Most people would love to earn money while sleeping or partaking in their favorite pastime. However, if you are like others, you may wonder if that is even possible.
The good news is that it can be. But, you must first learn how to generate passive income and then start taking action. Today, you will learn how to do just that.
Passive Income Streams
Generating passive income streams is a critical step of your financial plan.
Because there are various ways to generate passive or residual income, you must determine which methods work best for you and your situation.
Some of the most common ways to earn passive income include:
- Guaranteed annuity income
- Dividends from stocks
- Interest from bonds
- High yield savings accounts
- Real estate investment trusts
What is residual income?
The terms passive income and residual income are often used interchangeably. However, the terms have different meanings depending on the situation.
Residual income in your personal finances is the money left over after paying your expenses. In a business, it is the money left over after a minimum acceptable return.
Passive income is the income a person or business generates with little or no ongoing effort. It is also a critical part of a successful financial plan and makes wealth building easier.
For example, if you or your employer accumulate a lump sum of money, invest it, and receive passive income for your or your spouse’s life, that would be considered passive income.
When discussing residual income, we refer to income you earn from ongoing work. This can be from a rental property, a membership, money you generate from an online business, social media promotions, digital products, affiliate marketing, or creating content, to name a few. These would be residual income streams because you typically must continue to do some work to ensure that the income stream continues.
What are the best types of passive income?
Another consideration before investing your cash in a guaranteed income account is your potential need for the money. Generally, you lose access to the principal once you invest in a guaranteed income stream.
Some experts dislike this option because they believe you can earn more money in other investments. And while this may be true, it is ideal to factor in peace of mind and risk tolerance. This option may be excellent if you do not want to lose money or prefer a consistent, predictable income stream.
Because your situation differs from others, an independent review can provide you with options and ideas you may not be aware of.
Options to consider when determining how to generate passive income
First, determine how long it will take to accumulate the necessary lump sum. Then, determine the effort and time to create your desired cash flow.
Determine how to generate additional income
The first option would be to accumulate $100,000 and invest it in a guaranteed annuity. For example, let’s assume it generates $6,000 annually in income. That would be $500 per month before taxes. You would have virtually no ongoing work to receive the $500 monthly income stream.
Several factors determine the income you will generate, including your age, selected product, the interest rate earned, and the current economic environment.
The second option may be a side hustle where you sell products and services.
First, determine how much time and effort it will require for you to create and deliver the product or service and generate an additional $500 per month in income (equivalent to the annuity income example above).
The third option could be to ask for a $500 monthly raise from your full-time job.
A fourth option could be finding a second job where you earn $500 more monthly.
Finally, you may be able to combine these options so you can generate the income you need each month.
Creative Passive and Residual Income Ideas
Rent out a room, apartment, or your home.
If you have an extra room, an apartment, or you are traveling, consider renting your house to generate extra money. You can advertise your rental in a local newspaper or advertise on a popular rental website.
To find the best option, ask other property owners or search online. This can be a great income generator, especially if your home is in a desirable location.
Renting out a room has several advantages. First, it can provide companionship if you are single. Second, it can provide additional money to help you pay for expenses or save more. Third, it can provide safety in the event you need support.
While some labor and expenses are involved (i.e., paying for the ads, house cleaning, utilities, and maintenance), this income method may require less work than other options.
For this to work, you must have clear, written rules, a legal contract, and ensure you enjoy having other people in your home.
Always check with a qualified advisor before deciding how or where to invest your money.
If you have questions or need help, click here:
Dropshipping is where you sell products online, and a supplier ships the products directly to the customer.
The main difference between dropshipping and the standard retail shipping model is that the seller does not own or stock inventory, and the supplier acts as the middleman.
Dropshipping can be a great option because less money is required upfront. And it often is easy to set up. You do not have to handle inventory, rent a warehouse, pack, or ship orders. You also do not have to track or account for inventory, handle returns, order new supplies, or manage supplies and orders.
Create a side hustle
Another way to generate income is through a part-time job or side hustle.
- Affiliate marketing
- JV partnership
- Part-time job
- Virtual assistant
- Writing a book
- Creating a course you sell online
Let’s review these in more depth:
Affiliate marketing is where you earn a commission for promoting someone else’s product or service.
For example, if you sign up for an affiliate program and promote a product, you will earn a commission every time someone buys a product or service through your unique link. This can be a great way to generate passive income if you have a blog, podcast, or website.
It can also involve placing ads or banners on your website or blog.
Affiliate Marketing Advantages
While there are many advantages of affiliate marketing, some of the most popular include:
- It is often free and easy to get started
- You do not have to handle any inventory
- It is a way to generate passive income
- You do not have to create a product or service
- There are a variety of products you can promote
One consideration with affiliate marketing is how you are paid. Some affiliates pay you for selling all products. Others only pay you for selling specific products or services.
Another practice is to pay you to promote an individual product at a specified time. This model will not pay you if someone uses your link outside this time frame.
For these reasons, you must read the fine print and understand how you will be paid. You do not want to work hard to promote a product or service only to discover that you do not get paid if they buy outside the specified time frame.
A JV (joint venture) partnership is an income source where you partner with someone else to promote your product or their product. For example, if you have a blog, you could partner with a company and promote their products on your blog or visa-versa. As a result, you earn revenue because you can make a commission by promoting someone else’s product.
Examples of JV Partnerships
- Bloggers who partner with brands to promote their products
- YouTubers who partner with companies to promote their services
- Social media influencers who partner with companies to promote their products
As a result of these options, you sell more products and services to a larger audience.
While many people view affiliate marketing and JV partnerships as the same, they differ slightly.
With affiliate marketing, you only earn a commission when someone buys a product through your link. With a JV partnership, you make a commission for promoting someone else’s product, but you may also receive other benefits, such as:
- Access to exclusive services or products
- Early access to new products or services
- Promotional opportunities not available to others
- Collaboration opportunities
Because these arrangements vary dramatically, always read or have an attorney review the agreement before proceeding.
Become a Virtual Assistant (VA)
A virtual assistant provides services to their clients online. For example, as a VA, you may respond to emails, post social media updates, or write, edit, or transcribe articles. Other tasks may include managing a calendar, scheduling appointments, planning travel, designing graphics, accounting, etc. This is a great way to generate income because you can do what you love and enjoy while working at home and setting your schedule.
Write a book or eBook.
Consider writing a book if you are familiar with a niche or have the expertise.
My first online book, The 7 Principles of Becoming a Millionaire for Life, has sold thousands of copies. I wrote it, updated it twice, and it continues to sell.
Other book topic samples:
- Creating connections on LinkedIn
- How to Generate Income from Real Estate
- Money Mindset
- Business Made Simple
- How to Sell Anything
- Marketing Made Easy
- How to Generate Passive Income
- Raising Kids to Become Adults
The list is endless, so take a minute, consider your passions and expertise, and then start writing!
Create an online course
Think about a topic you have the expertise or are passionate about.
Some examples where people have generated significant revenue include how to:
- Make Holiday Decorations
- Sell on eBay
- Knit or Crochet
- Tame your Doberman
- Travel on a Budget
- Home School Your Kids
- Create a YouTube Channel
- Become a Virtual Assistant
- Generate Revenue from a Blog
- Sell on Etsy
- Make an Online Course
- Market an Online Course
- Generate Income Selling on Amazon, Shopify, or Dropshipping
- Raise Kids to Become Adults
- Become a Millionaire
- Make Money in Real Estate
Different platforms can build a website for your course if you do not want the hassle of building and maintaining a website. Examples include Kajabi, which we currently use and love, Udemy, and Teachable.
This is another way to generate revenue.
Content marketing consists of creating content around a topic that ultimately leads to a product or service sale. Income can be generated by the business owner selling the product and by the person creating the content for the business owner.
The most successful brands focus on a niche market and provide value to their current and ideal prospective clients.
You can use various venues to provide content to your ideal avatar, so take time to determine what your client wants.
Common examples include:
A blog is a place to write articles about topics your ideal client is passionate about. For example, suppose your client is interested in generating passive income or becoming financially free. In that case, you could start a blog about how to generate revenue and achieve financial freedom. You can monetize your blog through paid ads, sponsorships, affiliate marketing, or selling a product or service.
A podcast is a similar means to an end, like a blog. Whereas the blog is written, the podcast is in an audio format. For this reason, many believe it is a better format to create a deeper bond with their ideal prospect. That said, it is all about your audience and what they want.
A popular format for podcasts is to interview different experts. This can be ideal because your guests can promote the episode, which will help grow your audience.
A vlog is a video blog. Some feel it creates a deeper relationship because your audience can see and hear you. And while that is likely true, videos require a lot of time and resources. Popular options to share your video include YouTube, Instagram, Linked In, and Facebook.
The best option and location for selecting a vlog and determining where to publish your videos depends on your niche market and expertise.
In addition to generating passive income by creating videos, you can earn revenue by supporting the various aspects of video production and promotion.
Ways to monetize a video include advertisements, sponsorships, affiliate marketing, JV partnerships, sale of your products and services, crowdfunding, pay-per-view (PPV), donations, and merchandise, to name a few.
In addition, once you get to a certain number of watched hours and subscribers on YouTube, they will pay you for advertisements. Because their requirements may change, always check the current rules.
Other Considerations on Ways to Generate Passive Income
If you love photography, you could sell your photos online. Go to iStock and search for your favorite topic.
You will find photos of travel, people, animals, nature, business, marketing, and social media, to name a few. These photos were taken by a professional or semi-professional who is now selling them online and making money.
If you are an excellent writer, you can edit and ghostwrite for people and get paid. You can write or edit general topics or specialize in a field. Examples include health, money, law, medical, finance, relationships, travel, yoga, spirituality, etc.
Food delivery or driving services are also viable “side hustle” options. That said, you need to consider the cost of fuel, maintenance, and depreciation.
Another interesting idea is to place an advertisement on your car. People report earning hundreds of dollars per month simply by driving around town with the ad on their car. There are mileage requirements, and you also need to consider the cost of gas and maintenance. This could be an excellent revenue-generating option if you are already driving!
Final Thoughts on How to Generate Passive Income
There are several methods to generate passive income or additional revenue. The key is to determine what works for you and then begin.
If you need help identifying your specific expenses, go here to download the Magical Budget Template. This budget will show you how to separate wants and needs.
Once you calculate your expenses, determine your current income from all sources.
Examples may include:
- Your career
- Side hustles
- Gifts in the form of cash
- Anything else unique to your situation.
Then, from your total income, subtract your “need expenses.” These are mandatory and come from your checking account, e.g., mortgage, utilities, daycare, investments, retirement, etc.
Deposit each paycheck into your savings account. Then, transfer your “need expenses” to your monthly checking account.
Once you determine the “want expenses,” confirm how much you can spend on these non-essential expenses. Then, take that amount out of your savings account in cash. The “want expenses” are paid in cash. As a result, you do not exceed your budget.
Once you spend the “want budget” cash, your cash will not be replenished until the next month. Examples of “want expenses” include:
- Food (because it is so easy to overspend in this category)
- Clothes, to name a few
If there are other expenses you would love to afford, include those in your notes under “future expenditures.”
Do your best to save some of the cash each month and accumulate money in your savings account so that you can afford your desired future expenditures.
Samples of future expenditures:
- Donations to your favorite charity (This could benefit kids, animals, cancer, heart, diabetes, Alzheimer’s patients, or any organization you care about!).
- Purchasing your dream home
- Scholarships for at-risk kids
- Traveling to a bucket list destination
- Paying for your grandchildren’s college education
- Helping those less fortunate
The most critical action you can take today is to commit to starting your plan.
If you do not feel ready to create a plan, hire a financial advisor or money coach to help you create your strategy.
The best news is that by creating and implementing a plan, you are one step closer to reaching your financial and retirement goals.
Your Next Step Financial Step
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