You’ve probably heard the term passive income.
It sounds appealing right? According to the definition of passive, it would mean you’re earning income without participating or having to do anything at all.
Free money? Sign me up!
Unfortunately, that’s a common misconception. Just like you can’t pluck money from a tree, you can’t expect to earn passive income by being, well, totally passive.
However, it’s a viable way to make money, and offers you security and freedom.
If you’re interested in establishing a flow of passive income, here’s a guide to understanding the term and getting started
What Is Passive Income?
To get the best understanding of passive income, I chatted with some passive income experts.
Todd Tresidder is a wealth coach and the founder of Financial Mentor. He’s a big proponent of passive income. In fact, he has several passive income streams set up.
Tresidder defines passive income as, most simply, “income that comes in without regard to your time.”
But — and this is a big “but” — it’s not mailbox money; it’s not money that just appears.
He also calls it “lagged income.”
“Often in passive income, you have to commit the time and energy up front,” he says. He describes it as a machine; you need to build the machinery before the machine can work without your assistance. The income is lagged.
Brad Hines, another big fan of passive income, estimates about 10% to 15% of his income is passive. He first heard the term years ago and was immediately intrigued. However, he admits it’s been a longer and more difficult process than he thought (think: the time required up front).
Hines compares passive income to its counterpart, active income. That’s the money you’re actively working to make, like at your day job.
“When zero of your money is passive income, that inherently means every minute you’re not working, you’re not making money,” he says.
What’s the Importance of Passive Income?
“Freedom,” Tresidder says when I ask him this question.
“The reason you establish a passive income is because it’s not connected to your time, which gives you the freedom to do other things with your time,” he explains.
Because Tresidder has multiple channels of passive income, he uses his freedom to travel when his kids are on summer break. For example, last year the family took a two-month trip to Europe where they hiked Spain’s 500-mile Camino de Santiago.
“I’ve designed my life to be free and flexible,” he says.
So has Hines.
“The more you’re earning passively, the less you’re becoming a slave to money,” he says. “I can go where I want, when I want.”
Passive income is also important for the financial security it can offer. Although you might take a risk when first establishing it, if it proves to be a steady flow, it offers great security because it’s not connected to your time.
So, for example, if your spouse gets sick or if you can’t work, the idea is you’ll still be earning passive income to pay those never-ending bills.
“No matter who you are — especially if you have debt or student loans or kids or whatever — the more you can get your annual income switched to passive, the better off you are in the future,” Hines says.
15 Passive Income Ideas
Just like everyone else, passive income has various definitions. The one you’ll want to study is from the IRS, which has its own, very specific definition. Take a look at that before next tax season.
In the meantime, you can start small with these ideas, then work your way up like Tresidder and Hines did. Think really big like starting a business or investing in real estate.
Really, the possibilities are endless, so don’t begin to consider this is a finite list.
1. Sell Your Photos (Nope, You Don’t Have to Be a Professional)
Those thought-out photos you take can get you more than just Instagram “likes.”
Hines uploads his iPhone photos to stock photography sites. He says many of them are trying to get away from the “perfect” photo and are looking for more realistic images. After a quick upload, he’ll get email notifications when someone purchases his work.
You likely won’t become a millionaire; Foap, for example, splits the profits with the photographer evenly.
2. Create a Website
…like everyone else you know, right?
Hines says starting a profitable website can be difficult because the competition is fierce; you’ll have better luck breaking into a niche market.
The upside is that it costs little money to start one — and there’s little risk. Your startup expenses might only include purchasing a hosting package. For a new blog, this is affordable through channels such as Bluehost, which offer packages starting at $2.95 a month.
To earn money through your site, learn about affiliate sales. For example, Hines has a site called Nerd Playthings. He lists about 45 toys and gadgets — none of which he made — all linking back to Amazon via Amazon Affiliates. If a consumer clicks on a link and buys the product, he’ll bag some money.To learn more about this, we have a whole guide on how to make money blogging.
3. Make Money Off Your Extra Space
Got a room? A garage apartment? A tent? Establishing passive income in real estate doesn’t have to start with a huge investment.
You can list your space through Airbnb.
Use Airbnb’s price calculator to see how much money you could make in your area.
Tonya Peters’ husband, Miles Rugh, was one of those skeptics.
She wanted to list their Virginia Village basement apartment in Denver, Colorado, on Airbnb, but he wasn’t keen on welcoming strangers into their place.
Finally, though, he agreed to give it a try. Now, three years later, the couple has hosted too many guests to count. And the extra income has been great for them. They plan to use it for some home renovations they’ve been wanting.
“He’s definitely changed his tune,” says Peters, now an Airbnb Superhost. “And he loves having the extra income.”
(Hosting laws vary from city to city. Please understand the rules and regulations applicable to your city and listing.)
4. Buy a Gumball Machine
Scratching your head yet? Hines actually used to make money from those gumball machines you see in restaurants; he’d get 80% of the profit.
You can also look into the same idea with vending machines. There will be some management you have to do, but, again, it’s one of those hybrid passive income sources.
Plus, it’d be kind of cool to say, “Fun fact: I own a gumball machine.”
5. Design Greeting Cards
You can design your own greeting card through a site like Card Gnome. It’s basically an Etsy for greeting cards. All you have to do is design the card and put it up for sale.
Each time someone buys your card, you’ll get 10% of the purchase. Once you hit $10, you’ll be able to cash out.
One and done.
6. Create an E-Course
One of Hines’ biggest pieces of advice was to “take whatever you’re doing as a day job, and teach what you know by creating an information product and get money from that.”
7. Sell Random Stuff on Sites Like Zazzle
By random, we mean… pretty random.
If you have art, designs or photos, you can publish them on any kind of product you can think of: invitations, T-shirts, mugs, pillows, phone cases… Then set your own royalty rate (that’s the percentage you’ll rake in from 5% to 99% ), and you’re done.
You won’t have an inventory to handle (no production, no shipping).
Find out more about selling on Zazzle, or look into other platforms, like Amazon.
8. Get Cash-Back with Credit Cards
You’re already shopping, right? A passive way to earn income is to sign up for credit cards that offer cash, or points, back.
It’s important to remember that for this to truly be passive, you’re not spending money for the sake of earning points or cash back; you’re spending it like you normally do.
9. Teachers (or Not): Sell Lesson Plans
This idea is especially useful for teachers who are already frantically cranking out lesson plans. If you find one you’re really digging, put it up for sale on a platform like Teachers Pay Teachers. This helps other teachers across the world — and gives you some income.
10. Stick an Ad on Your Car
Do you already drive a lot? If so, consider slapping an ad on the side of your car.
One rideshare driver makes an extra $250 a month from car-wrap ads.
Steve Gillman explored the method of income. For example, you could earn $100 a month from a platform like Carvertise with no upfront costs.
You’ll likely have to answer questions about your driving habits, and you’ll have a better chance of getting selected if you live in a bigger city and drive a lot.
11. Make YouTube Videos
Think you have something that might go viral? Or have expertise in something folks might be interested to learn? Make a YouTube video, and establish a passive income.
Gillman has done just that. He’s monetized his YouTube videos with Google AdSense. For example, he shot ten videos about ultralight backpacking. No, they didn’t become huge hits, but he has made more than $1,000 over the years.
12. Publish an E-book
If you have a way with words, or an intriguing life experience, you could write a book. But there’s no need to send it off to all the major publishing houses in New York City.
You can publish e-books through Amazon’s Kindle Direct Publishing platform. Again, Gillman did this (because what has he not done?!).
He wrote a book in a week. Note: E-books don’t have be hundreds of pages long. They can be as short as 6,000 words.
After publishing it on Amazon, he started making $350 a month.
13. Use Cash-Back Apps While Shopping
Just like the cash-back credit cards, remember that you have to actually shop and buy this stuff — with zero regards to the rebates.
If that’s the case, this can be considered passive income, according to Hines.
While grocery shopping, you can use an app like Fetch Rewards, which will turn your receipts into gift cards. It partners with tons of brands to give you points for every grocery receipt you share. Then you can exchange them for gift cards to places like Amazon, Walmart, Chipotle and dozens of other retailers.
All you have to do is send Fetch a photo of your receipt, and it does everything for you. No scanning barcodes or searching for offers — and you can use it with any grocery receipt.
Start snapping photos of your recent receipts to see how many points you can earn without a single trip to the store!
14. Rent Out Your Car — or Other Stuff You Don’t Use Regularly
Got a car? A driveway? Some tools? Baby gear? Whatever it is you have, you can probably rent it out.
Just like renting out your space, this will require some maintenance and upkeep unless you go through a broker, but it can yield some solid passive income.
15. Share What’s in Your Fridge
You can also earn passive income by sharing your information with research companies.
The Nielsen Consumer Panel is one such option. Once you sign up to be on the panel, you’ll gain access to the NCPMobile app. (If you don’t have a smartphone, Nielsen will send you a scanner.) As you unload your groceries after your next shopping trip, simply use the app to scan items’ barcodes.
Nielsen will reward you with points, which you can redeem for free gift cards, electronics (new TV, anyone?) and household items. The longer you stay on the panel, the more opportunities you have to earn.
Applying to become a panel member is straightforward. You’ll answer some basic questions about you and your household, then Nielsen reviews your application and will contact you when you’re eligible to join.
As mentioned, there are tons of ways to establish a passive income; these are just a few. Just be sure the offer is legitimate. Do your research, and remember that if it’s too good to be true… it probably is.