How to Start Earning Passive Income

Write a book

Gone are the days of needing an agent to find a publishing house to look at your manuscript. Thanks to myriad self-publishing platforms, you can finally write that book you’ve always wanted, publish it, and sell it, all without jumping through hoops to get it on a publisher’s desk. Selling it as an e-book online is a great way to earn passive income, especially for beginners—even if you set the price at only $5, you could possibly sell up to 200 copies per month, yielding up to $1,000 extra monthly income.

This is a fairly low-risk option. You may not sell any copies of the book, but it is more likely that you’ll sell some and start making money.

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Investments

You don’t have to be a Wall Street broker to make passive income off investments. From dividend stocks to dividend index funds, bonds, and bond index funds, there are some simple ways average folks can earn a steady, passive cash flow. There is also a tax incentive to this method: The IRS taxes passive income differently from active income, or income you earn from a job—any passive losses can offset passive gains on your taxes.¹ Learn how to invest with a few of these methods:

Dividend stocks

One of the best ways to make passive income is through dividend stocks. These are publicly traded companies who share a portion of their profits with shareholders. Buy the right stocks, and you’ll get a quarterly payout from companies’ dividends—and the more shares you own, the bigger the payout will be.

If you’re feeling adventurous, dividend stocks offer a great opportunity to increase your cash flow with minimal effort. However, a company’s high dividend yield may be temporary, and you could lose money if the price of the shares suddenly decreases. Be sure to do your research on the dividend stocks you’re considering to identify any anomalies in their profits and to find the stocks that will continue to pay out long term.

Dividend index funds or ETFs

A slightly lower risk approach to dividend stocks are dividend index funds, also known as exchange-traded funds (ETFs). An index fund usually consists of a combination of stocks, bonds, and commodities. They offer more of a buffer to any losses because of their more diverse holdings; if one of the holdings takes a hit, it doesn’t greatly affect your overall investment. Dividend index funds offer the payout that a single dividend stock would but across the various holdings.

Beginners to investing and earning passive income would benefit from dividend index funds since they are simpler and offer higher returns than other types of investments, such as mutual funds. Like dividend stocks, however, you’ll want to consider your risk tolerance for investment. Consider choosing a fund that indexes against companies that have continually raised their dividends for 25 years or more—these are called dividend aristocrats, and they offer some of the most sustainable investment opportunities.

Bonds and bond index funds

Unlike stocks, where you buy a portion of a company and become a shareholder, bonds allow you to lend money to a company or to the federal, state, or local government and receive income from the interest. They do earn less overall than stocks, but they are also considered a safer investment and less volatile than buying stocks. You can buy individual bonds as well as bond index funds. The bond index funds usually have low fees associated with them, and they tend to be diverse to avoid losing much money during market fluctuations. The interest you earn on either becomes passive income nonetheless.

Short-term rentals

Do you have a spare room or a comfy couch? Do you often leave your home empty for extended periods of time? If you’re not using it, you might as well rent it out with a vacation rental company. Whether people are looking for vacation accommodations in your town or they just need a place to crash overnight, renting out your space is a fairly low-effort way to earn passive income. The initial work entails signing up on the site and preparing your home for guests, and you’ll likely enact cleaning and sanitation procedures once they leave.

There is a risk of getting an unruly guest who leaves a mess (or worse), but some companies offer insurance up to a particular dollar amount in damage. You can also bake in cleaning fees to the price of your rental as well as set the terms and guidelines for renting out your space.

Create a blog—and use an affiliate program

Put your creative mind and passions to good use with a blog, and work with an affiliate program to incorporate links to products. If people click on the links from your blog, you’ll earn a commission. Examples include writing a food blog where you reference the food or cookware products you use to cook, or starting an outdoor gear review blog where you discuss the various camping and recreational equipment you test. Work with a retailer to link to these products on their websites to earn passive income through the commission.

The initial work entails writing the blog posts themselves (be sure you use a tool like Microsoft Editor to automate your proofreading). There is even more of a lift if you’re cooking or testing gear solely for the blog. But if you’ve got great content and search engine optimization (SEO), once you publish the posts with the links, there isn’t much more to do than sit back and wait for the checks.

High-yield savings account or CD

If you don’t have much time or cash to initiate your passive income stream, consider transferring some or all of your savings into a high-yield savings account (HYSA) or a certificate of deposit (CD). HYSAs offer higher interest rates than a regular savings account—for example, some HYSA interest rates vary between 0.5% and 3%, whereas a regular savings account may only offer 0.01% interest. HYSAs are often available from online banks, and they are able to offer higher interest rates because they don’t have brick-and-mortar locations to support. Their interest rates may also vary while your money is in the account, but you won’t lose any money if the interest rate decreases during this time.

CDs are available from most banks and credit unions. They entail leaving a lump-sum deposit untouched for a specified amount of time, ranging from six months to two years or more. You’ll have less access to your money while it is in a CD, but the interest rate remains the same while it is in the account. You also cannot add money to a CD once it is opened, unlike an HYSA. However, interest rates on CDs are usually much higher than HYSAs or other bank accounts.

HYSAs and CDs are slow-burn passive income options, but they are certainly worth the wait and are great ways for beginners to start earning money outside of their normal jobs. Shop around to find the best interest rates for each, as rates vary widely across banking institutions.

Advertise on your car

Consider using your car as a moving billboard to start earning passive income. If you don’t mind having a sticker, magnet, or mini billboard on your car, there are advertisers who will pay you to promote their company or service. Some advertisers have daily or monthly mileage and model year requirements, so this option is best if you have a newer car and you already drive frequently or have a long commute to your day job. People who allow advertisements on their car typically earn between $100 and $500 per month!

Rent out your car

Each year, a new app pops up that allows for peer-to-peer car sharing. They are popular in metropolitan areas where fewer people own their own vehicles and tend to rely on public transportation. If you find yourself driving your own car infrequently, or even if you’re about to be out of town for a while, earn some passive income by renting out your car.

Like renting out your living space, there is a risk for damage to your vehicle, but most car sharing apps offer insurance coverage and charge drivers a cleaning fee if they leave a mess. As the car owner, you set the rules for your car, like no pets or no smoking, and you also block off the dates it is unavailable. Drivers’ accounts are connected to their driver’s licenses, so you can rest assured that they are legally allowed to drive. If you aren’t using your car anyway, help someone who is in need of a car and make some money while you do it!

Earning money in your sleep may sound too good to be true, but these options highlight how easy earning passive income can be. Once you initiate your passive income streams, keep track of your earnings with Microsoft Excel spreadsheets. You’ll be well on your way to building your savings or paying for your next vacation with your new revenue streams.