As a stockbroker, I saw people use many ways to build wealth. Some chased penny stocks, while others diversified their portfolio of investments.
The people who stuck out followed Warren Buffett’s philosophy of making money while you sleep. That is the idea of passive income.
This is income you earn that takes effort to establish but minimal to no work to keep going. In this guide, we share a few of the best ideas to earn passive income so you can have financial independence.
What is Passive Income?
Passive income is cash you earn from doing a minimal amount of work. In most instances, it takes some initial effort to establish the opportunity, but long-term requirements do not require extensive labor.
Many articles claim that side hustles are a form of passive earnings. While side jobs are a fantastic way to make extra cash, they represent active income.
The opportunities on our list involve minimal time and effort. When done wisely, you can pursue any you wish, create multiple streams of income, and maximize your efforts to reach your financial goals.
What Are the Best Passive Income Ideas?
There are many opportunities to make money while you sleep. When you first begin, it’s essential to only pursue options you’re comfortable with and fit your risk tolerance.
Here are the best passive income ideas to start today and create multiple streams of cash flow.
1. Invest in Dividend-Paying Stocks
Investing in dividend-paying stocks is one of the classic passive income sources to grow your wealth. Dividends are funds paid to investors for holding shares of a particular stock.
In most situations, this is cash you receive at a given interval. Most stocks that pay dividends distribute them quarterly, though it’s possible for them to be disbursed monthly or semi-annually as well.
You often have two choices to manage the dividends. These include:
- Reinvesting the cash by purchasing additional shares of the stock
- Receiving the funds as cash to spend or use for other investment opportunities
Investing in the stock market is not without risk, and there is potential for loss. However, it is a method countless investors have used for many decades and is one of the most popular ways to earn mailbox money.
Performing your due diligence is vital when you invest in stocks. While many dividend-paying stocks are considered blue chip and well-known, it’s important to determine if they fit within your risk tolerance.
If you would rather not manage individual stocks, you could consider index funds that house various dividend-paying stocks.
SoFi Invest is our top choice for new and seasoned investors alike. The online broker has no minimum balance requirement, you can trade stocks commission free, and it has minimal management fees.
Additionally, SoFi has a wealth of investment options, from mutual funds to crypto. It also has a broad range of financial products, including banking services and credit score monitoring.
If you want a more guided approach to investing, M1 Finance is a suitable alternative. The broker that lets you invest in premade expert pies of stocks. You can also create your own if you are a DIY person.
It’s free to build and invest in a portfolio regardless of the path you choose.
The broker offers free quarterly auto rebalancing and allocates each contribution to your portfolio to ensure it stays on track. This is provided at no charge, and there are no minimum deposit requirements.
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No management fees make it easy to transfer over old 401(k) and IRA plans.
2. Invest in Crowdfunded Real Estate
Investing in real estate is an excellent choice to generate passive income. Furthermore, it’s no longer just for people with significant means.
Thanks to crowdfunding, you don’t need much money to start. Many platforms have minimum requirements of $1,000 or less.
Fundrise is our top-rated choice to grow your portfolio. You only need $10 to start investing, and they offer a mix of commercial as well as residential properties.
Better yet, they even offer IRAs if you want to include real estate in your retirement plan.
You invest in Real Estate Investment Trusts (REITs) on Fundrise and similar platforms. Through the REITs, you accrue earnings from sales and income from selected properties.
No expertise is required on your part to get started. You simply open an account and invest in the fund that best matches your goals. The fund manager chooses the investment properties.
Like stock investments, returns do vary with Fundrise. Their return was just shy of 23 percent for year-end 2021.
Many people only look to stocks for investment ideas. Real estate is an excellent alternative to the stock market that adds diversification and another potential passive income stream.
Read our review of Fundrise to learn more about the platform.
If Fundrise doesn’t work for you, EquityMultiple is a great alternative. The broker requires $5,000 to open an account and focuses largely on commercial real estate.
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$10 to start
This popular crowdfunding real estate platform makes it possible to invest in real estate with as little as $10!
3. High-Yield Savings Accounts
A savings account doesn’t sound like one of the best passive income ideas, but it serves two purposes.
First, you don’t want your cash sitting and earning nothing. Second, you need to maintain a level of liquidity as you pursue additional income-producing assets.
A high-yield savings account or a money market account can help you accomplish both of these objectives. Additionally, it helps ensure you have a healthy emergency fund.
CIT Bank is our top-rated online bank. Its money market account currently pays 1.55 percent and requires a low $100 balance to start.
If you want to earn more and can electronically fund the account with at least $200 a month, you can get up to three percent on your savings in their Savings Connect account option.
CIT Bank offers the same FDIC insurance you will find at a traditional bank, and it often beats them on interest rates.
Returns on savings accounts won’t rival other residual income choices, but they are a vital part of any wealth creation strategy.
Read our CIT Bank review to learn more.
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Stocks are an effective way to generate passive income. Unfortunately, not everyone is comfortable with the stock market or has the time to manage their investments.
Robo-advisors alleviate that problem by managing your investments and ensuring they’re on track to reach your given objective.
For example, if your goal is to start building a passive income stream in retirement, they can help you succeed.
Think of robo-advisors as financial advisors that have minimal requirements, making them accessible to the masses. They offer tools that were once only available to those with means.
Betterment is a popular automated investor with no minimum balance requirement. They only charge a fee of 0.25 percent annually.
This means that if you invest $5,000, they charge $12.50 per year. There are no other fees.
Betterment doesn’t just offer investment advice. It also offers a full suite of banking and financial products to help you manage your finances.
Read our full review of Betterment to learn more about the platform.
5. Invest in Rental Properties
Rental property can be a terrific way to create extra cash flow. Unfortunately, it can take significant effort to manage rental properties.
Typically, you need large sums of money to buy the property. You may even have to take out loans.
Beyond that, it takes time to manage the properties. If you don’t have the necessary skills, it can make it more difficult.
Thanks to crowdfunding, you can purchase residential properties to rent to families. Some platforms let you invest in turnkey rental properties to create a stream of income.
Roofstock is our highest-rated resource for investing in single-family homes. The platform has no minimums, and you don’t need to be an accredited investor.
The company manages the property for you. They also vet properties to ensure they offer a legitimate income opportunity.
If you’re not happy with a property, Roofstock offers a 30-day satisfaction guarantee, making it one of the best Fundrise alternatives if you want to invest in real estate.
*Related: Looking for other real estate investment options? Read our guide on the best ways to start investing in real estate with $1,000 or less for the best available choices.*
Read our review of Roofstock to learn more about the platform.
CrowdStreet is a legitimate alternative, but they focus on commercial rental property. Plus, you must have at least $10,000 to get started.
6. Invest in CDs
A CD isn’t the most exciting passive income opportunity, but they work for some people and allow you to make money while you sleep.
Payouts are improving in the current interest rate climate, but they’re not without risk.
CD laddering is one way to earn interest on your cash. Even though it sounds complicated, it is fairly straightforward. You put cash into several CDs of differing lengths and staggered maturity dates.
Five-year ladders are a common practice. Here’s how a sample one would work:
- One-year CD – 2.00 percent
- Two-year CD – 2.10 percent
- Three-year CD – 2.25 percent
- Four-year CD – 2.35 percent
- Five-year CD – 2.50 percent
As each CD matures, you put it into a new one. You can also opt to put it in another investment. CIT Bank is a good resource as they have multiple CD products available for investors.
Brokered CDs are an additional choice for spare cash, but they have longer terms and may allow more than the FDIC limit at an individual bank.
7. Be an Angel Investor
Investing in a small business is an excellent way to start earning passive income. However, unless you have connections, it can be difficult to find opportunities that fit your situation.
Mainvest is a platform that seeks to remedy that problem. Mainvest is to investing in small local businesses as Fundrise is to investing in real estate.
It’s a crowdfunded site that connects angel investors with local businesses in need of funding. Mainvest fully vets each brick-and-mortar business.
This includes various tests, including:
- Anti-fraud vetting
- Bad Actor Check (BAC) through a background check
- Sufficient funding
- Yellow Flag BAC that reviews any encounters with law enforcement
Assuming the business passes all of the tests, it can apply for funding through Mainvest. Potential businesses include the following:
- Community Centers
- Food trucks
- Health or wellness stores
You only need $100 to open an account with Mainvest. They provide quarterly disbursements and a range of tools to help you increase your investment knowledge.
Read our Mainvest review to learn more.
8. Invest Your Spare Change
The stock market is a popular way to create a passive income stream. But what if you feel like you don’t have the funds necessary to put money into the stock market and want to start saving for retirement?
You can still invest with little money using a micro-investing app like Acorns. The app lets you open an account with as little as $5.
It then connects to your credit or debit card and rounds up all purchases. For example, if you spend $45.01 on a tank of gas, it rounds up the remaining $0.99 and invests it for you.
Those funds go into a diversified portfolio of low-cost exchange-traded funds (ETFs) of your choice. This puts your money to work and helps grow it as you look for another passive income source.
Beyond the round-ups, you can add other funds to your account for investing purposes. Additionally, the app has a growing number of tools, from banking services to custodial accounts for minors.
Read our review of Acorns to learn more.
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Acorns rounds up your purchases and invests your spare change!
9. Rent Out Your Car
It may sound like an odd way to create residual income, but renting your car is a unique way to create cash flow. Think of it like renting your home through a service like Airbnb.
HyreCar is a leading platform to rent your car. Listing your car is free, and they even provide insurance coverage.
This opportunity sounds like there’s a lot of effort required, but it takes minimal work. You list your car on the site, then HyreCar manages the relationship between you and the renter.
This includes running background checks on potential drivers.
I have not used HyreCar to rent our automobiles, but we have used it occasionally to rent a car while traveling to save money. Overall, we’ve had positive experiences with the service.
The company claims you can earn an average of $720 per month based on your car’s make, model, and age.
Just make sure to check with your auto insurance company before listing to confirm this won’t violate your policy. If it doesn’t, this can be a good way to start earning passive income.
10. Rent Out Storage Space
Do you have spare room in your garage, an empty closet, or an attic? If so, you can turn that extra capacity into another source of passive income.
You won’t become rich with this opportunity, but it is a way to add several hundred dollars of cash flow into your budget each month.
Neighbor is the leading player in the self-storage space. Like HyreCar, it operates much like Airbnb.
You list your space on Neighbor for free, and they vet all potential renters. Upon choosing a renter, they come to your space to fill it with their belongings.
The platform manages all of the paperwork and offers you $1,000,000 in free insurance coverage. Additional coverage is available to purchase.
Neighbor says you can earn between $100 and $400 per month through the service. They let you determine what you’re comfortable storing and manage all of the payment terms.
11. Start or Advertise on Your Blog
Blogging is one of my favorite ways to earn passive income. It does take work to be successful, but it offers many ways to make money while you sleep.
It’s possible to earn money blogging in various ways, including:
- Affiliate marketing
- Display ads
- Selling digital products
- Sponsored campaigns
You can have a blog in virtually any niche, though finance, relationship, and food sites tend to be more profitable. As you build traffic, your opportunities increase to add income sources.
If you’re not technically inclined, Bluehost is a helpful resource. They will set up your site, provide a design, and give you a domain name for just $2.95 per month for Frugal Rules readers.
Normally, this costs $7.99 each month.
Read our guide on how to start a blog to learn how to start a profitable website.
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12. Invest in Art
If you enjoy art but believe investing in it is only for the wealthy, think again. Crowdfunding has also hit the art investment space, allowing anyone to buy pieces of art.
Masterworks is a top option in the market. Investors can purchase fractional shares of fine art for $20 a piece. You don’t need to be an accredited investor, and there is no account minimum.
The one drawback to this opportunity is that it’s a long-term investment. You typically must wait several years before the piece sells for a profit.
This isn’t for someone who wants immediate cash flow. However, it’s a legitimate choice for people looking to create multiple income streams in retirement and are comfortable waiting to see a return.
If that describes you, investing in fine art is a good alternative investment to consider to multiply your money.
13. Rent Out A Room In Your Home
Do you have a spare room in your house, or do you have an extra residence? If so, you can make relatively passive income by listing it for free on Airbnb.
We have family members who list their homes when they travel, and they’re able to charge approximately $200 per night.
We also use the service while traveling as it’s often cheaper than a hotel. Plus, rentals usually have home-like features we want that aren’t available in a hotel.
Listing your property on Airbnb will require some work between guests to clean. You can hire that out if you’d prefer to keep your workload to a minimum.
Rates vary by city, but the average host earns nearly $1,000 per month. You can use these earnings to pursue another passive income venture or reach some other goal.
Read our Airbnb host checklist to learn how to maximize returns.
14. Peer-to-Peer Lending
Not everyone can secure a loan at a bank. Or, they may only need a small loan and want a better interest rate. This leads many to turn to peer-to-peer (P2P) lending.
P2P lending sites like Prosper allow you to loan money to other people. You receive the principal back plus interest as the borrower repays the loan.
Many P2P lenders allow you to earn a six to ten percent return on your investment. This is a competitive rate in relation to a savings account.
People who borrow through P2P platforms need funds for various things. These can include remodeling a room in their house or paying off a car.
Like other investment opportunities, it’s essential to perform your due diligence when considering a loan opportunity. You will want to create a diversified portfolio of loans.
This gives you additional coverage in case a person defaults on their loan repayment.
15. Pay Off Debt
Paying off debt seems like an odd way to create passive income, but it’s a real way to grow your wealth. Debt restricts you from achieving other goals. Paying it off frees up cash to pursue other opportunities.
Refinancing or consolidating your debt to a lower interest rate can help you save hundreds or thousands of dollars. If you have high-interest debt, this is of particular importance as the rate reduction is a direct return.
Killing debt quickly not only frees up cash for other investment avenues, but it also aids in achieving other financial goals.
SoFi is our top-rated choice to consolidate indebtedness. They offer competitive rates and the ability to have just one payment instead of multiple.
Read our SoFi Personal Loans review to learn more.
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16. Invest in Farmland
Real estate crowdfunding hasn’t just disrupted investing in commercial or residential properties. There are also growing opportunities to invest in farmland as you pool money with other investors.
FarmTogether is a leading player in the space and lets people invest in shares of entities that hold farmland. The only drawback is you need at least $10,000 to invest.
If you’re new to investing in farmland, FarmTogether vets all opportunities and has educational resources to help you get started.
You receive returns through cash distributions and land appreciation. Farmland has a historical return of nine percent, making it a legitimate passive income idea.
17. Design T-Shirts or Mugs to Sell
Are you a graphic artist? Do you like to design items in your spare time? You can use those skills to create a semi-passive business.
This does require some effort in the beginning to create the design. However, once you complete your design, you can launch an online store to sell the items you’ve created and earn residual income.
CafePress is a site that lets you generate on-demand sales. The platform prints your designs on anything from coffee mugs to t-shirts. It then markets and sells your designs or products, giving you a commission on each sale.
To increase your sales, it’s best to promote your store and designs on social media.
18. Create an Online Course
Are you highly knowledgeable in a certain area, such as computer programming or photography? If so, a fun source of mailbox money is creating an online course.
You can use various methods to teach the course, from video to written content.
Courses take time to create and are a minimal investment, but they can be one of the more lucrative ways to make passive income.
Udemy is a popular platform for creating and selling online courses. As of publication, the site has over 200,000 courses. These can be about anything from the basics of real estate investing to drawing.
After you create a course, Udemy handles sales and marketing for you. Like selling designs, it’s also advisable to promote the course to increase sales.
19. Sell Stock Photos
Do you have an eye for images or enjoy taking pictures? If so, you can earn money from your photos.
Companies and websites often purchase stock images for their publications. Keep in mind that photos showing people doing common, everyday things tend to make the most money.
Like course creation and design, this takes some effort to create. But, once you have a portfolio of pictures to offer, it can turn into a nice stream of passive income.
DepositPhotos is a leading website for selling stock photos. Account owners upload pictures for companies and individuals to purchase. You earn a royalty each time you make a sale.
The more photos you upload, the more likely you are to increase sales.
20. Get Cash Back on Your Shopping
You likely do a lot of shopping online. If so, why not earn some money back while doing it?
Cash back portals aren’t lucrative, but they’re an easy way to get cash for something you’re already doing.
Swagbucks is our top choice to get money back on your shopping. They work with thousands of retailers to offer rebates to shoppers.
You can also earn money doing other tasks while watching TV, such as answering surveys and watching sponsored videos.
Swagbucks gives a $5 bonus when you open an account. You can redeem earnings for Paypal cash or gift cards to your favorite retailers.
Read our Swagbucks review to learn more.
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21. Advertise on Your Car
A unique way to create another stream of income is to put ads on your car. Sites like Wrapify compensate drivers for advertising on their cars and doing nothing but driving their normal routes.
Pay varies based on where you live and the number of miles you drive each day. Wrapify also lets you choose how many ads you want to place on your car.
Beyond the initial setup, it’s passive income you earn for something you’re already doing. Wrapify claims drivers can earn up to $450 per month by placing ads on their cars.
Read our guide on ways to get paid for driving your car to learn more.
FAQs About Passive Income
Residual income is often miscategorized or confused for something it’s not. Here are some common questions readers have about passive income.
How Can I Make $1,000 a Month in Passive Income?
Earning at least $1,000 a month in passive income is a holy grail for many people. It’s possible to earn at least that amount, but it takes effort and resources.
For example, if you choose an eight percent yield investment, you need to invest $150,000. If the investment has a two percent yield, you need to invest $600,000.
It’s best to formulate a plan to grow your streams of income. In time, it’s possible to earn at least $1,000 a month, but it likely won’t be overnight.
How Much Money Do I Need to Start Earning Passive Income?
You do need cash to start accruing residual income. Thankfully, there are many ways to create passive cash flow.
In some cases, you can start earning with a few hundred dollars. For example, Fundrise only requires $10 to start.
Other choices will take thousands of dollars to begin. It’s often best to focus on several smaller streams until you can pursue one with more substantial cash requirements.
Is Earning Passive Income Safe?
Unearned income is a legitimate way to grow your wealth. However, as with any investment opportunity, there is a sliding scale of risk.
Investing in an index fund of blue-chip dividend-paying stocks holds less risk than funding a business.
This is why diversification and performing due diligence are key. The more streams of income you have, the stronger your efforts are and the more protection you have if one investment goes south.
Is Passive Income Taxable?
Residual income is taxable just like compensation you receive from your day job. Additionally, any earnings you make from the sale of a property or a business are taxable.
The IRS has specific standards for what it considers to be passive activity, which dictates taxation parameters. They lay out many of the protocols in Publication 925.
It’s best to consult a tax professional before pursuing any passive income ideas. You don’t want to incur a nasty tax surprise since that could eliminate your earnings.
What is the Difference Between Active Income and Passive Income?
Passive income is sought after by many people. Many articles promoting the idea confuse active and passive forms of income.
Active income is as it sounds. You perform work to earn money. On the other hand, passive income requires minimal effort to do and maintain.
Don’t confuse passive income with a side gig. Side hustles are an excellent way to earn money, but they are not passive.
Residual streams of income are essential to wealth creation. You need to leverage your resources to earn more money.
If you don’t know where to start, any of the opportunities on this list can be pursued with minimal resources. You could even use your earnings to take advantage of additional opportunities.
Over time, you’ll start building passive income streams to help you pursue financial freedom.
What are you doing to pursue financial independence?
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