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Passive income is the BEST type of income you should create for yourself. It gives you freedom from money and also the option to choose to work only because you want to (not because you have to).
There are many different ways to generate passive income. And for some passive income ideas, you can even start with no money.
Personally, I love passive income.
And it is a big part of my early retirement plan.
For the past few years, I have been INTENTIONALLY accumulate different types of assets that can generate passive income for me for years to come.
Today, I will share with you ALL the passive income ideas that I have tried and also the passive income strategies that I have learned from other successful people.
You see, there are many ways to earn passsive income. But, ultimately it comes down to two types of passive income.
- Type #1: You use MONEY to generate passive income
- Type #2: You turn your skills, knowledge or talent into passive income
How To Create Passive Income Through Investments
1. Interest Income
This is pretty straight forward.
You park your money in a high yield savings account and the bank pays you an interest rate that is just high enough to help you keep up with the inflation rate and preserve your wealth.
Personally, I put 6 months’ worth of my living expenses as well as my emergency fund in high yield saving accounts.
It allows me to earn some decent interest income while it also gives me the flexibility of withdrawing cash whenever I need it.
Below are some of the high-yield savings accounts that you can consider.
Another option you can consider is low-cost investment-grade bond fund ETF (exchanged-traded-funds).
Here’s a short explanation of bond ETF in case you are not familiar with it.
According to Investopedia, “Bond ETFs are exchange-traded funds that invest in various fixed-income securities such as corporate bonds or Treasuries. And they are passively managed and trade, much like stock index ETFs on major stock exchanges.“
By investing in a bond ETF, you will earn interest through its monthly dividend.
So, if you are looking for investments that generate monthly passive income, this is one of the BEST ways to do it.
I, myself, allocate about 20% of all my cash in Vanguard low-cost investment-grade bond ETFs because it’s less volatile compared with stocks and other types of income-producing investments.
2. Dividend Income
Good dividend stocks can pay you up to 4%.
Of course, there are high dividend stocks that offer a yield that is much higher than 4%.
But, the yield is high for a reason. It’s NOT as safe.
Apart from dividend stocks, there are two other types of passive income investments that I also prefer.
They are low-cost REITs (i.e. real estate investment trust) and stock market index ETFs.
REITs invest in real estate properties and distribute revenues generated from these properties (primarily rental income) regularly to REIT investors.
So, it’s a very inexpensive and easy way of investing in real estate for rental income.
When you buy REITs, you will typically receive a dividend payout every 6 months.
Personally, I invest in commercial, hospitality, and healthcare REITs for dividend income as well as protection against inflation.
As for stock market index ETFs, it pays out the full dividend that comes with the stocks held within the funds on a quarterly basis.
I put quite a bit of my money in stock market index ETFs because it’s safer and less volatile than owning individual stocks.
You see, individual companies can go bankrupt suddenly. When that happens, all my investments will be lost. And that is the last thing I want for my hard-earned money.
On the other hand, it’s quite impossible for index ETFs to go all the way down to zero because the chances that ALL the companies in the index ETFs go bankrupt at the same time are extremely low.
3. Rental Income
Rental income is probably the most common passive income you’ve heard of.
How it works is very simple.
You buy a rental property, find tenants to rent it, and get paid every single month.
The best part about rental income is that you get recurring passive income month after month.
It’s predictable and stable.
However, there are also downsides to investing in rental properties for passive income.
First of all, if you cannot find tenants for your properties, you will be bleeding money every month because you still have all the property-related expenses such as tax, maintenance, and mortgage.
So, vacancy is one of the biggest risks.
Secondly, if the monthly rental you collect CANNOT cover your monthly property-related expenses, there is NO net profit from you.
In other words, you will be losing money every month because you have to take money out of your own pocket to pay for the difference.
That’s why you should only choose rental properties that have positive cash flow (i.e. putting cash in your pocket ) every month.
4. Profit-Share From Businesses
Of course, you can also earn passive income from investing in a profitable business as a silent partner.
That means you are not involved in the day-to-day operation of the business and you just get paid your share of your profits from the business based on the agreement.
For example, I know a friend who invested in an established food franchise with a group of his friends as silent partners.
He has a busy day job, so he told his friends that he would just come in as an investor.
His friends would manage the business and get paid a salary for their time.
At the year-end, they will distribute the profits accordingly.
5. Business Ideas For Passive Income
Of course, there are many business opportunities that can help you generate passive income.
Here are some examples:
- Coin-operated kiddie rides in the shopping malls
- Vending machines (for selling juice, snacks, accessories, food, etc)
- Self-service laundry facility
Every time, I take my son to a shopping mall. He would ask me for coins because he loves to take those coin-operated kiddie rides.
When I told my boy that I didn’t have any coins with me, he would excitedly point me to the coin changer nearby.
I have to say that they are very smart business people.
How To Create Passive Income With Little Or No Money
6. Turn Your Knowledge Into Passive Income
Online course is a great way to turn your knowledge into passive income.
Unlike selling physical products, you can keep your cost to literally zero for your online course business.
And you don’t need to worry about inventory and shipping.
Once your clients make the payment for your online courses, they can access it instantly.
Also, you only have to do the work once – creating the course.
Then you can sell it over and over again and sell to as many people as you can.
So, it’s a very scalable business model.
Personally, I have already been selling my own online course “Service Arbitrage Pro”.
It is 100% passive income because the entire sales process is automated. This means sales are coming in even when I am sleeping, playing with my son or on vacation.
If you don’t like to create online courses, writing and publishing Kindle ebooks is a good alternative to getting passive income.
You get paid any time someone buys your ebook from Amazon.
7. Turn Your Talent Into Passive Income
If you have a gift in music, photography, or art, you can turn your talent into passive income.
Let’s say you are a good photographer or videographer, you can upload and sell your photos and video on Foap.
Whenever a brand or agency purchases a video or picture from your online Foap portfolio, Foap will share the profit with you 50/50.
If you have musical talent and write a popular song, you will get paid royalties every year for the rest of your life.
We all know the famous “Happy Birthday” song.
But, did you know that this song brings in a reported $5000 a day, $2 million a year in royalties, and the cost of using the song in a movie or on TV is $25,000?
So, if you are a talented songwriter, you are just one song away from your royalties check.
8. Passive Income From Online Assets
When you hear “online assets”, what is the first thing that comes to your mind?
This blog that you are reading right now is considered an online asset to me.
It can bring in web traffic and also sales for my programs and courses.
In other words, it generates income for me online.
So, an online asset can be a blog or a website.
Let’s talk about blogs first.
There are many ways to earn money from your blog. And some of them are truly passive income.
- Passive Income Strategy #1: You can make money with advertising on your website
- Passive Income Strategy #2: You can make money from promoting other people’s products or services as an affiliate.
For example, you can see that this cooking blog below has advertisements placed right below its cooking video.
For my blog, I made the decision not to put any advertisements because it hurts the user experience and also slows down my blog’s load time.
But I am doing affiliate marketing on this blog.
I signed up to be an Amazon affiliate to promote books that I think are useful for my readers.
Below are some of the books that I am promoting in one of my blog posts on stock market investing.
If my reader decides it’s a good book and clicks on my affiliate link to buy, I will earn a small commission at no extra cost to my reader.
When I am promoting products as an affiliate, I don’t have to worry about product shipping and customer service because it’s all being taken care of by the Amazon seller or Amazon itself.