So you want to make more money, but you don't have the time to take another job. There is a solution: it's called passive income, and in this article we list ideas on how to get started growing your wealth in 2021.
According to the American TV channel CNN, more than 44 million Americans now have a side income in addition to their normal, everyday jobs. And 36% of those Americans earn well over $400 ($ 500) or more on top of their normal salary.
Earning extra money is becoming the norm. Since the cost of living seems to rise every year and wages don't always keep pace 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 to no work. Unlike active income, where the more you work, the more you earn (think of your job), passive income provides a return without having to put in a proportional amount of effort.
To cite a somewhat dated example, you can think of owning a house for rent. You buy the house, fix it up and rent it out. That's your initial investment in both time and money. After that, assuming there is a tenant, it is passive income that you accumulate each month.
We are now well into 2021, so times have changed. Here are some great ideas to start this year to earn 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 besides buying physical properties or investing in the so-called Real Estate Investment Funds (REITs). You can now also become a partial investor in a much larger real estate transaction through crowdfunding.
Crowdfunding, the process of pooling money from a larger number of people to fund a larger project, has grown significantly in recent years. According to Statista, for example, in 2015 alone, nearly €29 billion was raised through crowdfunding in the United States. In 2012, this was less than a tenth with about € 2.2 billion. That number continues to rise as new crowdfunding options become available.
Of course it always applies that you should basically only make investments with money that you "can miss" 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 for many more interesting investments, where they also generate passive income. Often a stock broker or advisor will advise you to also reinvest the dividend, but you always have the option of having your dividend paid out for withdrawal.
But what exactly is a dividend? Basically if a company makes a profit, it has two options:
- It can reinvest those profits back into the company (this is often done in young companies looking for growth, for example in the case of technology companies)
- It can return some of that profit to its investors (often done by more established companies with low debt and higher cash balances 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: find a solid company that makes a good product or service, delivers dividends, has no debt and lots of cash available. This philosophy has many facets, as Graham wrote a huge book about it, but is one of its main foundations.
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 passive income for yourself in the short term through the dividends to be paid.
Borrow money through peer-to-peer lending
Peer-to-peer (or P2P) lending became popular over 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 onto the scene. More companies like it have jumped on the P2P bandwagon and investors are starting to realize it's an excellent source of passive income. As an investor, you fund an account and lend small amounts (such as $ 25) to various borrowers across a wide range of risk levels, creating a diverse and dispersed portfolio.
Over a number of years, people average 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 for enough spread, providing P2P loans 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 monetize the sale of your product. Courses can be distributed and sold through sites such as Udemy, SkillShare, and Coursera.
Alternatively, a “freemium model” is often considered – building followers and fans by offering free content of value. Then there is an option to upgrade the services for those 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 take it to the next level.
Write and publish your own book
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, consider writing and self-publishing your own book.
Where blogging requires frequent, shorter content, a book can be something you work on in the background for months and then publish and sell it. The great thing about this is that it can continue to generate money for a long time to come. For some, it also regularly becomes more than just passive income. There are many who can even make ends meet, so why shouldn't it be extra income for you?
affiliate marketing
You've probably heard the term affiliate marketing, 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 is an easy way to earn passive income.
Sign up for a so-called affiliate program (as a publisher), place 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 affiliate marketing and enjoy it for the following reasons:
- they don't have to make a product
- they don't have to stress and put the hours into the product or service
- it's easier to promote and sell affiliate products than anything else that goes into making 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 ao AdamEnfroy (link), bank rate (link), DoughRoller (link), Medium (link)
