Are you excited for the best passive income streams for 2021? I know I am. Everyone seems to be talking about it. But there's no get rich quick scheme when it comes to earning passive income. In this post, I'm going to discuss some of the best types of passive income. I'll also touch on how to make passive income as a teenager, specifically those who might not have much money to get started.
What Is Passive Income?
You may hear people talking about how great passive income is because they're getting paid while sleeping. Some people will try to sell you a get rich quick scheme by telling you ways to make passive income; however, the reality is that the best passive income options start slowly and build up over time.
Passive income, in short, is money that you earn from sources that no longer require effort from you. An example is when you earn interest from your savings account. The money is sitting in your account and earning interest even though you aren't doing anything to it directly. Some sources of passive income require an upfront money investment, whereas others require time. Many require both.
The difference between active and passive income is that with active income, you have to do work to earn your money and with passive income, you earn income even when you're not working. An example of this, which I'll cover in detail below, is when you earn money from investments that you aren't actively changing.
What are the Benefits Of Having Passive Income Streams?
You don't need to be a personal finance guru to understand that earning extra money around the clock is a key benefit in itself. By building multiple sources of passive income, you can slowly but surely earn money to cover bills and expenses.
Some people aim to reach enough passive income so that they can retire comfortably when they're young. This may seem crazy, but through income-producing streams such as those discussed below, you can truly earn quite a bit of passive income.
As of this writing, my wife and I earn approximately $90 per month from Lending Club (discussed below). This is 100% passive income as I no longer interact with the website except to check my balance or make an occasional withdrawal or deposit.
This $3 per day can be reinvested or used to cover a bill, such as our electric bill. Most of the time, we choose to reinvest the money so that it grows on itself, but you're free to do whatever you'd like with your money.
Earning passive income through income generating assets is one way to earn passive income. I'll discuss those first. Afterwards, I'll discuss how to make passive income online without money (or very little money) to start.
How to Create Multiple Streams of Passive Income
The way to build passive income is to either invest time or money (or both) into one or more things that payout down the road. An example with a savings account is that you invest money and get paid every month in the form of interest.
You'll need multiple streams of passive income to be truly effective. That means you'll want numerous sources feeding your wallet. That way, if one source is doing poorly, another source will make up for it. “Never put all your eggs in one basket,” they say.
It takes money to create money, so everything I discuss in this post will require an initial investment of either money or a lot of time. If you don't have an initial investment and money's tight, consider starting a side hustle to start your passive income endeavors.
In this list below, I discuss some of the best online passive income ideas that can earn you over $1000 per month. Though you may earn over $1000 a month eventually, when you start, you'll need to increase your revenue streams from very little – as little as a few dollars per day.
Alright! Let's get into the specifics on how to start building passive income.
1. Invest in High-Yield Dividend Stocks & Funds
Dividends are passive income that you can capitalize on whenever you have some extra money to invest. One thing you can do is invest in high-yield dividend stocks or dividend funds. Well-established companies that are quite profitable pay out dividends every quarter or month from their profits. This is free money in your pocket just for owning company stock.
Blue-chip stocks are shares of very large and well-recognized companies that have long histories of strong financial performances. These are often the best stocks to invest in because they will grow your money as the stock price goes up on top of the dividend that you're being paid periodically.
If XYZ stock is priced at $100 and pays a 4% dividend, you may receive the dividend quarterly, and therefore could get paid $1 per share every three months (1% per quarter, 4% per year). The drawback of this type of passive income is that you need a lot of money to get an ample passive income stream going.
If you had $100,000 invested in a variety of high-dividend stocks, you might only receive $4,000 per year on average from this dividend, which isn't anything to scoff at, but you couldn't live off it alone.
That said, regular contributions to a high-yield dividend portfolio will snowball over time, and it's totally worth it in the end. If you don't need your passive income right away, you can use it to build more wealth in a retirement account such as a Roth IRA.
Dividends are assets you buy that pay you passive income, and to buy assets that generate income like these, you'll want to open a brokerage account. I recommend Charles Schwab as their platform is easy to use and gives access to mounds of research. You also don't have to pay a commission to trade online.
2. Invest in Peer-to-Peer Lending
Peer-to-Peer (P2P) lending is a relatively new way to earn passive income. It does require some money to get started with; however, you may find yourself earning 5% or more on your money each year.
If you're wondering how to start earning extra income on Lending Club, you'll need at least $1,000. This is not a small amount of money, but to make passive income, you'll generally need to invest money or time to start. In this case, you'll need to invest money.
I currently earn about $3 per day on an approximate $7000 balance from my Lending Club account. This is a wonderful amount of passive income to earn on such a low balance. If you're interested in how to earn passive income through P2P lending, check out my book where I will teach you how to use Lending Club and share my exact strategy to earn consistent returns.
The best part about Lending Club is you can automatically invest money into loans based on your own criteria. As borrowers pay you back each month, you can withdraw money or reinvest the payments into future notes to make even more money (preferred!).
3. Invest in Certificates of Deposits (CDs)
A safe way to make money is with CDs. A certificate of deposit is a safe way to build recurring income, though it's often very slow. Since CDs offer a very low rate of return in comparison to other forms of passive income, you'll need a lot of money to get much of a return. With a CD, you won't be able to touch your money until the CD matures. You can open up CDs with banks and credit unions.
I recommend CIT Bank for their CDs.
One way of getting monthly income from CDs is to use a CD-ladder technique. What you do is, at the beginning of the month, open a 12-month CD with some amount of money. Repeat this tactic for 12 months with the same amount of money each month.
When your first 12 month CD reaches its maturity date, you'll receive your money back plus interest. Reinvest the principal (and the interest if you want your money to grow further) and keep repeating this every month.
This is like getting a kickback every month for a small amount of money where you can keep the interest or grow it by reinvesting. If CDs grow too slow for you, you can do the same thing with bonds via a bond ladder, though you assume some level of risk if the bond defaults.
CDs are FDIC-insured and earn money at higher interest rates than typical bank accounts. The drawback is that you aren't keeping up with inflation and therefore are not growing your wealth.
4. Invest in Real Estate Rental Properties
Looking to make passive income with rental properties? Renting out property through a property management company is a popular form of passive income. This entails buying a rental property and hiring a person or company to manage it for you. The company is in charge of finding tenants and maintenance. You collect the rent and cover management fees and other expenses.
Earning passive income through real estate Besides monthly passive income from rent, your properties will appreciate over time, meaning if you decide to sell them, you'll profit off holding the property for as long as you did.
A drawback of renting investment property for a passive income stream is that if you go for a while without a tenant, you may lose money due to paying a mortgage or other upkeep expenses.
An alternative to real estate investing is real estate investment trusts (REITs), which is when you buy into income producing real estate but on the stock market.
Passive Income Ideas with Little Money
Creating passive income without money is generally more difficult or requires having skill in something that you can sell passively. The examples provided below require a lot of time invested and only start earning passive income once you've done a lot of work. Some of them require ongoing work to continue to grow the stream, but that said, you can get away with a minimal to no financial investment to get started.
Let's talk about some simple passive income ideas you can start with a minimal startup investment.
5. YouTube How-To
If you go to YouTube and search for “passive income 2021”, you will undoubtedly meet dozens of YouTubers who tell you to make YouTube channels.
It takes a lot of work to get a YouTube channel going. You need good video and sound, and you'll need to produce consistent, regular, and high-quality content in a targeted niche.
That said, if you have something great to talk about and you do it regularly, you can make thousands of dollars a month (and honestly, a ton more) off your YouTube channel given time to build up an audience. The thing is, most people will only earn a few dollars a day at best. YouTube is incredibly competitive, however, if you can beat your competition, the sky's the limit and you will have real passive income growth as time passes.
Find a niche topic that you really enjoy, such as craft or hobby, and you could make money creating how-to videos on your topic of choice.
Advertise your channel to all of your friends and followers to grow an audience. It could take months to get off the ground, but once you start getting traffic, your older videos will begin paying you passively via ads and any other sales you drive via affiliate links (see below).
Initially, you can use your mobile phone to do your audio and video, which requires no additional investment beyond having a decent phone. As you gain traction, you can invest in a real camera, lights, and better recording device.
If you have teenagers and are wondering how you can make passive income as a teenager, this is one of the best passive income ideas to get started with.
6. Make A Course On Udemy or Skillshare
A legitimate passive income opportunity is selling online courses. Perhaps you have a skill that you'd like to share with the world. Online course sites such as Udemy or Skillshare allow you to create online courses to sell to others.
Courses don't have to be technical. Courses can range from programming to crocheting to soft skills. The best bet is to go there and search for other offerings for hobbies or skills you have.
If you see offerings for those categories, then people are interested in those topics, and you could capitalize on it. The best part about selling courses is that once they're created, you'll earn passively for as long as you keep the course active.
What are you an expert at and what can you write a course about to teach others? People are always looking to learn new skills and there may be something you can teach better than anyone else. This will help you rake in the passive income.
To create a course, you'll need to write instructional material, possibly do video recordings, and answer students' questions. There's a lot that goes into making a course, but some courses sell for hundreds of dollars per seat.
7. Write an eBook for Passive Income
Writing an eBook is a great way to start earning passive income because once you've published an eBook and get some initial marketing done, sales happen passively. There are endless topics you can write about, including fiction and non-fiction. The best place to get started selling eBooks is Amazon's Kindle store, where you can self-publish for free.
Related Post: 8 Effective Ways How To Get Better At Writing For Money
Coming up with a subject for an eBook need not always been something you're an expert in. You can often find a topic that sells and do the research via reading other books, blogs, or watching YouTube and aggregate the information into your own work.
Marketing an eBook at first can be tricky, as you'll either need a following, or you'll need to do paid advertising through ads or a promoter. Once you start making sales, this can be one of the best ways to start a passive income stream.
Do you have an idea for a t-shirt or mug design? Even simple sayings can make for great t-shirts. There are tons of YouTubers out there who talk about making money with Print-on-Demand items such as t-shirts and mugs. You can sign up for a site such as Canva and instantly begin designing some ideas.
Slogans targeting niche markets are great. Whether it be pets or vegans, or anything in between, find a market you like and start designing. You can then sign up for a t-shirt store such as Printify, and the store will handle all of the work for you.
The way it works is, you direct traffic to your store, and when a person buys a t-shirt, you are charged the price it costs to make it (let's say $8) and the person pays what you're selling the t-shirt for (let's say $15).
The POD store then prints the t-shirt and ships it to your customer, and you keep the difference ($15 – $8 = $7 profit). Once you've streamlined the process and have gotten steady traffic, you can wake up in the morning with a fair share of money waiting for you.
Looking to start an online business? Print-on-Demand is one way to do it, and you'll earn passive income doing so.
Related Post: How To Make Money With Print-on-Demand
9. Affiliate Marketing
If you've been reading this blog for some time, you'll notice many pages have links that go to external sites that ask you to sign up or buy something. If you click through to those links and sign up or buy what's being offered, I get a commission. This is known as affiliate marketing.
Affiliate marketing pays out when a user does something (submits an email address, for example) or when a user buys into an offer. There are hundreds of affiliate networks out there where you can find offers.
Then, you can create a website, a YouTube channel, a mailing list, a social media page, blogging, or another avenue where you can promote the product.
Here are some popular affiliate marketing networks:
Combining affiliate marketing with YouTube is an excellent way to make passive income as a teenager, though adults can do well just the same.
10. Earn Passive Income Through Blogging
Blogging is passive income once you set it up. You may need to blog for at least a few years to drive in any noticeable passive income, but you can often start earning passive income from blogging early on through ad revenue.
Once you start gaining more traffic, you can sell products passively on your blog and earn more money through affiliate marketing. Many people who blog do so to earn both active income and passive income. The active income is done through sponsored content and their services and their passive income is earned through ads, their products, and affiliate marketing.
Starting a blog isn't difficult however earning money through blogging does take strategy and time.
Why Is Passive Income Important?
Passive income is important because it supplements any income you'll earn actively. No matter what happens to your active sources of income, such as your job, you'll always have passive income to back you up. You earn passive income around the clock with minimal to no effort once the sources have been created.
Learning how to make passive income can make building wealth much easier. A lifetime of passive income will help you retire at a reasonable age, if not early, and not worry about running out of money when you're in your retirement.
What To Do With The Passive Income
After you begin earning passive income, you'll have a regular cash flow coming in. You can use this cash flow to pay down credit card debt or use it to fatten up your emergency fund in an online bank.
Related Post: 9 Ways How To Get Out And Stay Out Of Debt
Online banks are best for emergency funds because they provide a much higher interest rate than brick-and-mortar banks. I highly recommend CIT Bank, who I've been using for a few years for my online banking needs.
Remember, passive income doesn't have to be huge. It can take a long time to earn $5 a day from passive income, but once the money comes in, you can further use it to grow your income streams.
- How Saving $5 A Day Can Make All The Difference
- 6 Smart Ways To Invest $100 Per Month
- 8 Amazing Ways How To Save $10,000 Per Year
In fact, if you don't need the passive income, then reinvest it into your current streams or use it to create a new passive income stream. The more you have, the better.
Related Post: Ascending the 7 Steps to Financial Freedom – Here's How
For those with teenagers making passive income, as mentioned above, there's no better time to give them a personal finance education so that they can learn how to grow their passive income into big savings.
Best Books on Building Passive Income
Amazon has amazing passive income books to get you started in building wealth and passive income. These books share a variety of methods, including assets that make money and using techniques described above to earn passive income.
Here are some books to get you started:
- Passive Income Ideas: 101 Passive Income Ideas $1000. In this book, you'll find passive income ideas about affiliate marketing, investment funds, businesses, real estate, publishing services, consultation, mobile applications and much more. All that you can start for less than $1000.
- Dividend Investing: The Beginner's Guide to Create Passive Income and Achieve Financial Freedom with Stocks. As per the sales page, “this book contains proven strategies to create massive wealth with dividend stocks and by building a sustainable passive income over time.” This is a great guide for newcomers to investing who want to learn how to use dividend stocks to earn passive income.
- Passive Income Ideas: 50 Ways to Make Money Online Analyzed. This was the first book I ever purchased about passive income and I really enjoyed it. It's a great find for online ideas for earning passive income.
Wrapping It Up
This post was a summary of different ways you can earn passive income. Coming soon, we'll drill down into each method. Passive income can be the best income because you earn it, whether you're working or not.
If you build up enough passive income, you can retire and live your life whatever way you want. Sign up for our free newsletter to stay up-to-date with The Dollar Blogger and learn more about passive income.
What sorts of passive income have you built?