So you’ve decided you want to start earning passive income to become financially free and maybe even walk away from your 9 to 5 job. That’s great! I’m here to try and help you find the best passive income ideas for your personal situation.
By going through the process of starting from zero myself, and documenting the entire thing, I hope to inspire you to start your journey to financial freedom and help you set up multiple streams of income. I will always write from my own experience and give you a no-nonsense honest look behind the scenes.
You won’t find a list of 30+ ideas on this website, because I want to give you useful advice on the topic, rather than a long, uninspired bullet point list that doesn’t really help you.
In case you’re still not sure what passive income actually is, I’ve written a short article introducing the concept.
Is passive income for me?
Absolutely. It’s free money in the long run, so why wouldn’t you take advantage? There are so many passive income ideas to choose from, there’s a Jack for every Jill.
What passive income idea(s) should I choose?
The very first question you should ask yourself after deciding to pursue the path of passive income is “what idea should I choose?”. The ideas that work for someone else don’t necessarily work for you. Personal situations and other factors will heavily influence whether starting a blog, for example, is the right fit for you.
There are several factors to look at when you’re searching for good passive income ideas to pursue. Firstly, how much time are you willing to put in? Secondly, do you have funds available to invest? Depending on your answers to these two questions, your timeline of hitting a full-time income will shift drastically.
There’s nothing to be ashamed of if money is tight. After all, we’re creating passive income streams to never be low on money again. It’s very important however to change some habits to save money, especially if your emergency fund is low or non-existent.
Look at things you can control. Do you really need that Pumpkin Spice Latte? Say no, and you save $5. Say no 10 times in a month and you have $600 extra at the end of the year! That’s $600 that can go into your high yield savings account or can be invested in the stock market. Hell, if you pay a writer $0.05 per word, that’s 12,000 words of content that you can publish on your blog!
How fast can I start earning passive income?
The process of creating passive income that will last for years to come is not going to be quick, or easy. You will need to invest your time and oftentimes some of your money to start. Realistically you should expect to earn close to nothing for the first six to nine months before earnings start to pick up.
These are averages, of course, and your path to earning your first dollar can be longer, or it could be much shorter.
It’s much more valuable to do things right, rather than trying to earn a quick buck. We’re talking about income streams that need to last for years to come.
Typically, the best passive income ideas show increasing returns every year. The glory of compound interest shows that even small returns now can be worth literally thousands of dollars in 25 years.
Below you’ll find 6 passive income ideas that you can use on your journey to financial freedom. Six ideas I will be focusing on in 2021. Six ideas that can turn into six income streams. Although each of these ideas can be a winner on its own, combining several of these can increase your earnings exponentially. The classic 1+1 = 3 synergy, as it were.
Each of these passive income ideas deserves an entire how-to guide with a deep dive into their strengths and weaknesses, and don’t you worry. I’m actively writing a ton of articles to help you get started and make sense of all this.
Start a YouTube channel
YouTube has come a long way since its inception in 2005. It’s grown to be the second-largest search engine with over 2 billion active users per month. Only Google deals with more search volume, and it’s these guys who own YouTube. An impressive 500+ hours of content is uploaded to YouTube every minute, and more than one billion videos are watched every day, according to the company.
Up until a couple of years ago, every channel created was automatically eligible for monetization. You just needed to activate the option in your settings, and you were good to go.
Nowadays the platform requires you to have at least 1,000 subscribers and 4,000 watch hours in the last twelve months. Luckily for new creators, YouTube recommends a lot of videos to its users. If your thumbnail and title are appealing to the viewer, you can expect to get a few views after a while.
If your content delivers on the expectations your title and thumbnail promise, people will be enticed to click on more of your videos. This increases your watch time, increases your subscriber base, and increases your ad impressions.
When you get accepted to the YouTube Partner Program (YPP), you’re ready to start making money through ads! Do you have to wait until you’re accepted to the YPP to start earning money? Hell no! There are many other ways to monetize your YouTube channel, such as including affiliate links in your description, and/or linking to your blog or website. Not coincidentally, these are the two next passive income ideas.
Start a blog
This one seems easy enough in theory but isn’t in reality. Everyone can start a blog, thanks to amazing sites like medium and wordpress.com. You can start producing content on both platforms immediately, and completely free.
Content on medium, for example, can be monetised. The website offers a $5/month subscription model. When these subscribers read your content and give it a “clap”, you get some money. Clapping is Medium’s version of a like. How much a clap is worth is calculated by their algorithm, and very secret to boot.
If you’re looking to scale up your blog/website with a custom domain name and a custom theme, you will need to invest a little money to start. Luckily there are many good hosting services around. You can get a .com URL and webhosting fairly cheaply.
The internet is a big place, so you will need to do a fair amount of research on what your content is going to be about. You can’t go too broadly, because you will be competing with much bigger websites. Go too specific and you risk not getting any search volume at all.
It’s very important to know if you can rank high enough on Google for your website to be successful. Quality content and following SEO (Search Engine Optimization) are very important, but choosing a good niche can’t be ignored either.
One way to monetize your blog is through display ads. Depending on the ad partner you choose earnings will vary. Google Adsense is well known for underpaying for the traffic you provide, but they will probably be the first one to approve your website.
Once you get some traffic coming to your website you can apply for another ad agency. Ezoic is one of the more accessible ad agencies. Different agencies have different requirements, but earning around $10 per 1,000 pageviews is very realistic at the start. With the right niche and the right ad partner, you could even go up as high as $20 or $25 per 1,000 pageviews. This is called EPMP (earnings per thousand (mille) pageviews).
Combine affiliate marketing with a YouTube channel and/or a blog and you have a golden opportunity to make bank. What is affiliate marketing? It’s what happens when you refer a new customer to a company. Say you have a website about dogs. When you review items on your site and include an affiliate link to the product, you get a commission if one of your readers clicks on that link, and purchases the product.
Be very upfront to your viewers they’re clicking an affiliate link, as you are required to disclose this information by law. This is why you often see the #ad hashtag incorporated in Tweets. Not only that, it just makes a good business practice disclosing you participate in affiliate marketing.
A lot of websites are affiliates on Amazon, but affiliate cuts are very low. On average you only get around 3-4% of the value your referred readers order. Despite the low cut you get from Amazon, it’s entirely possible to make a full-time income by referring people to their website, if you succeed in driving your website traffic to Amazon.
Just like ad agencies, affiliate programs are plenty. Spend enough time researching the programs you want to enroll in. Don’t solely look at affiliate percentages, but check if the company offering the deals are legitimate.
Depending on the articles you promote, your affiliate cut can be 10%, 20%, and in some extreme cases even 50%. Imagine promoting a product that costs $250 to buy. If you get a 15% affiliate commission, that’s $37.5 per sale! Now imagine the niche you choose for your website costs $25. You will need a lot more sales to have a meaningful stream of passive income.
Admittedly, dividend investing is something I already started in the second half of 2020. Unlike many brokers who offer zero commission trading in the United States, we Belgians didn’t have that luxury. That is until a new trading platform opened its doors to Belgium, lowering the threshold for beginner investors such as myself. Zero commission trading became available to me, and I jumped on the opportunity.
As you can see, these numbers will not make me rich right now, but it’s important to know that besides evaluating which stocks to buy and subsequently buying those stocks, I did absolutely nothing. In November I received $9.92 in dividends, barely missing out on a double-digit month.
I’ve bought a total of $2,006 worth of stocks between September and now (December 2020) that will give me $74 of annual income. On top of the dividend income, my portfolio value rose by another $240 just because the stock prices went up. This is called appreciation of the stock.
Since dividend investing is a passive investment strategy for the long(er) run, I will continue to invest in the stock market and keep cranking up those dividends. I don’t plan on touching this money until I retire.
I realize dividend investing looks daunting when you’re first starting out. Believe me, I went through hundreds of YouTube videos just to understand the basics of what I was getting myself into. To help you find your way, I will write an in-depth article on dividend investing if you’re a complete novice.
Find a high yield savings account
It’s impossible to find a high yield savings account that will top the returns of dividends and appreciation of an investment portfolio, but there’s a very good reason why we keep money in a regular savings account.
You see, the difference between a savings account and the money you’ve invested in stocks isn’t readily available. You would need to sell the stock and wire the money to your bank account before you’d be able to use it. The money you have in a high yield savings account can be accessed immediately.
Another big difference is the certainty of your profits. Sure, the stock market appreciates on average 7% per year, but a massive market correction can set you back a couple of years. Luckily these setbacks are offset by the good years, hence the 7% average. If you can keep your money tied up long enough, you will be fine.
In a high yield savings account you’re locked in with the same percentage of interest, bar a change in your bank’s policy, like we saw the last year when interest rates took a big hit.
It’s always a good idea to have an emergency fund available. You never know when you will hit a financial bump, lose your job, or face an emergency. Having a minimum of six months of expenses is a good goal to work towards. According to a survey by The Fool, 71% of Americans do have a savings account, with 56% have saved $5,000 or less. One in three Americans doesn’t even have $1,000 saved. These aren’t particularly high numbers. With a little effort, you could be doing better than 56% of Americans at saving.
Max out your retirement account
Always keep in mind why you are creating passive income streams. You want the effort you put in now to pay off later. You already saw what compounding interest could do in 25 years with a small invested sum. Most likely your government has at least one program to help entice you to save up for retirement.
Most common are tax breaks. In Belgium for example, you can save €990 per year. Fill this in on your tax return to get 30% (€297) of that back. You can also choose to save the maximum of €1,270 for a 25% (€317.50) advantage. Just do the math on saving €1,250 for 40 years combined with your tax return, and then think about what you can do with that when you retire.
- Begin saving for your retirement as soon as you can. The power of investing in the stock market and maxing out your retirement account lies in the duration of those investments.
- Make it a primary goal to have at least $5,000 saved as soon as possible. After your initial $5,000, find a good balance in adding more to your high yield savings account and investing in the stock market.
- Take your time to educate yourself. Most of the passive income ideas I outlined are simple in principle, but difficult to execute properly. Don’t rush yourself, you’re in this for the long run. Read blogs, watch YouTube videos.
- Don’t get discouraged. Creating passive income streams takes time. Don’t despair when your passive income idea has made you $0 in the first four months. If you’re writing a blog, you need to give Google time to assess the content you’re putting out. If you’re making YouTube videos, you need to give Google time to assess the quality of your work.
- Get rich quick schemes don’t work. When you’re low on money the promise of making a quick buck sounds too good to be true. If something looks too good to be true, in fact, it means that it probably is. This path is hard work, don’t take short cuts. They won’t work.
- Don’t spend money you can’t afford to miss. Paying for quality courses is never wasted money. However, if you’re strapped for money, hold off on those purchases. YouTube is a wonderful place filled to the brim with free content on whatever topic you’re interested in. Learn as much as you can, and get started.