in individual stocks can be even riskier, however there are options such as index funds that carry a variety of stocks and target the performance of the S&P 500 for example. Keep in mind with higher risk, there will likely be ups and downs in the market that you will need to ride out. A balance of stocks and bonds is ideal, and can vary depending on when you plan to access your money. You don’t want to be dependent on money invested at a higher risk, because you may be forced to sell when the market is down.

Don’t have $2000 to invest? Consider ways you could save $5.50 per day for a full year. Maybe that’s skipping your morning Starbucks fix or McDonalds breakfast. Are you a smoker? Consider kicking the habit and put that money into a savings account instead. Could you cut $40 per week from your grocery bill for a year?

2: How can I use or sell stuff to earn a passive income?

Maybe you don’t have a ton of money in the bank, but you have stuff that you could use. You could sell your stuff, but this would only generate income for the short term and doesn’t provide lifetime earnings. Alternatively, you could look at how your current assets can earn you money long into the future.

Your house: One way to do this is to rent out a room in your house that you don’t use. Or maybe you have some extra space in your home that you can use to store belonging for someone else. Consider this part or full time depending on your preference. One of my friends just bought a home that was previously a duplex with two kitchens! It’s ideal for them so that when family visits, they can have their own space. It’s also a great way to rent out to travelers when family isn’t visiting to earn additional income. If rented out full time it could be an extra $500 per month! Another friend of mine offered their spare bedroom on airbnb to people visiting the city they lived in, making $25 per night that someone stayed with them.

Your vehicle: I anxiously look forward to the days of autonomous vehicles when your vehicle will make a truly passive income, however with services like Uber or Lift, you can provide people rides with an asset you already own. Better yet, maybe someone else could do the driving and simply borrow your car so you can earn money while sitting on your couch watching Netflix. Have a truck or a trailer? Offer to drive someone’s stuff to their new house when they move for a fee, or consider letting them borrow them for a price. You could help them move their stuff into the truck or trailer too, but the idea here is minimal effort for passive income. Have an RV? Check out RVshare to rent out your RV on weekends you aren’t using it. You could earn an extra $100 per night instead of letting it sit in your driveway. Motorcycle? Find a website that will let you rent it out for $50 a day.

Tools or yard equipment: Do you have a lawn mower you only use one day a week? Maybe you bought a plow for your truck to clear your driveway in the winter. When my husband and I lived in town, he would drive up and down the street on his four-wheeler with a front plow and people would offer him $20-$40 to clear their driveway so they didn’t need to keep shoveling by hand. He had fun and made some extra money in the process that helped pay off his toy.

3: How can I invest my time now to create passive income in the future?

Maybe you don’t have any money or stuff. In 2009, I was laid off and slept with a mattress on the floor of a cheep basement apartment, so I’ve been there. That same year, I also taught myself how to design a website for a nonprofit organization for free because it seemed like a fun thing to do at the time. I even won an award for it. Looking back, I regret not finding opportunities to leverage that time and passion to create things for people, or for myself, that could turn into a passive income.

Create an app: This requires more upfront time to create, but if you’re willing to put in the effort, there are plenty of free online resources to learn from. You can decide what to do, how long you want to take to develop it, and how much to charge for it. Once you’re done creating it, you’ll make money as long as it is available and people are still interested in buying it. The same could apply for a website that people are willing to pay a fee to access or use.

Write a book: Did you know you can write and self publish a book with Amazon? I’m sure there are other ways to do this, but I was surprised at how easy they make it sound. I can’t speak from experience, but if you have the time, you may consider self publishing a book. You can set your price, and either sell that content on your website, or through a service like Amazon. Similar to the app, once you’ve written the book, you will continue to earn an income with minimal upkeep as long as people are still interested in purchasing your book.

Create training material: Similar to a book, you could also create training material that people can purchase. While you could create a blog, similar to what I have, most people don’t make a significant amount of money from advertisements on their page. Instead, it can be used to draw people to your website where they will be interested in buying training material or content from you. Assuming that content stays relevant and people continue to access the platform you sell the material through, this is another source of passive income once you have invested the time to create it. Don’t think you have anything to teach? Go learn about something new and create value by improving how people can learn it from you instead.

Start making money!

So that’s all there is to it. Chances are that you either (1) have money you can invest (or can find ways to save money that you can then invest), (2) you have assets that you can rent out for minimal effort, or (3) you have some spare time to create content that will allow you to bring in additional income for years to come.

Do you have other ways that you’ve earned a passive income? Comment below- I’ve love to hear about your experience!

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