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3 Ways To Generate Passive Income

Updated on April 27, 2016
A really passive cat - maybe earning passive income?  ;)
A really passive cat - maybe earning passive income? ;) | Source

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.

Bank Interest
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.

Stock Dividends
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.


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    • profile image

      Hubber 3 years ago

      I think the bank advice might not be the best. Nit the worst either but there are better ways to make money. Banks are just taking your money, making some for themselves and give you almost nothing in return. I rather put my money here so i can be sure its put to good use. And i will have more money in a few months. But your other advices are very nice and helpful. Thank you:)

    • wandererh profile image

      David Lim 4 years ago from Singapore

      onlinecashdigest - You are absolutely right. The rates are really atrocious these days, might as well keep my money under the pillow. :(

    • onlinecashdigest profile image

      onlinecashdigest 4 years ago from Manila, Philippines

      I beg to disagree that putting your money into a bank generates you passive income. Interests is so low nowadays that even time deposits is lower than the Inflation Rate.

      You actually lose money putting your cash into the bank. After 1 year the value of your money is lower than its value compared to its value a year ago even if you include the interest earned.

    • wandererh profile image

      David Lim 5 years ago from Singapore

      wlrahilly - Thanks! I love the cat image too as cats are probably the laziest creatures on the planet and what can be lazier than passive income?

    • wlrahilly profile image

      Wendy Rahilly 5 years ago from St Petersburg, FL

      Great hub! Yet another hub I found with some really interesting ways to build up residual income. I LOVE the cat image!!

    • wandererh profile image

      David Lim 5 years ago from Singapore

      Zinmas - Thanks, that's actual a source of passive income as well.

    • Zinmas profile image

      Zinmas 5 years ago

      You can also sell your hair on this hair classified ads website if you wand some income.

    • wandererh profile image

      David Lim 6 years ago from Singapore

      eddiecarrara - I couldn't have said it better myself. :)

    • eddiecarrara profile image

      Eddie Carrara 6 years ago from New Hampshire

      You're right wandererh, the harder I work the easier it gets. If you just keep plugging away at the task at hand, you learn from your mistakes and figure what works, just keep refining the process, eventually it will pay off :)Voted up and interesting.

    • wandererh profile image

      David Lim 7 years ago from Singapore

      Granny's House - Sites like HubPages is actually a shortcut to having your own site or a stepping stone. In fact, if you work hard at this site, you can really make pretty good money just writing here. But remember that it takes time and effort. :)

    • Granny's House profile image

      Granny's House 7 years ago from Older and Hopefully Wiser Time

      Great advice.I do not have the money to make my own web site.

    • wandererh profile image

      David Lim 7 years ago from Singapore

      Thank you, wstan. Gonna have to try even harder now. :)

    • profile image

      wstan 7 years ago

      I really do enjoy reading your hubs, continue the great work.

    • wandererh profile image

      David Lim 7 years ago from Singapore

      Thanks doc rogers! :)

    • profile image

      doc rogers 7 years ago

      great advice!

    • wandererh profile image

      David Lim 7 years ago from Singapore

      Bank interest is definitely not glamorous but every little bits helps, and it is money that you do not need to spend your time earning. But admittedly, the rate is rather low at the moment. :(

    • forlan profile image

      forlan 7 years ago

      Bank interest just gives us few interest. I think we cannot get money from it too.

    • wandererh profile image

      David Lim 7 years ago from Singapore

      We all love the idea. Only that it is really difficult to get to the point at which the income becomes significant enough so that we can quit our day jobs and do what we want to do. :(

    • ns1209 profile image

      ns1209 7 years ago from UK - England

      I love the idea of passive income so when I retire I will have loads of money and never have to do anything again except jobs I want to do and volunteering I want to do!

    • wandererh profile image

      David Lim 7 years ago from Singapore

      You've said it, enzodamico!

    • profile image

      enzodamico 7 years ago

      Passive income is the way to financial freedom! Great article!

    • wandererh profile image

      David Lim 7 years ago from Singapore

      It's easy to start some kind of passive income from them, but it gets real tricky to build it into a significant figure. But I think that's how the marketplace works. It cannot be easy, or else everybody will be doing it. And when everybody does it, it becomes unsustainable.

      Thanks for looking into the hair hub. Looking forward to jet black hair again. :)

    • anglnwu profile image

      anglnwu 7 years ago

      Good ideas for generating passive income. Too bad, most of the times, these forms of passive income don't generate much revenue (am I right?). If you've have some magic tricks, do tell.

      Anyway, I'm still working on your hair hub--I've to complete some pressing hubs first but it's on my list of things to do. Thanks for sharing.

    • wandererh profile image

      David Lim 7 years ago from Singapore

      Hi Jennifer, 'fraid that's the reality behind passive income. But you can also start small and put in some work or money, and be content with earning pocket change. But keep at it and you can be earning quite a comfortable income. :)

    • Jennifer profile image

      Jennifer 7 years ago

      Interesting info. But in order for these areas to start generating passive income, you have to either put in a lot of work or a lot of money upfront. No matter how you look at it though, if you can generate some avenues of passive income then do it.

    • wandererh profile image

      David Lim 7 years ago from Singapore

      Hi waynet. The passive income model is great, isn't it? But it does take a while to get started.

    • wandererh profile image

      David Lim 7 years ago from Singapore

      Thanks Jen's Solitude! Always a pleasure to see you. :)

    • waynet profile image

      Wayne Tully 7 years ago from Hull City United Kingdom

      I like the passive income model as this is what I've been doing for awhile. great hubpage!

    • Jen's Solitude profile image

      Jen's Solitude 7 years ago from Delaware

      Great hub that explains passive income in a realistic way, very helpful.