So you want to make more money, but you don't have time to take another job. There is a solution: it is called passive income, and in this article we list ideas on how to get started increasing your wealth in 2021.
According to the American TV channel CNN, more than 44 million Americans now have an extra income in addition to their normal, everyday jobs. And 36% of those Americans earn over $ 400 ($ 500) or more on top of their normal salary.
Earning extra will become the norm. Since the cost of living seems to increase every year and wages don't always keep up with those increases, it's smart to think about earning passive income.
What is Passive Income?
Passive income is money that you can earn periodically by doing little or no work. In contrast to active income, where the more you work, the more you earn (think about your job), passive income gives a return without you having to put in a proportionate effort.
To cite a somewhat dated example, you can think of owning a home for rent. You buy the house, renovate it and rent it out. That is your initial investment in both time and money. After that, assuming there is a tenant, it is passive income that you collect each month.
We are now well into 2021, so times have changed. Here are some great ideas to get started this year to start earning passive income.
Invest in (crowdfunded) real estate
The costs of investing in real estate can be high. But there are new options for investing in real estate beyond buying physical properties or investing in so-called Real Estate Investment Funds (REITs). You can now also become a share investor in a much larger real estate transaction through crowdfunding.
Crowdfunding, the process of pooling money from a larger amount of people to fund a larger project, has grown significantly in recent years. According to Statista, in the United States alone, almost € 29 billion was raised through crowdfunding in 2015 alone. In 2012 this was less than a tenth with around € 2.2 billion. That number continues to rise as new crowdfunding options become available.
Obviously, you should always make investments with money that you “can afford”, and you should always be well informed so that you can make well-considered decisions yourself.
Invest in stocks that pay dividends
Most stocks that pay dividends are more interesting investments for many, while also generating passive income. Often a stock broker or adviser will advise you to reinvest the dividend as well, but of course you always have the option to have your dividend paid out before withdrawal.
But what exactly is a dividend? Basically when a company is making a profit it has two options:
- It can reinvest those profits into the business (this is often done with young companies looking for growth, for example in the case of tech companies)
- It can return some of that profit to its investors (often done by more established companies with low debt and higher cash balance on the balance sheet)
In fact, finding a stock that pays dividends is one of the most important aspects of value investing, a methodology developed by Benjamin Graham and made famous by Warren Buffet.
The basis for value investing is this: look for a solid company that makes a good product or service, provides dividends, has no debt and a lot of available money. This philosophy has many more facets, as Graham wrote a huge book about it, but it is one of his most important founding principles.
This means that investors like Warren Buffet value companies that pay dividends. Maybe you should too. If you follow this philosophy, you can find excellent investment opportunities for long-term growth, while generating short-term passive income for yourself through the dividends to be paid.
Borrow money through peer-to-peer lending
Peer-to-peer (or P2P) loans became popular more than 10 years ago when a platform like Prosper first appeared on the scene. It marketed itself as a way to borrow money without going to a bank. Instead, you can borrow money from someone else, who will lend it to you at a competitive rate.
Since then, P2P lending has exploded on the scene. More companies like have jumped on the P2P cart and investors are starting to realize that it is an excellent source of passive income. As an investor, you fund an account and lend small amounts (such as $ 25) to different borrowers across a wide range of risk levels, creating a diverse and dispersed portfolio.
Over a number of years, people on average achieve about 10% as an annual return, which is a fantastic ROI (Return On Investment) for passive income. The rates of return are still very competitive, and if you have enough to invest and have a diversification strategy spread out enough, P2P lending can be a great source of passive income for you.
Sales of information products
A popular passive income strategy is to set up an information product, such as an ebook, or an audio or video course, and then make money selling your product. Courses can be distributed and sold through sites such as Udemy, SkillShare, and Coursera.
As an alternative, a “freemium model” is often considered - building followers and fans by offering free content of value. Then there is an option for an upgrade of the services for the people who are willing to pay for more detailed information and want to know more. The free content also acts as a demonstration of the expertise and attracts the people who want to move to the next level.
Write and publish a book yourself
Many people recommend starting a blog as a way to earn passive income. Not everyone agrees with that approach, as it can take a long time (and a lot of money) to build and grow a blog from scratch. Instead, you can also consider writing and self-publishing your own book.
Where blogging requires frequent, less lengthy content, a book can be something you work on for months in the background and then publish and sell it. The great thing about this is that it can continue to generate money for many days to come. It also regularly becomes more than just a passive income for some. There are many who can even make ends meet, so why couldn't it be extra income for you?
Affiliate Marketing
You've probably heard the term affiliate marketing before, it's a simple method of earning commission by promoting a product on your website or social media page.
In other words, you earn by advertising a company or a person's product. It's an easy way to earn passive income.
Sign up for a so-called affiliate program (as a publisher), post the links of the product on your website or social media page and see how you can build an extra income from the purchases made through your affiliate links.
Many people online love and enjoy affiliate marketing for the following reasons:
- they don't have to make a product
- they don't have to stress and spend the hours on the product or service
- it is easier to promote and sell affiliate products than anything else that goes into creating or delivering the product
How many income streams do you need?
There is no “one size fits all” advice when it comes to generating revenue streams. How many sources of income you want or need depends on where you are financially and what your financial goals are for the future. But having at least a few is a good start.
Sources include AdamEnfroy (link), BankRate (link), DoughRoller (link), Medium (link)
