One with inflationFor Americans, the prices of almost everything have gone up. Even if you have enough money to pay the bills, you may be worried about how to make enough for retirement or just have a buffer.
Enter passive income. This is a flow of funds that – once you get things set up – often takes little regular effort to maintain. You may have heard the phrase “make money while you sleep”. This is passive income, whereas active income includes processing time for money.
“Even if you have a salary, it’s still good to have multiple sources of income in this modern world,” says Cynthia Meyer, certified financial planner (CFP) who works with real estate at Real Life Planning in Gladstone, New Jersey. investors.
Interested in earning additional income? Here’s what you need to know about how to earn passive income, including how to get started.
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There are dozens of types of passive income streams. You must be able to maintain your day job while earning passive income.
Need a passive income idea? Here is a quick list.
Regular interest on a certificate of deposit (CD), US savings bond, or high-yield savings account can be beneficial as interest rates rise
Dividends from stocks or other investments
Copyrights from a creative effort, such as a book or website
Affiliate marketing, making money to run ads or posting monetized links on your website or social media account – even wrapping it around your car
activities like starting a blog, participating in surveys or testing apps (you can easily create a free blog – just follow these simple steps)
Build a website and blog today!
Money taken from a rental property
Renting your home for a short time
Selling items on marketplaces like eBay or Amazon
“Not all of them are necessarily passive. They may involve some activity, but once this type of side hustle begins, it may not require a lot of effort,” Meyer says.
How to set up a passive income source
In some cases, such as buying stock or property, you need cash upfront. Others, like affiliate marketing, take setup time and plenty of equity. You should also weigh the risks against the possibility of regular income. Experts note that lending money can be riskier than buying dividend-paying stocks or savings bonds.
A dividend, for example, “provides a good return on investment and is very reliable with zero effort,” says Erin Hadary, a CFP with Denver-based Moneta Group Investment Advisors. “However, you need a lot of money to make money. [per] Invested in a 3% dividend basket of stocks, he would get roughly $40,000 a month.”
Are there some types of passive income that require very little money to get started?
Yes, but “sweaty balance” – be prepared to put in your time. Activities like affiliate marketing or renting your home take some initial setup and may require maintenance to maintain a steady cash flow.
Copyrights from intellectual property such as books, patents or music can also generate passive income. “Most people seriously underestimate how hard it is to consistently make money from books,” Hadary says. Other categories “may require some upfront payment”.
How much upfront will I need to invest to earn passive income?
The setup depends on the type of income stream. Buy real estate. Meyer says that unless you’re in the real estate business as a profession, like real estate agents, the Internal Revenue Service (IRS) often considers these types of investments as passive income. Be sure to check the IRS website for details on passive income, such as renting a property. “Practically speaking, it’s both passive and active,” says Meyer. “It’s passive in the sense that you’re getting rent every month, but you still need to run your real estate like a business. That would be the caveat.” If you own the property and are renting it out to tenants, for example, there may be regular maintenance as well as preliminary work to set everything up.
“Whether the tenant pays the rent or not, you still have to pay the mortgage, property taxes, insurance and things like that,” Meyer adds. Meyer notes that some investors make the investment more passive by hiring management companies to take care of these details.
Can you earn enough on passive income to make a living?
In some cases, yes, say experts like Meyer. But it takes time to build.
“You’re looking for positive cash flow to live off your real estate,” Meyer says. “So even in an environment like now where rents are generally rising – it takes some time to build up any compound returns. ‘Wow, that’s really a lot of money.'”
Depending on the passive income mechanism, creating an income stream can be daunting (even temporary). For example, Instagram accounts and blogs may lose their popularity. And remember, most passive income streams take some serious research and work to set up. Others, though, can be risky, experts say. “Unfortunately, it’s nearly impossible to find a real passive option,” says Hadary.
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