Earlier this week, J.D. wrote about what he calls the biggest truth in personal finance: You can't get rich through frugality alone. As Liz at Frugalwoods says, “You can't frugalize income you don't earn.” Income is one-half the fundamental personal-finance equation, and it's probably the most important half.
J.D. advocates a three-pronged attack for boosting income: becoming better educated, becoming a more valuable worker, and learning to negotiate salary. But I think he's missing a fourth important income source: the proverbial “passive income”.
I know, I know. Passive income has a bad reputation. Actually, passive income has a terrible reputation. And deservedly so. The Land of Passive Income is populated by scammers, hucksters, and charlatans. “Hey, little boy, wanna buy my course?” (Sorry, no links. They're easy enough to find without us helping them.) That's too bad because legit sources of passive income can be a great way to make more money.
What is Passive Income?
First up, let's be clear: Actual passive “passive income” (as pitched by the scammers) is a lie. It doesn't exist. When we talk about passive income, we're talking about ways to make minimal money with minimal effort. Does that make sense? And it's a supplement to your main income, not the primary source.
To me, passive income is money that’s earned, usually on a recurring basis, without a significant time investment.
For example, if you own a rental property that brings in $1500 each month, but only requires two or three hours of time to manage, that's (mostly) passive income. Most nine-to-five jobs are the opposite of this. The income you earn is tied closely to the amount of time you spend at the office.
That’s not to say that passive income doesn’t require effort, though.
Often, there’s a lot of upfront work required before income can become passive. Using the same rental property example, before you can make any money, you have to purchase and renovate the property, and spend time advertising and interviewing potential tenants. All of that takes time and money.
Passive Income Ideas You Can Try Today
Some degree of passive income is possible — and without shyster shenanigans. In this article, I’ve compiled 40 passive income ideas for you to consider. Not all of these passive income ideas will be right for you. In fact, maybe none of them will fit you. That's okay. But I'm willing to bet that many GRS readers will find at least one source of inspiration here that they can use to help increase their income…even if it's only a few dollars per month.
Pay Down Your Debt
Debt reduction isn’t the first thing that comes to mind for most people when they’re looking for ways to increase their income. But it should be.
Monthly payments on anything from high-interest credit cards to expensive car loans can be a real drain on your bottom line. Sometimes the easiest way to improve cash flow is not to make more money, but to lower your expenses.
I recommend that you start by totalling up your debt, and then look for ways to pay it down more quickly. Depending on your situation, you might consider combining everything into one manageable payment, by taking out a consolidation loan. If you do have a large car loan payment and are feeling stuck, you might be better off, in the long run, cutting your losses, and downgrading to a more modest vehicle.
(Need more help? Here's our guide on how to get out of debt.)
Invest in a High-Interest Savings Account
There’s no longer an excuse to have your cash sitting in a checking or savings account not accruing interest. These days, you can find a ton of online savings accounts offering a solid yield. Everything about this income is passive. In most cases, you can open an account within minutes from the comfort of your living room, have your funds transferred in, and start earning interest on your cash savings almost immediately. You won’t get rich with a savings account, but it’s a great way to get your emergency fund working for you. Here’s a list of some of the top savings accounts available today. Remember that rates are subject to change:
Invest in Certificates of Deposit
If you are interested in earning a higher yield on your money than a savings account will offer, without the volatility that comes with stock market investing, a Certificate of Deposit (CD) can be a nice alternative that will earn passive income. CDs are commonly offered by banks and credit unions, and allow you to invest your money for a fixed time period, from just a few days to several years. Typically, the longer you lock in your money, the higher the return. CD yields should keep pace with inflation, with the downside being that you don’t have access to your funds on a day-to-day basis. What they do give you is a source of passive income without the risk.
Earn Income in a Checking Account
Checking accounts are not known to be a place where you can earn income, that’s what savings accounts and other investments are for. But these days, there are a growing number of checking accounts that will pay you a tiny percentage yield on your balance. While it may only be a couple of dollars here or there, it can help to negate some of the other fees you might incur on your account.
Use a Rewards Credit Card
One of my favorite ways to make passive income is by using a rewards credit card. Every month, I run the majority of my spending through my travel credit card, which in turn earns points that I can use to pay for flights, hotels, car rentals, you name it. The card also comes with private airport lounge access and a full suite of complimentary travel insurance.
Of course, credit card points will only benefit you if you are able to pay off the balance in full every month. If not, the interest you’ll pay will far exceed any points you’ll earn towards free travel or cashback. If you don’t already have a travel rewards credit card or aren’t happy with yours, check out our handy travel credit card comparison tool.
There's no shortage of ways to make passive income. What’s interesting, is that most of the ideas I’ve come up with are things that you can do online, from the comfort of your home. Of course, it’s important to remember that passive doesn’t mean easy. There can be weeks, months, even years, of hard work that goes into building an income stream. And sometimes your effort won't pay off. (J.D.'s girlfriend tried to start an online business a few years ago. If it had worked, she would have had a stream of nickels. She only got pennies instead, so decided to shut it down.)
Passive income takes time and effort. But if you’re patient, the payoff can be worth the effort.
https://www.getrichslowly.org/passive-income-ideas/