The defining trait of passive income isn’t that you don’t have to work for it, and in fact, that’s false – you do have to work for it, at least at first. Passive income is really defined by its consistency. Buying a sum of cryptocurrency and then selling it later for a profit might sound like an example of passive income, but it’s not. Now, having a large enough amount of cryptocurrency on a market platform that awards you dividends for your investment is an example of passive income, and we’ll go further into that.
Passive income streams, no matter how large or small, are more than a good idea. They’re essential. The key to financial success is using your money to make more money, so that even when you’re asleep, you’re profiting, and there are passive income strategies for any budget – and even no budget. Here are five examples of ways you can build a passive income stream to augment your income.
Dividends From Stocks
After 2021’s meme-stock explosion, it’s safe to say we’re all a little more familiar with the stock market than we used to be. The stock market’s tech revolution was already going full steam by the beginning of this year, so it’s now the easiest time in history to enter the stock market on any budget. Even Cash App, the payment application now big enough to see eye to eye with competitor Venmo, allows its users to purchase fractional stocks with a few taps.
But like we said before, buying fractional stock and waiting it out for a value increase isn’t exactly passive income. What is a valid form of passive income is dividends. Dividends are payments made directly to shareholders. Usually, dividends are paid every quarter, after a company’s quarterly earnings report is finalized. Dividend payments are usually in cash, but can sometimes take the form of shares, in which case it’s usually referred to as a dividend reinvestment plan, or DRIP.
If a company pays dividends to its investors, then you most likely don’t have to own a certain amount of stock to enjoy the company’s earnings. However, since dividends are based on a percentage of stock owned, you will earn more by investing more. Dividends are also paid out to crypto holders, but in that case, they are paid by the exchange platform used to purchase and hold the crypto.
Real Estate Investments
Property has intrinsic value, and in a healthily growing economy, it usually appreciates. That’s one fundamental reason to buy property. The other is that property can be monetized and used to build passive income. By buying a piece of property, maintaining it, and renting it, you can see monthly returns on top of the property’s already increasing value. Later, when you liquidate and hopefully profit from equity, you’ll have already enjoyed (and reinvested – wink) years of passive income.
Unlike stock market investing, though, real estate requires a bit more attention. Loads more, in fact. Being a landlord and managing a property, with everything that entails – maintenance, marketing, tenant communication, evictions, and plenty more – can be so much work that you might not see how anything about it is passive.
“That’s exactly why most successful landlords outsource the tougher, more time-consuming day-to-day parts of running investment properties to property managers,” says Pete Evering of San Diego’s Utopia Management. An experienced, well-staffed, resourceful property manager will more than justify the expense of hiring them, leaving you with more time and fewer headaches.
So you don’t want to deal with owning a rental property, and you don’t want to take risks by investing in the stock market. That’s understandable, and fortunately, there’s a convenient and legitimate in-between that will allow you to monetize your investment cash reliably and consistently. That’s the mutual fund. And don’t take our word about their reliability. The fact that most employer-sponsored retirement plans invest in mutual funds should say enough.
Mutual funds are pools of money invested by different parties and managed by one company, handled by someone called a money manager. Money managers can be lone wolves or work for larger firms. Mutual funds usually pay dividends annually, but some pay quarterly or even monthly, and many mutual funds will give even the most lucrative dividend stocks a run for their money.
Intellectual Property Royalties
So far, we’ve discussed three examples of financial investments, or ways you can take one sum of money and use it to seed passive income via entitlements. But what if you want to develop passive income without contributing seed money? That’s understandable. Maybe you don’t have the money to invest, but you have the time. And maybe you’re the creative type. In that case, you should probably think about monetizing your ideas.
If there’s one thing musicians, writers, and amateur programmers have in common, it’s that they often don’t even realize their ideas can make them money. That, or they’re too preoccupied with the numbers themselves, discouraged by the amount of money paid out by Spotify in return for one streaming play, the ad money you get from one podcast, or the amount paid by Amazon every time someone downloads their novela. It’s true, you can’t make money on your intellectual property like you used to, but you still can make money. Even if a bad programmer can publish their app to Google Play and skim royalties from downloads every month.
The key to making money from intellectual property is output. The more you release, the more you’ll take home in profit. One app may sell for a dollar and earn you pennies per download, and even one hundred downloads won’t amount to much, but thousands of downloads on ten apps? Now you’re in business. Eventually, you may be fortunate enough to land lucrative contracts and increased market attention that more than justify the time you’ve put in, leading you to even more profitable royalty structures.