4 Passive Income Ideas That Don't Totally Suck
The term "passive income" has been all the rage lately, and for good reason! Warren Buffet once said, "If you don't find a way to make money while you sleep, you will work until you die." That quote is really the essence of passive income.
These are all relationships we have with money where money is intrinsically tied to the value of our time.
For so much of our lives, we're trained to think of productivity directly in terms of time spent on things. You might've worked a job when you were a teenager that paid $8.00 per hour. You were told that you can retire at a certain age (a time frame) rather than a certain degree of wealth. And you might even be organizing your life in terms of time blocks- for instance, by thinking you have to be married by a certain age or buy a house by a certain age.
These are all relationships we have with money where money is intrinsically tied to the value of our time. The whole concept of passive income breaks that notion, which can be exciting, disorienting, and even misleading all at the same time.
Different types of income.
First, let's talk a little bit about what passive income is and what it's not.
There are 3 main categories of income: earned income, portfolio income, and passive income.
Earned income is income that's the direct result of your labor. Your W2 wages from an employer are one example of active income, as are your direct deposits for working for services like Uber or Lyft. For this reason, it's also often called "active income," because it has to be actively made.
Portfolio income is income derived directly from the appreciation or sale of an asset. For instance, let's say you bought 1 share of Bitcoin in 2015 for $312. Then, you had the good fortune to sell it on December 28th, 2017 at it's high of $14,355. After 2 years, you'd be walking away with a profit of $14,043! But you didn't exactly "work" for that money, you simply held an asset in your portfolio (in this case Bitcoin, but it could also be stocks, bonds, real estate, or even intellectual property!) and sold it when the time is right. That's portfolio income.
Finally we have passive income. The name itself is intriguing as it implies that it's income that takes little or no effort to make, and that's exactly why it's become so popular over the last few years! Uh, who doesn't want income without working??
However, I would argue that that's not quite the truth. As we all learned in Economics, "There's no such thing as a free lunch." Sure, sometimes people get lucky and win the lottery or inherit millions from a long-lost great uncle who owned an oil company. But in general, it takes something to make something, no matter what the thousands of pretty Pinterest graphics tell you. Everything comes with at least some effort.
So then what the hell is passive income?
I prefer to think of passive income as income where the work was simply front-loaded and the profits of that work are ongoing and variable.
For instance, if you work for an hourly wage, then your income is directly tied to how many hours you worked. Obviously, your boss is never going to call you into their office and say, "I know you worked 40 hours last week, but since you produced the same output that you normally would in TWO weeks, I'm going to pay you twice as much." Nope, not going to happen.
But with passive income the effort you put in at the beginning largely determines how much you'll make from there on out.
The BEST example I can think of for passive income are six actors and actresses. Can you guess who?
Each of these members of the cast of friends reportedly still earn about 20 million dollars per year- nearly two decades after the show ended!
I know what you might be thinking, "But they don't do anything!"
It doesn't matter that they don't appear in much anymore- because they already did. Because of what they built in the 90's, they're set. It's like they built a house (maybe.. a penthouse?) and just get to enjoy it now!
As you can see, passive income still requires effort, but it has the potential to free up more of your money, time, AND energy in the future! That's why- even though it's not a magical money making machine- I still love the concept. If not free money, then we all at least want more control of our time and energy in the future, right?
I'm so excited to go into the details of different forms of passive income, but before I do..
One thing to note.
Passive income can be the result of front-loading either your effort or your money into a project. For instance, buying and renovating a pizza shop as a source of passive income might require substantial effort AND energy in the beginning. But in this list, I'm not including any ideas that require substantial startup costs, such as rental income or buying a business. Those alternative investments can be lucrative, but I'm more interested in what's attainable for the everyday person (like myself!).
Okay, I've searched far and wide for good examples of passive income. Hundreds of lists like this already exist, but it was really important to me that this one be organized into groups based on skill/hobbies and high-quality. These are only things that I would consider trying for myself!
There are 4 major categories and 11 ideas total, but be creative, think outside the box, and adjust EVERYTHING to suit your own skills and expertise. For instance, perhaps instead of writing ebooks you could write music to sell to companies.
So without further ado...
4 Ideas for Passive Income Streams
1. Create online content to sell.
- Write and publish ebooks
- Create and sell courses
Online content is my personal FAVORITE form of passive income. That's because it has virtually no startup costs besides your own time and energy and unlimited potential for growth.
As an English major, I was involved in the writing and publishing industry long before I was involved in the personal finance sphere. And let me tell you: a lot of people are making hundreds of thousands of dollars a year just doing what they love. There's never been a better time to be a writer.
I'm seeing a similar revolution in ecourses now. If you have a skill (really, anything at all), consider making a course on a site like Teachable to sell it!
(P.S. If writing and selling ebooks is something you might be interested in, check out my Pinterest Board!)
2. Create products to sell.
- Sewing patterns on Etsy.
- Printed/printable art designs on Etsy.
- Artistic designs to sell to companies like Spoonflower.
(For more ideas, check out my Pinterest Board- Passive Income: Product Ideas!)
Yes, there really is a difference between creating digital products like ebooks and courses as opposed to physical products. We usually associate the sale of physical products as active income, but it can be passive as well. For instance, there are merchants who sell pretty embroidery hoops on Etsy that they create themselves. But they may also sell the pattern itself for buyers to simply download.
Likewise, there are other projects you might spend a significant amount of time to complete upfront and the a minimal amount of time to maintain sales. For instance: posters, cards, and wallpaper designs!
3. Rent out your spares.
- Rent out your home or a room in your home on AirBnB.
- Rent out your car or parking spot.
- Rent out any expensive equipment you have and don't use often. This might include cameras, hiking gear, hobby gear (such as kayaks or a trailer), etc.
This is one that I'd be more careful with, especially if you have very expensive items that you don't want damaged. But still, it would be a good way to make passive income. My boyfriend and I attempted a thru-hike one time and knew that we needed a lightweight tent and two good backpacks. We weren't going to buy them because altogether it would've cost lose to $1,000, so instead we rented the materials for a night from REI for about $50. If you have things collecting dust in your garage, there's more than one way to put them to good use!
4. Sell out space for marketing.
- Start a Youtube channel
Marketing's a little odd because the customer is individual companies that want to see their brand get in front of new viewers. But anyone with a blog or Youtube channel knows that marketing is truly passive income. You do what you want (grow a blog or Youtube following) and simply sell the space on your site to marketers. Not necessarily profitable at first but still- easy peasy and you have the potential for a lot of growth!
These are some of the best and most accessible examples I've come across in the personal finance sphere, but if you don't see anything you don't immediately resonate with- don't worry! For every idea you can find online there are ten ideas people are already making money from that just haven't yet become mainstream.
So, if you're looking for sources of passive income: start with your gut and what YOU think you're good at!
Have you ever utilized a source of passive income? Let me know in the comments!