Content of the material
- Passive Income Ideas: Asset Building
- Digital Products
- Music and Photo Licensing
- Custom Designed Products
- Affiliate Sales
- How to start building passive income
- 1. Build a nest egg
- 2. Assess your skills
- 3. Be realistic about your time, money, effort, and other commitments.
- 4. Consider your dreams
- 5. Find the overlap
- 3. Try your hand with index funds
- Which passive income source is best?
- How can I make passive income with no money?
- How can I make passive income with money?
- 5. Blog, baby, blog!
- Passive Income
- Residual Income Idea 4: Blogging
- How to Get Started
- How to Build Residual Income
- How Are Passive Income and Residual Income Taxed?
- Active income vs. passive Income: Which is best for me?
- Residual Income Idea 2: Property Rental as a Residual Income Business
- How Is Passive Income Treated for Taxes?
- What is not passive income?
- Reader Interactions
Passive Income Ideas: Asset Building
As the name implies, asset building requires the upfront time and effort to build an income-generating asset. While it may not carry the steep financial costs of investing, it does come with the risk that the assets you invest your time in creating may not sell.
Digital products can be anything, from ebooks and lesson plans to mobile apps—even NFTs. What’s key here is that you spend time building them once and then are able to sell the same asset again and again online. You can take a totally passive approach to the digital products you create, or you can devote time and money to marketing them.
Music and Photo Licensing
If you’ve got a creative streak, you can turn your photographs or music into a stream of passive income by licensing it to stock image and music sites. Other content creators then pay for the rights to use your creations. Musicians can sell their songs on sites like and Pond5, while photographers can sell their images on sites such as Alamy and Adobe Stock.
Custom Designed Products
By uploading original designs to print-on-demand websites like Teespring, Redbubble, CafePress and Zazzle, you can earn passive income each time someone orders a t-shirt, coffee mug or other physical product emblazoned with your design. Even better, you don’t have to handle the printing, storage or shipping, reducing much of the frustration of selling physical goods.
Affiliate sales are passive income generated when someone makes a purchase after clicking a link or using a referral code that you publish on a website, video or podcast. You’ll generally earn a flat rate commission or a percentage of their purchase.
You can find affiliate links for just about any type of product or service, meaning you could make passive income from anything from mattress reviews to software evaluations. Keep in mind, however, that this space is very competitive, and most successful affiliate marketing requires high-quality ongoing content production.
How to start building passive income
While it’s great to have plenty of passive income ideas and dreams, it’s important to remember that not every idea is a great one. Even if you’ve seen others earning money in a particular way, that’s no guarantee that it will work for you, your skills, or your lifestyle.
To find the best ways to make passive income, you need to start with some clear goals and plans. You’ll need to know how much you’re able to commit in terms of money and time. And you’ll need to be prepared to make short-term sacrifices to meet your long-term aims.
Before we go into the best passive income ideas to inspire you, consider the following steps to get started in your passive income adventures.
1. Build a nest egg
Before you commit thousands of dollars on a money-making scheme that you’re sure will work, it’s vital to build a nest egg… This may also be your first form of a passive income!
Open a high-interest savings account with as little as $100. Over time, the interest you earn on this cash will count as passive income, and you may even receive a cash bonus for opening the account.
2. Assess your skills
There’s not a lot of point in deciding you’re going to sell your photos to stock-image companies if you can’t take an in-focus picture to save your life! Along the same lines, some passive income ideas such as course-writing will require you to have specific qualifications and skills. If you have these, great! If not, then be realistic about whether you feel getting the relevant qualifications will be worth it.
But assessing your skills shouldn’t just be about what you’re not good at. You should also have a good think about the things you’re fantastic at. For example, if you’re a stock trader, perhaps you could write for financial publications? If you’re a personal trainer, maybe you could create a series of fitness videos people can purchase and follow along at home?
Be realistic about your skills and think about how you can use them to benefit others without needing to be physically there or working every day.
3. Be realistic about your time, money, effort, and other commitments
As we’ve mentioned, although the idea behind passive income is to make money while you sleep, no business can be built without effort. In fact, you might find that building a passive income stream actually involves a lot more time and effort than a standard side gig to get it up and running.
Before you start any venture, be realistic about your other commitments. If you have a demanding job, kids, and an active social life, you might not have the time to spend building another profitable business. In that case, you might want to consider investing or asking someone else to help you out with the heavy work.
4. Consider your dreams
Steve Jobs once said, “Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.” It’s essential to consider his message when picking any job, side hustle, or passive income idea.
If at least one part of the idea doesn’t spark joy or fuel your passions, chances are it’s not going to work out. So, look for an idea that you can see yourself doing for years. Even if you can step back and let the business mostly run itself, you may still need to get involved occasionally, so make sure you pick something you’ll enjoy.
5. Find the overlap
Once you’ve analyzed your strengths and weaknesses, considered any constraints, and thought about what would make you happy, there should be a few ideas for passive income strategies in your mind already. You’re sure to achieve financial independence in no time!
3. Try your hand with index funds
If you rely on bloggers for your investing advice, you already know that index funds are extremely popular among all types of investors. This is partly because index funds are so easy to buy, but it’s also because they are fairly straightforward.
As a type of mutual fund, index funds make it possible to buy packages of investments that are managed professionally.
If your goal is investing frequently without trying to “time the market”, index funds are one of the best options
When it comes to buying in, I always suggest M1 Finance due to their zero trading fees and endless investment options.
Also know that plenty of other online brokerage firms offer access to low-cost index funds which can take the headache out of your investment strategy.
And if you really want residual income, you should try to save yourself as much stress and hassle as possible, right?
Related: Best Online Brokerage Accounts
Which passive income source is best?
The question of which passive income source is best depends on several factors, but some of the most important include the amount of money you have to invest, the total opportunity size, your interest and ability in the area, the amount of time you need to invest and the potential to succeed. Typically, the lower the barriers to entry, the more crowded the field of competitors and the lower likelihood of success.
So you’ll need to weigh the opportunity against these factors and see which passive income strategy works best for you. But it can be helpful to have natural ability and an interest in your target area, because these can help motivate you in the early days when things are likely to be tougher.
There are passive income opportunities for people who are starting out with some money and even those who have no money to start.
How can I make passive income with no money?
If you have little or no money to start, you’ll have to rely mostly on your own time investment to power you through, at least until you build up a little money. That means focusing on passive income sources that take advantage of the following traits:
- An area where you’re an expert. Here you can build your expertise out into a useful product or service for consumers, e.g. design, software coding and others.
- An upfront work-heavy opportunity. You’ll need an opportunity that requires a time or work investment, such as creating a course, building out an influencer profile or other options.
In effect, you’re substituting your time for your lack of capital, until you can get enough capital to expand your set of opportunities.
How can I make passive income with money?
Money can provide you with more passive investment opportunities. If you have money to invest in a passive opportunity, you have not only the opportunity set above but a new range, too. Money is a prerequisite for taking advantage of the following passive income areas:
- Investing in dividend stocks or REITs. Investing in stocks means you need money upfront, but you’ll receive some of the most passive forms of income around.
- Save with bonds or CDs. Other purely passive activities include buying bonds or CDs.
Here you can use your money to make money with little or no effort on your part, if that’s what you’d like to do. Of course, you could pair your money with a lot of time investment to move into an even more lucrative niche, too.
5. Blog, baby, blog!
Like I mentioned earlier, blogging has helped me earn me some serious dough. But unlike peer-to-peer lending, there are quite a few lessons to learn and challenges to overcome.
Namely, professional blogging takes time and money.
At first, you can start out solo and see if you can gain some traction. But over time, I found that investing in your website is one of the best ways to earn some residual income.
The task that takes up a lot of time is learning how blogs work.
- What’s a domain?
- What’s a host?
- What’s a cookie?
- What’s WordPress?
- How does all this work?
And those things are just some of the things you’ll have to learn.
You’ll also need to learn how to make money blogging (I have you covered if you follow the link).
Blogging also means being very open with the world about your life.
If you’re not the extroverted type, you need to remember that blogging means having your work critiqued by the masses.
It may not be as rough as attending a dinner party, but you’ll definitely get your share of critical remarks. And at least part of the time, that feedback hurts!
However, if you can devote some serious time and money into professional blogging, you should give it a whirl! Who knows, it might just be the best residual income idea for you.
Ready for a challenge? Sign up for my Make 1k Blogging email challenge. It’s a free 10 email series that’s the main goal is to help you get your blog set up and make your first $1,000 blogging. Sign up only if you want to make some extra money. 😉
Passive income is earned with little or no effort, and individuals and companies often make it regularly, such as an investment or peer-to-peer (P2P) lending. The Internal Revenue Service (IRS) distinguishes it from earned income as money earned from an entity with which you have no direct involvement.
If an individual’s passive income is big enough, it can free up their time to do other things besides work. And although it may be risky when establishing the mechanism for passive income, it also offers increasing levels of financial security.
Passive income can provide significant security if it provides steady cash flow because it’s not connected to your time. If it's not enough to quit your day job, it's still nice to have an additional income source to supplement what you earn from working. You may even have a better quality of life by moving more of your annual income to a passive source, especially if you have a lot of debt or a dependent gets sick.
One example of passive income is the profit realized from a rental property owned by investors who are not actively involved in managing it. Another example is a dividend-producing stock that pays an annual percentage. While an investor must purchase the stock to realize the passive income, no other effort is required.
Earned income is anything you work for, such as wages, salaries, tips, commissions, and bonuses. With passive income, you may be an investor or silent partner, but you are not the person heading up the enterprise.
Residual Income Idea 4: Blogging
There can be big money to be made in blogging. And that’s not just limited to your standard WordPress site with written content. YouTube channels are becoming a huge market for passive and residual income opportunities.
There are several ways that you can make residual income if you own a popular blog or YouTube channel. The first is by selling products, particularly your own. In the above section, we talked about information products. After you put in all that work learning about a subject, you’re now in a prime position to create an awesome blog. Naturally, people who arrive at your blog to learn about French cuisine also probably will be interested in buying your French cuisine cookbook.
But you’re not limited to just information products, or even to your own products. You might develop additional products, such as cutting boards or knives, that complement your French cuisine recipes. You could sell these on your blog, or you could become an affiliate and sell other people’s products on your blog.
Remember all those cookbooks that you read through when learning how to become a master of French cuisine? Your readers are probably interested in those books as well. A quick way to cash in on the sale of those books is by becoming an Amazon affiliate.
When you become an Amazon affiliate, you get a small percentage of the sales that you contribute to on Amazon. So, let’s say you’re writing about Julia Childs’ duck recipe on your blog. You give credit to Julia Childs and you also link to her book on Amazon. When a reader clicks through that link and goes to Amazon and buys the book, you get about 5% of that sale. Becoming an Amazon affiliate is a residual income idea that benefits everyone involved.
So, if the book sells for $20, you’ll end up with $1. That’s not bad, but it’s also not great. Unless you sell 100 of those books in a month. And maybe 100 copies of Gordon Ramsay’s cookbook as well. Add in an all-clad chef series stainless steel kitchen set for $700. You see where this is going. It’s a great way to make residual income.
Amazon isn’t the only website that has affiliates. Smaller companies may be willing to give you up to 50% of a sale that is generated by traffic coming from your website. These businesses are usually selling—you guessed it—information products. They can afford this affiliate fee, given that information products are usually 90% profit for every sale.
Another method for how to make residual income with your blog is advertising. If you have enough traffic coming to your website, ad companies may be willing to pay you to place ads on your site. They can pay you based on the number of people who click the ad or simply the number of people who see the ad. Either way, with all these options, you’ll be able to make money while you sleep.
How to Get Started
While it can be tempting to want to pick five passive income ideas to get started with I’d really encourage you to pick one in the beginning. You need time and the ability to focus to really a grow a passive income stream. Master one thing before moving on to the other.
It’s going to take a substantial amount of time or money in the beginning but I promise earning passive income is everything it’s cracked up to be! Pick an idea, make a plan, and dedicate yourself until that income stream comes to fruition.
How to Build Residual Income
Depending on your interests, skills, and business knowledge, you can create sources of residual income that align with your experience. If you don’t have experience in a certain area but wish to learn, there are plenty of resources to acquire the necessary skills.
The main idea behind residual income is leveraging other people’s time and resources to achieve consistent revenue. Whether it’s an online product that continues to be sold or a rental property that is continuously occupied, residual income requires hard work at the beginning but the work and time tapers off once the investment is up and running.
In fact, many people have built their fortunes from residual income, all while achieving a more flexible lifestyle and earlier retirement. Residual income isn’t a get-rich-quick scheme. It’s a sustainable way to build wealth and increase your personal revenue with little effort to no effort.
How Are Passive Income and Residual Income Taxed?
Passive and residual income is taxable but not at the same rates as active income, and the amount you owe depends on numerous factors, like if the income is from financial dealings or real estate.
Active income vs. passive Income: Which is best for me?
In theory, all of your income sources carry similar weight. But when it comes to achieving financial freedom, passive income leaves active income in the dust.
You see, active income is the money generated from all those efforts you’re currently making. And you need to keep working if you want to continue making a living. If you quit, you don’t get paid. Your time literally equals money.
And then you have passive income. An income that doesn’t require you to work actively. And the money continues to flow in for years and years. If you’re looking to design a dream life where you are financially free, it might be better for you to focus on passive income.
Just remember, while you might be able to build a passive income stream with a small investment, you’re not making any less of a commitment than someone investing their time. Making passive income comparable to income earned from active efforts requires a good amount of work upfront.
Residual Income Idea 2: Property Rental as a Residual Income Business
Investment in rental properties is one of the oldest residual income opportunities on this list. You might be turned off by the idea of property rental because you think that you need to be a skilled handyman who is going to flip houses. But that’s not passive income. The labor that you put into fixing the house is directly connected to selling it. And, once you sell the house, you no longer get continuing income. You could start a house-flipping business where you hire contractors to do the renovations for you, but that’s a little off-topic.
With property rental, you purchase a property and then collect money renting it out to other people. This can include vacation rentals, apartments, housing rentals, commercial property, and even rental property for college students living off-campus.
Best of all, you don’t need to be a handyman to maintain the property. You can pay for the services of a property management company. This company will handle the maintenance and repairs of the property. You only pay for the property, insurance, taxes, and maintenance.
And this is where things can get a little complicated. Most properties that are going to be worth renting cost tens to thousands of dollars. Sure, you might get lucky and buy something very cheap at auction, but chances are it’ll need a lot of touch-ups, if not a full-on renovation. You’re probably looking at about $100,000 to buy a rental property.
If you’re in good financial standing and you understand the property market, a bank should be able to give you a loan at a decent rate. What you want to look for is a property that is positive gearing, or positive earning. This is property that is going to earn you money after you have accounted for your monthly payment on the loan, the taxes, the insurance, and the maintenance costs of the property. For example, you have to pay $1,000 a month on your loan. Your taxes, insurance, and maintenance fees combined cost $500. When you rent the property out for $2,000 a month, the property acts as a residual income business and leaves you with a passive income of $500 at the end of each month. Learn more about passive income tax.
Of course, there are some drawbacks and things you should be aware of with positive earning property. Mainly that it’s more of a short-term strategy. Fluctuations in property prices can cause your residual income to dip or disappear on certain properties. That’s why some property investors only own and make a residual income business out of these types of properties for several years and then they sell them off when the property market starts to dip.
You may be looking at property investment and think that it’s reserved for people with top hats and monocles. But that’s not the case. There are plenty of programs that let you invest in property for as little as five dollars. Rich Uncles is one such company. Other companies require larger up-front investments, but they’re under $1,000. These include Fundrise and Realty Mogul.
How Is Passive Income Treated for Taxes?
There is a specific tax definition of passive income, known as “passive activity” to the Internal Revenue Service. Passive income is any income you make without actively working or are materially involved. The IRS defines it as any rental activity or any business in which the taxpayer does not “materially participate.” Nonpassive activities, or active activities, are businesses in which the taxpayer works on a regular, continuous, and substantial basis.
If you are paid a salary, whether annual or hourly, that’s active work. If you don’t go to work, you don’t get paid. That’s pretty straightforward.
We want to make sure that we stay away from anything requiring “material participation,” as defined by the IRS:
- Put in 500+ hours in the business in a year,
- If you’ve done “substantially all” of the work in a business in a year,
- You’ve put in up to 100 hours and that is at least as much as any other person involved.
There is a tax reason for this definition too. When you are actively involved, your income is taxed differently.
If it’s more like residual income, it’s taxed more efficiently.
What is not passive income?
As we mentioned, passive income is often misunderstood and confused with side hustles. While a side hustle or second job is a great way to boost your income streams, unless it’s operating in a way that allows you to step further and further back (while earning more and more cash), then it’s not truly passive.
Your passive income is not…
Your job – The idea of a passive income stream is to boost your regular earnings or allow you to retire early. Your main job is not a passive income stream.
A side hustle – While a side hustle can potentially generate passive income, they’re more often an example of active income as they require your attention and effort to maintain. However, if your side gig allows you to step back over time without losing traction, this could become passive income over time.
Consulting – Consulting is an excellent side gig or online business if you have a specialist subject that you can share with the world, but it’s not a source of passive income. If you want to make passive income by coaching or consulting, you need to build your practice with others who could take on the hands-on element while you step back and enjoy the benefits.E-stores are going to make the big bucks this year.
You can do it too.
You can do it too.Show me how
Investing for speculation – You’ll often hear people tout investing in the stock market as a source of passive income. However, we disagree that investing for speculation is one of the best passive income ideas for one simple reason… Stock appreciation is not income. That said, investing in high dividend-yielding stocks is an example of passive income as this provides you a regular income injection without you needing to do anything.
A good trick for figuring out whether an investment is passive income or appreciation/speculation is whether you’ll see a cash on cash return like dividends (passive income) or if you only get a monetary benefit once you sell the investment (appreciation).
About the comments on this site: These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.
Nice comprehensive post Jim. Many good ideas but some do require up front investment in money or time. Just goes to show that making money doesn’t come without some form of effort.
Many passive income sources will require up-front investment but if you do it right, it can pay dividends for many years.