Don’t let its name fool you: Passive income can play an active role in your financial life.
Passive income is different from active income, which is the wages you earn by working for a paycheck or salary. Instead, this cash flow is generated without active, daily participation from you.
With minimal time and effort from you, passive income can be a great way to supplement your typical source of income. You can use the extra cash flow to save for your kids’ future or retirement, to pay down any debt you might have, or to buy something for which you’ve been saving.
This extra money can come in handy especially during retirement, when you may no longer have a traditional source of income. Passive income streams can give you more flexibility to travel or explore other hobbies during retirement.
If you’ve never tried your hand at passive income before, here are five ways to start earning money while you sleep.
Invest and collect dividends
Investing in stocks that pay out dividends, or distributions of a company’s earnings, is one way to earn money on the side. When you get a dividend, you get a certain amount of the profit the company distributes to its shareholders. That amount is determined by how many shares you have.
Dividends are usually paid out in cash (occasionally additional shares of stock are issued). And these payments usually occur four times a year, at the end of every quarter.
You can also reinvest dividends. Dividend reinvestment is pretty much what it sounds like. You get a dividend payment, and rather than taking the cash and spending it, you reinvest those dividends back into your investments. Dividend reinvestment can be a great way to keep adding to your investments and keep your money working for you.
Not all companies pay their investors dividends. One way to find out if a stock pays dividends is to go to a free research site such as Yahoo Finance and enter the ticker (the series of letters that represent a company being traded on an exchange).
If it does, it will list the most recent dividend date and amount.
When you invest using Stash, you can find information about dividends for every stock and fund we offer.
Purchase rental property
In 2019, 65% of consumers owned a home in the United States. Renting out property to tenants or travelers can be a source of income.
There are a few things to consider before you invest in property, however. Unless you can purchase the property with cash, you should have some savings as you’ll have to put a down payment on the house if you get a mortgage. Typically, you can expect to pay around 20% of the purchase price of the house as a down payment. Then you’ll have to pay off the mortgage on the house, assuming you don’t plan to purchase it outright.
With a mortgage, a lender loans you the money you’ll need to purchase a home—usually an amount that covers the cost of the home and closing costs and fees minus whatever you pay upfront as a down payment. In exchange for the funds you need to purchase the home now, you agree to pay the lender back with interest. Interest is the money the lender charges you for loaning you the money. Interest rates are usually expressed as a percentage.
On top of a mortgage, you’ll have to stay on top of the property’s upkeep and insurance if you plan to rent it out. Managing the property can include paying for landscaping, utilities, and occasional repairs. So, while renting out property can be a good source of passive income, expenses might also require some of your income.
Earn cash back from a credit card
You may already be doing this one. Many credit cards offer cash back on certain purchases or even on every purchase.
Cash back credit cards can be a simple way to earn when you spend. These cards pay holders back a small percentage of cash for every purchase they make.
Different cards have different rewards plans. Some cards provide a standard percentage cash-back option, while others offer additional benefits.
Other types of cash-back credit cards offer higher cash-back options on certain purchases, such as shopping at gas stations and grocery stores, or on specific online platforms such as Amazon or eBay. Some cards might also provide higher cash-back options on seasonal purchases that may rotate depending on the time of year.
Remember that while there are benefits of cash-back credit cards, there can also be drawbacks including caps on cash-back, higher interest rates, and fees.
Become a social media influencer
The title of “influencer” might make you think of former reality TV contestants selling diet pills, but if you create content and have a significant following, you might be able to earn passive income by posting on social media sites such as Instagram or Twitter.
Influencers earn an estimated $1,000 per 100,000 followers, according to some experts. By building relationships with brands and then posting content on behalf of those brands to social media, influencers can easily make income.
Becoming an influencer does require you to build relationships with brands and to build your own brand by posting content consistently. But the payoff can be significant and can boost your overall income.
If being an influencer isn’t for you, you may want to consider creating a website or starting a blog. There are a variety of ways to make money on a website, such as selling ad space and affiliate marketing. Through affiliate marketing, a blogger will have a partnership with a brand and promote a product on behalf of that brand. The blogger then splits the profit with the brand.
Earn royalties if you can
Maybe you’ve been sitting on the next great novel. If you have a manuscript, you may want to attempt to get your book published as either an ebook or as a print edition.
You can earn royalties, or a percentage of sales, on a book. While the percentage of sales will depend on the book deal you have, you can estimate what you might earn from royalties.
You can also earn extra income by appearing in commercials, or movies, or tv shows.
Passive income can be part of your financial plan
And remember that you can use passive income to invest, which you might want to consider making part of your financial plan. Stash lets you buy fractional shares in single stocks and exchange traded funds (ETFs).