With inflation a, the prices of almost everything are high for Americans. Even if you have enough to pay the bills, you may be worrying about earning enough for retirement or just having a cushion.
Enter passive income. That’s a flow of funds that, once things are set up, usually takes little regular effort to maintain. You may have heard the phrase “make money while you sleep.” That’s a passive income, while active income involves trading time for money.
“In this modern world, where even if you have a salary, it’s still good to have multiple sources of income,” says Cynthia Meyer, a certified financial planner (CFP) at Real Life Planning in Gladstone, New Jersey who works with real estate. investors.
Are you interested in getting some extra income? Here’s what you need to know about getting a passive income, including how to get started.
8 passive income ideas
There are dozens of types of passive income streams. You should be able to maintain your daily work while generating passive income.
Need a passive income idea? Here is a quick list.
Regular interest on a certificate of deposit (CD), a US savings bond, or a high-yield savings account can be beneficial as interest rates rise
Dividends of shares or other investments
Royalties from a creative endeavor like a book or website
Affiliate marketing, making money by posting ads or posting monetized links on your website or social media account, or even curled up around your car
activities like starting a blog, doing surveys, or testing apps (you can set up a free blog easily; just follow these simple steps)
Money from a rental property
Rent your home in the short term
Sell items in markets like eBay or Amazon
“They’re not all necessarily passive. They may involve some activity, but once this kind of lateral agitation is underway, it may not require too much effort,” Meyer points out.
How to set up a passive income source
In some cases, such as buying stock or property, you need cash in advance. Others, like affiliate marketing, take time to set up and a lot of sweat. You must also weigh the risks in the face of the probability of regular income. Lending money can be riskier than buying stocks that pay dividends or a savings bond, experts say.
A dividend, for example, “provides a decent return on investment and is very reliable, effortless,” says Erin Hadary, CFP of Deneta-based Moneta Group Investment Advisors. “However, you need a lot of money to make money. $ 100 [per] month would take about $ 40,000 invested in a 3% dividend stock basket.
Are there any types of passive income that require little money to get started?
Yes, but be prepared to put in “sweat equity” – your time. Activities such as affiliate marketing or renting your home require an initial setup and may require maintenance to produce a steady stream of money.
Intellectual property royalties such as books, patents or music may also provide passive income. You should always thoroughly research your idea before launching. “Most people severely underestimate how difficult it is to make money consistently with books,” Hadary says. Other categories may “require cash in advance.”
How long in advance will I need to invest to get passive income?
The settings vary depending on the type of revenue stream. Take real estate. Unless you’re in the real estate business as a profession, like real estate agents, the Internal Revenue Service (IRS) generally considers these types of investments passive income, Meyer says. Be sure to check out the IRS website for more information on passive income, such as rental property. “Speaking in practice, it’s both passive and active,” Meyer says. “It’s passive in the sense that you’re getting rent every month, but you still have to manage your property as a business. That would be the warning.” it can be work in advance to set everything up as well as regular maintenance.
“Whether or not the tenant pays the rent, you still have to pay the mortgage, the property taxes and the insurance and things like that,” Meyer adds. Some investors hire management companies to take care of those details, making the investment more passive, Meyer points out.
Can you earn enough with passive income to make a living?
In some cases, yes, experts like Meyer say. But it takes time to build.
“To live off your property, you’re looking for a positive cash flow,” Meyer says. “So even in an environment like the current one where rents in general are going up, it takes a while to build up a compound yield. It takes a while to get to the point where you’re like, ‘Wow, that’s really a lot of money.’
Depending on the passive income mechanism, establishing an income stream can be daunting (or even temporary). Instagram accounts and blogs may lose popularity, for example. And remember, most passive income streams require serious exploration and work to set up. Others can be risky, experts say. “Unfortunately, it’s almost impossible to find a real passive option,” Hadary says.