3 Ways To Generate Passive Income
There are a thousand and one ways to generate passive income. You can start a business and after a while, it can earn passive income, or profits for you. Or if you have a mailing list, you can use that to generate passive income. Even putting money in the money in the bank and earning interest is a form of passive income. But, before we get ahead of ourselves, let's come up with a simple definition of what passive income is.
Passive income is simply money that you earn with zero or very little effort. But, if you were to think about it logically, there has to be a catch somewhere, otherwise everybody will be doing it and nobody will be working. The catch is different for different types of passive income, but they will usually fall into one of the following:
- a large amount of initial effort needed
- resources like money or contacts required
- talent or aptitude in certain relevant fields would be necessary
For example, if you have lots of money, just put it in the bank and you will have a substantial source of passive income. Or, if you have a lot of contacts, you could find a way to leverage that into some form of income. Or, if you have a talent for something, and you can do it much easier and better than everybody else, you might be able to command a good income for relatively easy work.
Notice that money, contacts and talents are something that most of us do not have. So, for the rest of us, passive income is an uphill struggle. However, there are some ways which are easier than others and can be attained without too much effort, skills or resources. I have detailed below the few techniques which I feel are simple enough so that it can be easily implemented, and does not require any special skills or intensive effort.
Putting your money in the bank and earning interest is probably the most familiar form of passive income. It is safe, very easy and requires practically no effort or maintenance on your part. All you need to do is to go down to the bank, plonk down your money, and your money will grow bigger and bigger every year.
But the downside is that the interest rate is rather low these days, so you will need a comparatively large sum of money in order to earn anything more than pocket change. But, compared to some other ways of investing your money, your money in the bank is available to you as and when you need it. Your only penalty for early withdrawal would probably be forfeiture of the interest earned.
In the light of recent turmoil in the financial markets, even putting money in the bank is not entirely without risk. Where possible, do make sure that there sure that there is a government guarantee that your money is safe even if the bank collapses. If there is no government guarantee, do split your money between different banks, so that in the unlikely event of a bank collapse, you won't lose all your money.
The concept behind this is also along the lines of bank interest, but you get the "interest" from a stock that you buy, instead of the bank. Since a bank operates on more capital than it actually has, in some respects, this option might actually be safer than putting money in the bank.
When you buy stocks, you get a share of the company, or you become a shareholder. At the end of the financial year, the company may declare a sum of money to be paid out to its shareholders. This sum of money is called dividend, and is what you bought the stock for.
There are risks involved, among which are the following:
- the company will fold
- the share price will drop
- the company will stop declaring dividends
This technique is meant to be applied over the long run, and the potential risks can be mitigated by:
- buying only companies that are making money, and has a track record of giving dividends
- splitting your money between as many stocks as possible
- spreading your buying over a period of time
Remember that this is not trading of stocks. It is a buy and hold strategy in which you pick the stocks that can give you good dividends, and simply buy them to earn dividends. On average, it is possible to make 2.5% to 5% a year over the long term. This is the amount from dividends alone, and does not include the potential appreciation (or depreciation) of the share price.
I go into some detail on how to implement this particular strategy here: Make Money From The Stock Market For Early Retirement
Online Real Estate
When I say online real estate, I am not talking about anything related to properties or real estate in the offline world. I am looking at your website, or content, or anything else you have online as an asset that can yield passive income, very much like how you can rent out real estate you own for rental income.
I am not talking about starting, running and maintaining a website from scratch. Doing this properly is actually like running a business and most people would probably not have the time, inclination or aptitude to do it well. And we are talking about passive income, and not about how to profit from the web.
What I am talking about is generating content, putting up the content onto an established website, and earning a revenue from the content. This revenue is not payment for the content, but money that your content is actually earning. And the earning potential is there as long as the content is up on the website, and hence, essentially, it is passive income.
The mechanics of how your content makes money differs from site to site. But in general, your content will be used to attract web visitors. When the visitors make money for the website, by clicking on an ad, or making a purchase, you will get a share of the revenue.
On your part, all you need to do is to be able to generate relatively good content, and have some idea of how to attract the search engines to your content, and you are good to go. But you are going to have to work pretty hard to earn any significant amount to passive income. Just uploading a few pieces of content is not going to cut it. What will be needed is a few months of concerted effort before you see any kind of results. But the good thing is that it will get easier as you get the hang of things.
To get you started, I have listed some of the more popular sites:
I wish there are more types of passive income that I can list but these are the few that I think can be attained relatively easily with consistent effort and without any special skills and resources. You are probably not going to earn much more than pocket change at the beginning but it gets better as you keep at it. Remember that the great thing about passive income is that for the same amount of work, you will get paid more and more each month.
1. How to make money in Entropia Universe - While I might not classify this as passive income, you can invest in land deeds within Entropia Universe that promises a potential return of 27% - 30% per annum.