The highlights
- Earning passive income means making money outside of your primary job over time, ideally with minimal effort or time.
- Earning significant passive income often takes money, time, or effort—or a combination of the three—before it can become self-sustaining.
- Although they can be complex, popular strategies for earning passive income include investing in rental properties or dividend stocks, or self-publishing.
Passive income is a little different than most side hustles because it’s usually about making an upfront investment you can earn from. This could mean buying a rental property or using your professional or creative skills to create an online course or an e-book to sell.
“Establishing multiple streams of income can sometimes be a great way to boost your financial well-being,” says Brian Ford, Head of Financial Wellness at Truist.
If you’re curious about creating your own passive income streams, here are some tips and steps you can take that may help you get going.
Invest in real estate, stocks, or bonds
When thinking of traditional sources of passive income, many people think about buying a rental property or investing large amounts of cash into dividend stocks or bonds. With a rental property, you can outsource the property management and earn income each month from your tenants. And with dividend stocks or bonds, you can earn a cash yield that may be paid on a quarterly, semiannual, annual, or even monthly basis.
While these methods may be the more commonly known ways to earn passive income, they also typically require a lot of upfront capital. But there are several other approaches you can take to try to earn passive income that may not require as much money—and you may find that some fit your passions or interests more.
Capitalize on your creative and professional skills
Outside of investing in real estate, stocks, or bonds, here are some possibilities for earning passive income outside of investing:
- Starting a low-maintenance business: This may not sound “passive” at first, but if you focus on types of businesses that could allow you to be more hands-off once they’re established—like vending machines, automatic car washes, or storage units—then you could start to build passive income as a business owner.
- Renting out your car: The short-term rental industry has evolved to include more than just mountain cabins and beach getaways. If you own a vehicle that you don’t need every day, then you may be able to make money by renting out your ride to travelers through a car rental platform.
- Monetizing a blog: Start a blog on a niche topic to build an audience. Later, you may be able to monetize your work through ads and sponsorships.
- Self-publishing e-books: Have a passion for writing? Many aspiring authors have found varying levels of success self-publishing their own e-books.
- Creating digital tools or online courses: In addition to e-books, if you have a particular skill or talent, you may be able to turn it into a sellable digital template or guide—whether it’s for resumes, budgeting, or exercise. Some platforms even allow you to earn passive income from courses you build that others can pay to access.
- Building apps: Got programming skills—or an idea for an app? You may be able to turn apps you create into streams of passive income.
Do your research.
Ford says that—like with most entrepreneurial endeavors—you’ll likely go through a trial-and-error process and have to learn as you go. So one of your first steps to start generating passive income should be to research the approaches you’re most interested in.
For example, if you’d like to take a shot at self-publishing, learn from others who’ve done so successfully by reading about how they did it and finding guides online. Or if you’re interested in real estate, speak to an expert or someone you trust who has experience.
“Education is key when it comes to exploring and developing sources of passive income.”
–Brian Ford, Head of Financial Wellness, Truist
Think long-term.
While establishing passive income often requires a significant upfront investment of your time or money, that potential stream of residual income will ideally require much less effort to maintain over time. Seeing the long-term picture and taking a slow-and-steady approach may help you succeed.
Passive income vs. side hustles
No passive income stream is truly hands-off. Writing an e-book or growing an influential blog takes time and effort—and even financial investments take some time to monitor and manage.
In many cases, passive income starts as a side hustle—something you actively build before it can generate earnings on its own. So if you’re looking for more earning opportunities, you could consider exploring side hustles or freelancing.
Read more: 7 tips for starting a side hustle
More than 1/3 of the U.S. workforce takes on freelance work,Disclosure 1 whether it’s some type of consulting, content creation, or e-commerce. If you’re successful with freelancing or a side hustle, you may eventually find ways to make those income streams more passive.
If you’re not sure where to start, try brainstorming ideas for what your passive or freelance income opportunities could be. Ask yourself questions like:
- What types of passive income streams interest me most?
- What skills do I have that I want to use? Or what new skills could I learn?
- How much time do I have to spend on creating or managing passive income streams?
- Am I willing to learn the fundamentals of the approach I want to take?
- What will it cost to start?
How earning passive income could help your mindset
Boosting financial confidence: Extra income can make it easier to repay debts and save money for future goals or emergency expenses. So earning passive income may be a proactive way of taking care of your financial well-being—which can also have a positive mental impact.
Read more: How to build an emergency fund while paying down debt
Offering more freedom: When you start making money from passive income, you may gain confidence or flexibility so you can explore your passions. It may help you feel more in control over how—or where—you spend your time.
Providing a creative outlet: This may be particularly true if you’re able to turn a creative hobby, like writing, into a source of passive income. Exploring your creative talents may also open up more potential earning opportunities.
If you’re looking to find long-term financial momentum and freedom, consider working on different ways to earn passive income. After the initial work of establishing additional income streams, the rewards can potentially be reaped for years to come.
Next steps
- Think about ways that you could realistically start earning passive income. Consider what resources, skills, or passions you have that you could leverage.
- Start small if needed. You may not have enough money to buy a rental property right now—but you may have enough to start investing in dividend stocks or other stocks that provide passive income.
- Check out our guide to budgeting if you want to find room in your budget for investing in a source of passive income.