25 ideas generating passive income to help make money

Active income streams offer a great way to generate additional cash flow, whether you’re engaged in a side hustle or seeking to supplement your monthly earnings, ideas generating passive income to help make money especially in light of inflation. Active income enables you to boost your earnings during prosperous periods and provide support during unexpected job loss, voluntary breaks from work, or persistent inflation eroding your purchasing power.

By incorporating active income streams, you can continue to receive income while focusing on your primary job. Alternatively, if you establish a reliable stream of active income, you might choose to relax a bit. In any case, active income provides added financial security.

Furthermore, if you’re concerned about saving enough for retirement, pursuing wealth through active income streams offers a strategy worth considering.

What constitutes passive income?

Passive income comprises regular earnings from a source other than an employer or contractor. The Internal Revenue Service (IRS) specifies that passive income can originate from two sources: rental property or a business in which one does not actively participate, such as receiving book royalties or stock dividends. While this is legally accurate, in practice, passive income can manifest in various other forms.

“Many people perceive passive income as receiving something for nothing,” notes financial coach and retired hedge fund manager Todd Tresidder. “It carries a ‘get-rich-quick’ allure… but ultimately, it entails effort. You simply front-load the work.”

In practice, you may undertake some or all of the work upfront, yet passive income often entails additional labor along the way. You might need to consistently update your product or maintain your rental property to sustain the flow of passive income.

However, if you’re dedicated to the strategy, it can serve as an excellent means of generating income and provide additional financial security along the journey.

Generating passive income isn’t

typically derived from activities directly involving you, such as the wages earned from a job.

Taking on a second job doesn’t meet the criteria for passive income since it requires your active participation to receive payment. Passive income entails establishing a steady income stream without extensive effort on your part.

Investing presents an opportunity for passive income, but it hinges on the assets you possess generating dividends or interest. Assets like non-dividend-paying stocks or cryptocurrencies may be enticing, but they won’t yield passive income.

25 25 ideas generating passive income to help make money

If you’re considering building a passive income stream, explore these strategies and grasp what it entails to succeed with them, while also comprehending the risks linked to each idea.

1. Develop a Course

One effective strategy for generating passive income involves creating an audio or video course and actively earning from the sales of your product. You can distribute and sell these courses through platforms like Udemy, SkillShare, and Coursera.

Another approach to consider is the “freemium model,” where you attract followers with free content and then charge for more comprehensive information or for those seeking deeper knowledge. This model is commonly used by language teachers and stock-picking advisors. The free content serves as a showcase of your expertise and can attract those interested in advancing to the next level.

The opportunity lies in the potential for a course to provide a steady income stream, as you can easily earn money once the initial time investment is made.

However, there are risks involved. As Tresidder points out, creating a quality product requires a significant amount of effort, and success depends on its excellence. Mediocre products won’t thrive in the market.

According to Tresidder, building a strong platform, marketing your products, and planning for future offerings are essential steps for achieving success. Relying on a single product is not a sustainable business model unless luck is on your side. Instead, continually creating outstanding products is the key to sustained success.

Once you’ve mastered this business model, you can generate a reliable income stream, says Tresidder.

2. create an e-book

Writing an e-book presents a prime opportunity to capitalize on the low cost of publishing and exploit Amazon’s global distribution network to potentially reach millions of prospective buyers. E-books typically span 30-50 pages and can be cost-effective to produce, relying on your own expertise.

Being an expert in a specific niche is essential, with the possibility of leveraging unique skills or abilities that are in high demand among readers. Designing the book on an online platform is swift, allowing for the testing of various titles and price points.

Similar to creating a course, the value increases as more e-books are added, attracting a larger customer base to your content.

An e-book serves not only as a source of valuable information for readers but also as a tool to drive traffic to your other offerings, such as audio or video courses, additional e-books, websites, or higher-value seminars.

However, the strength of your e-book is crucial for building a following, requiring effective marketing strategies like leveraging existing websites, promotions on relevant platforms, media appearances, or podcasts. Initial efforts may yield minimal returns.

Moreover, while a single e-book is beneficial, expanding your output and potentially building a business around it or integrating it into your existing business model can enhance its impact. The primary risk lies in investing significant time with limited initial rewards.

3. Renting out Property

4. Affiliate Marketers

Website owners, social media “influencers,” or bloggers actively promote a third party’s product by including a link to the product on their site or social media account. Amazon stands out as a well-known affiliate partner, while eBay, Awin, and ShareASale rank among the larger names. Instagram and TikTok have emerged as significant platforms for those aiming to expand their following and endorse products.

Consider cultivating an email list to attract attention to your blog or guide individuals to products and services they may desire.

When a visitor clicks on the link and makes a purchase from the third-party affiliate, the site owner earns a commission. Commissions typically range from 3 to 7 percent, necessitating substantial traffic to your site to generate substantial income. However, with a growing following or a lucrative niche (such as software, financial services, or fitness), significant earnings are possible.

Affiliate marketing is termed passive because, theoretically, you can earn money simply by adding a link to your site or social media account. However, in reality, earnings are contingent on attracting readers to your site to click on the link and make a purchase.

For newcomers, there is a risk involved as it requires time to create content and build traffic. Building a following can be time-consuming, and finding the right formula for attracting and retaining that audience may also take a while. Additionally, after investing considerable effort, your audience may shift to the next popular influencer, trend, or social media platform.

5. Retail Products Flip

Utilize online sales platforms like eBay or Amazon to sell products you discover at discounted prices elsewhere. You’ll profit from the price gap between your buying and selling prices, potentially building a loyal following of deal-seekers.

Advantage: You can exploit price differentials between your discoveries and what the average consumer typically finds. This approach can be particularly effective if you have a contact who can provide access to discounted merchandise that few others can obtain. Alternatively, you might uncover valuable items that others have overlooked.

Risk: Although online sales can occur at any time, making the process somewhat passive, you’ll need to actively search for reliable product sources. Additionally, you’ll need upfront capital to invest in your inventory until items sell, necessitating a steady cash flow. A thorough understanding of the market is crucial to avoid overpaying for products. Otherwise, you might be left with unsellable items or be forced to heavily discount prices to make a sale.

6. Sell your Photography Online

Selling photography online may not initially seem like the most obvious choice for establishing an active business, but it offers the potential to expand your efforts, particularly if you can repeatedly sell the same photos. This can be achieved by collaborating with organizations like Getty Images, Shutterstock, or Alamy.

To begin, you need approval from the platform, after which you license your photos for use by those who download them. You then receive payment from the platform each time someone utilizes your photo.

You must possess photos that resonate with a specific audience or depict particular scenes, and you must identify where the demand lies. These could include images with models, landscapes, creative setups, or real events with potential news value.

Opportunity: One advantage of selling or licensing your photos through a platform is the potential to expand your efforts, especially if you can offer sought-after images. This means you could potentially sell the same image numerous times.

Risk: You might upload hundreds of photos to a platform like Getty Images without achieving significant sales. Only a select few photos may contribute substantially to your revenue, necessitating continuous additions as you search for successful ones.

It may demand considerable effort to capture photos, process them, and stay abreast of events that could boost your revenue. Maintaining motivation can be challenging, as each subsequent photo may be seen as a potential jackpot, even though most won’t be.

7. Real Estate Through Crowdfunding

If you’re keen on real estate investing but prefer not to handle much of the operational tasks (such as management, repairs, and tenant dealings), another avenue is to utilize a crowdfunding platform for property investment. A proficient investment team selects the real estate opportunities, allowing you to decide on your investment and the amount you’re comfortable with.

You will be charged an annual management fee by the real estate platform, and there are minimum investment requirements ranging from ten dollars to tens of thousands of dollars.

Benefit: You gain access to exclusive real estate opportunities vetted by experienced investors. You can review the performance on the platforms to gauge the expected returns and time frame. Real estate investments also aid in diversifying your portfolio, thereby smoothing out returns.

Some platforms focus on equity (stock), while others concentrate on debt. Generally, equity yields higher returns with greater risk, whereas debt provides lower returns with less risk. Certain platforms mandate accreditation for investors, based on specific income or asset thresholds. Notable platforms include Fundrise, Yieldstreet, and DiversyFund.

Risk: Many crowdfunding platforms require you to make your own investment decisions. Therefore, while past returns may appear promising, they do not guarantee future success. You will need to assess each deal individually, understanding its advantages and drawbacks by reading through the prospectus.

Furthermore, real estate investments typically involve significant debt financing, increasing vulnerability to economic downturns. It’s crucial to ascertain the duration of your investment and its accessibility, particularly during emergencies.

8. Peer-to-Peer Lending

A peer-to-peer (P2P) loan entails you lending directly to a borrower, facilitated by a third-party intermediary such as Prosper, LendingClub, or Upstart.

As a lender, you generate income through interest payments on these loans. However, since the loan lacks collateral, there’s a risk of receiving nothing in case of default.

To mitigate this risk, you should take two actions:

1. Spread your investment across multiple loans to diversify your lending portfolio. At Prosper.com, the minimum investment per loan is $25.
2. Analyze historical data on potential borrowers to make well-informed choices.

Engaging in P2P lending requires time to understand its metrics fully, so it’s not entirely passive. You’ll need to carefully assess prospective borrowers. Additionally, since you’re investing in multiple loans, you must monitor payments closely. Reinvesting any interest earned is essential for income growth.

During economic downturns, high-yield personal loans are more susceptible to default, potentially exceeding historical rates, reflecting the worsening economic conditions.

9. Dividend-Paying Stocks

Shareholders of companies with dividend-yielding stocks receive regular payments from the company. Companies distribute cash dividends quarterly from their profits, and owning the stock is all that is required. Dividends are paid per share of stock, meaning that the more shares one owns, the higher the payout.

Opportunity: Owning dividend-yielding stocks can be one of the most passive ways to earn money since the income is not tied to any activity other than the initial investment. The money will be deposited directly into your brokerage account.

Risk: The challenging aspect involves selecting the appropriate stocks.

For instance, companies offering very high dividends may struggle to maintain them. Graves cautions against novice investors entering the market without thoroughly researching the issuing company. “You must investigate each company’s website and feel comfortable with their financial statements,” Graves advises. “It’s essential to spend two to three weeks researching each company.”

Nevertheless, there are methods to invest in dividend-yielding stocks without dedicating extensive time to evaluating companies. Graves suggests opting for exchange-traded funds, or ETFs. ETFs are investment funds holding assets like stocks, commodities, and bonds, but they trade similarly to stocks. Additionally, ETFs diversify holdings, so if one company reduces its payout, it minimally affects the ETF’s price or dividend. Here are some top ETF options to consider.

“ETFs are perfect for novices because they’re straightforward, highly liquid, cost-effective, and offer better potential returns due to lower costs than mutual funds,” Graves explains.

Another significant risk is the potential for stocks or ETFs to experience significant declines in short periods, especially during times of uncertainty, such as the 2020 coronavirus crisis. Economic strain may also lead some companies to entirely suspend dividend payments, whereas diversified funds may experience less impact.

Evaluate your investment choices with Bankrate’s brokerage reviews.

10. Develop an App

Creating an app presents an opportunity to invest upfront time and subsequently reap rewards over the long term. Your app could take the form of a game or a tool that assists mobile users in performing complex tasks. Once you launch your app, users will download it, enabling you to generate income.

The potential of an app is significant if you can develop something that captivates your target audience. You’ll need to strategize how to maximize sales from your app, such as incorporating in-app ads or setting a nominal fee for downloads.

As your app gains popularity or receives feedback, you’ll likely need to continually add new features to maintain its relevance and popularity.

The primary risk lies in potentially wasting your time. If you invest minimal or no money (or funds already earmarked for expenses like hardware), the financial downside is limited. However, the market is competitive, and successful apps must offer significant value or a unique user experience.

Moreover, ensuring compliance with privacy laws, which vary globally, is crucial if your app collects any user data. Additionally, app popularity can decline rapidly, leading to faster-than-expected decreases in cash flow.

11. Rent a Parking Space

Do you possess an unused parking space or one that someone else could utilize? You could exchange that spot for some cash. It could create an even better arrangement if you own a larger area capable of accommodating multiple cars or serving various events or venues.

Opportunity: In areas of particularly high demand or during peak times (such as during concerts or sporting events), your parking spot could hold significant value. For instance, if you reside near a location with frequent commuters but limited parking spaces, you might have a lucrative opportunity. Renting to individuals in need of daily parking might offer the best chance of profitability rather than occasional events.

Risk: While this idea isn’t inherently risky, it’s essential to ensure compliance with any regulations set forth by your residence or other authorities regarding parking space rental. It’s advisable to include a liability disclaimer as a parking condition as well.

12. REITs

A REIT, short for real estate investment trust, operates as a company that owns and manages real estate. REITs benefit from a unique legal structure that allows them to minimize or eliminate corporate income tax as long as they distribute most of their income to shareholders.

Opportunity: You have the option to acquire REITs through the stock market, much like any other company or dividend stock. Your earnings will be based on the dividends distributed by the REIT. The top-performing REITs typically demonstrate a history of consistently increasing dividends annually, potentially leading to a growing dividend stream over time.

Similar to dividend stocks, investing in individual REITs carries higher risks compared to owning an ETF composed of multiple REIT stocks. Investing in a fund offers immediate diversification and generally entails less risk than purchasing individual stocks, while still providing attractive returns.

Risk: Selecting quality REITs requires thorough analysis of each potential investment, which can be time-consuming. Despite its passive nature, lack of understanding can result in significant financial losses. Similar to any stock, REIT prices are subject to considerable short-term fluctuations.

Furthermore, REIT dividends are susceptible to economic downturns. If a REIT fails to generate sufficient income, it may need to reduce or entirely eliminate its dividend payouts. Consequently, your passive income might suffer precisely when you rely on it the most.

Finding a qualified financial advisor to guide you through life’s most important financial decisions is simple.

Utilize Bankrate’s free AdvisorMatch service to swiftly connect with a CFP® professional who can assist you in reaching your financial goals.

13. Construct a Bond Ladder

A bond ladder consists of a series of bonds maturing at different intervals over several years. This arrangement reduces reinvestment risk, the risk associated with reinvesting funds when bond yields are too low.

Advantage: Bond laddering represents a traditional investment strategy favored by retirees and those nearing retirement for many years. With this approach, you actively manage your investments by collecting interest payments and reinvesting the principal into new bonds as they mature. For instance, you could initiate the ladder with bonds maturing at one, three, five, and seven years.

After a year, when the initial bond matures, the remaining bonds have maturities of two, four, and six years. The proceeds from the matured bond can be used to purchase another one-year bond or extend the ladder by investing in a longer-term option, such as an eight-year bond.

Risk: A bond ladder mitigates the significant risk associated with purchasing bonds outright—namely, the risk of unfavorable interest rate conditions upon bond maturity.

Additionally, bonds entail other risks. While Treasury bonds are federally backed, corporate bonds lack this guarantee, thus carrying the risk of losing principal if the issuing company defaults. To mitigate this risk, diversification across multiple bonds is essential, safeguarding against the impact of any single bond’s performance on the overall portfolio. Moreover, rising interest rates can lead to a decline in bond values.

Due to these concerns, many investors opt for bond exchange-traded funds (ETFs), which offer diversified portfolios of bonds that can be structured into a ladder. This strategy minimizes the risk of individual bond performance negatively affecting investment returns.

14. Social Media Sponsored Posts

Do you possess a substantial following on social media platforms like Instagram or TikTok? Start attracting attention from consumer brands willing to compensate you for featuring their products in your posts.

To maintain your profile’s appeal, consistently create content that captivates your audience and expands your reach on social media.

Opportunity: Capitalize on your social media presence as a lucrative business model. Generate interest in your profile through compelling content and then monetize it by arranging sponsored posts with brands that resonate with your followers.

Risk: Initiating this venture can present a dilemma: you require a sizable audience to secure meaningful sponsored posts, yet you’re not an appealing option until you’ve amassed a significant following. Therefore, initially, you must dedicate considerable time to growing your audience without any assurance of success. This may entail investing substantial time and effort in tracking trends and producing content, all in the hopes of eventually securing sponsorship deals.

Even after securing the desired sponsored posts, you must continue posting to sustain your audience’s interest and attractiveness to advertisers. This entails committing additional time and financial resources, despite having considerable autonomy over the timing of your efforts.

15. Consider Investing in a High-Yield CD or Savings Account

Investing in a high-yield certificate of deposit (CD) or savings account at an online bank can enable you to generate passive income and secure one of the highest interest rates available in the country. You can accomplish this without ever needing to leave your house.

To maximize the benefits of your CD, it’s essential to conduct a quick search for the nation’s leading CD rates or the top savings accounts. Opting for an online bank over a local one is typically much more advantageous since you can select the highest available rate nationwide. Additionally, you’ll still benefit from a guaranteed return of principal up to $250,000 if your financial institution is FDIC-backed.

While the principal in your account is safe as long as it’s within FDIC limits, investing in a CD or savings account offers one of the safest returns available. However, this return may be overshadowed by inflation, which can diminish the real purchasing power of your money. Nevertheless, a CD or savings account will yield better results than keeping your funds in cash or a non-interest-bearing checking account, where you’ll earn nothing.

16. Short-Term Renting Out Your Home

“Here’s a straightforward strategy that exploits unused space, turning it into a lucrative opportunity. If you’re planning to be away for the summer, have travel plans, or simply won’t be using your space for a while, consider the option of renting it out.

The process is simple: list your space on platforms like Airbnb or Vrbo, and you set the rental terms. You’ll earn income with minimal effort, especially if you secure a long-term tenant.

There are risks involved, of course. While the financial downside is minimal, allowing strangers into your home carries unusual risks compared to typical passive investments. There’s the potential for property damage, theft, or vandalism, for instance.”

17. Promote Your Car Through Advertising

You can potentially earn some extra money by driving your car around town. Reach out to a specialized advertising agency to have them assess your driving habits, including where you go and how many miles you cover. If you match with one of their advertisers, the agency will wrap your car with ads at no expense to you. Agencies seek newer cars, and drivers must maintain a clean driving record.

Opportunity: While you need to drive, if you’re already covering the miles, this offers a fantastic opportunity to earn hundreds monthly with minimal or no additional cost. Drivers receive payment per mile driven.

Risk: If you find this idea appealing, exercise caution in selecting a legitimate partner. Many scammers operate in this field, aiming to defraud you of thousands of dollars.

18. Establish a Blog or YouTube Channel

Are you skilled in guiding travel through Thailand? An aficionado of Minecraft? A master of swing dancing? Transform your passion for a topic into a blog or YouTube channel, utilizing ads or sponsors to generate income. Identify a popular subject, even within a niche, and establish expertise in it. Initially, you’ll need to develop a range of content and attract an audience, but over time, it can yield a consistent income stream as your captivating content gains recognition.

Opportunity: Utilize a free (or very affordable) platform to showcase your exceptional content and build a following. The more distinct your voice or area of interest, the greater the chance to become the go-to individual to follow, subsequently attracting sponsors.

Risk: Beginning with content creation and maintaining regular content production can be time-consuming. Your passion for the subject will be crucial in sustaining motivation, particularly in the initial stages when your audience is still growing.

The main drawback is the potential investment of significant time and resources with minimal returns if there’s limited interest in your chosen subject or niche. Your expertise may be too specialized to attract a profitable audience, but you won’t know until you experiment.

19. Rent Useful Household Items out

Here’s a different approach to utilizing an idle car: Begin by considering other household items that people might require but are likely gathering dust in your garage. Think lawnmowers, power tools, mechanic’s tools and toolboxes, tents, or large coolers. Focus on valuable items that people only need for a short duration and where owning them might not be practical. Then, create a system for clients to explore your inventory and facilitate payment.

Opportunity: You can initiate on a small scale and expand based on demand. For instance, if there’s sudden interest in tents for weekend camping during temperature changes, identify the demand and consider purchasing the item rather than having it readily available. In certain cases, you may even recover the item’s value after a few uses.

Risk: There’s always the chance of property damage or theft. However, you can mitigate this risk by implementing contracts allowing for item replacement at the client’s expense. Starting small minimizes exposure to risk, particularly if you already possess the item and don’t foresee needing it soon. Take special care regarding liability concerns, especially when renting out potentially hazardous equipment like power tools.

20. Online, Sell Designs

If you possess design skills, you might transform them into a lucrative venture by selling items featuring your printed designs. Platforms like CafePress and Zazzle enable you to market products like T-shirts, hats, mugs, and more adorned with your unique designs.

Opportunity: You can initiate with your own designs to gauge market interest and then broaden your offerings accordingly. There’s potential to leverage the current trends by designing merchandise that resonates with the zeitgeist or offers a witty commentary. Additionally, you can establish your own online store using platforms like Shopify to promote your creations.

Risk: Collaborating with printing partners allows you to distribute items without directly investing in inventory, mitigating the risk of capital tie-up. However, you might secure better pricing by investing in some inventory yourself. Another significant risk involves investing substantial time with minimal returns, although this path could be compelling if you’re already engaged in design work for personal reasons or other pursuits.

21. Establish an Annuity

An annuity offers a reliable income stream, which you establish by providing funds to a financial company, typically an insurance company. This company will then furnish you with regular income in the future. Annuities distribute payments monthly and offer various setup options, such as immediate or deferred initiation.

Annuities present an array of structuring possibilities to suit individual requirements, constituting a form of passive income. Whether you prefer immediate monthly disbursements or wish to commence payments upon retirement, the insurance company can accommodate your preferences. Additionally, annuities can be tailored to provide fixed returns or variable payouts based on investment performance.

You can arrange an annuity to pay out over a specified duration, such as 20 years or for your entire lifetime. Payment cessation upon your demise or continuation for your spouse are among the available options.

However, annuities entail significant complexity, and once established, they typically bind you for an extended period. Exiting prematurely may incur substantial penalties, so it’s crucial to thoroughly examine the contract terms to comprehend the associated advantages and drawbacks.

Since every annuity contract differs, each may offer distinct benefits tailored to your needs. Therefore, it’s essential to fully grasp the terms before committing.

22. Purchase a Local Business

An existing and established local business presents you with the opportunity to create a cash flow stream. If the business proves profitable, you might even have the option to hire a manager to oversee operations while you focus solely on major decisions, or none at all. You could potentially secure an attractive loan to reduce your initial financial risk.

Opportunity: Local businesses may offer lucrative and unique niches for purchase, ones that competitors can’t easily replicate. Leveraging the seller’s expertise or credentials, especially in the initial stages, could be advantageous as you familiarize yourself with the business. Sellers might be open to financing part of the sale, aligning their interests with the success of the business. Additionally, you could negotiate parts of the purchase price based on specific profit targets or other performance metrics.

Risk: Thoroughly evaluating potential acquisition targets is essential to avoid ending up with a less profitable business than expected or one with diminishing prospects. Collaborating with experienced and trustworthy brokers can help secure favorable terms and steer clear of potential pitfalls. Alternatively, hiring a consultant to assess prospective deals could prove beneficial. Furthermore, ensuring the integrity and competence of any manager hired to run the business is crucial to avoid complications.

23. Purchase a Blog

Consider purchasing a blog instead of building one if you’re looking to enter the blogging arena. By doing so, you can immediately access the contacts and relationships of the previous owner, and potentially contribute your own. This approach allows you to start generating income from day one, rather than spending time constructing and hoping for results.

When seizing this opportunity, ensure you possess prior knowledge and passion for the subject matter. Additionally, having ideas to enhance the blog’s quality, efficiency, and cost-effectiveness can significantly increase its profitability beyond the initial purchase price.

However, it’s crucial to acknowledge the risks involved. Like any business, a blog lacks liquidity. If you decide to transition to a different venture, you may struggle to recoup your investment or sell the blog altogether. Effective market assessment and the production of appealing content are essential to attract readers or sponsors and drive revenue.

24. Purchase Preferred Stock

Preferred stock, behaving more like a bond, offers attractive dividends on a quarterly basis. Similar to bonds, it possesses a face value and may come with a specific maturity, although it can also be perpetual, eliminating the necessity for redemption by the company. Typically, redemption becomes an option after five years from the date of issuance. These stocks are traded on an exchange, ensuring easy accessibility for buyers and relatively good liquidity.

Opportunity: Preferred stock presents an opportunity for larger dividend payouts compared to a company’s bonds, albeit at the expense of potential capital gains (unless purchased at a discount). Nevertheless, it can serve as an appealing avenue for passive returns. Numerous REITs, banks, and other financial entities utilize preferred stocks for financing purposes.

Risk: The trading of preferred stocks on an exchange implies price fluctuations, especially in response to changes in prevailing interest rates. With rising rates, the prices of preferred stocks are likely to decrease, and vice versa, although they are unlikely to rise significantly above face value. Similar to bonds, investors must carefully assess the company’s ability to meet dividend payments, as failure to do so could result in a permanent decline in investment value.

For those disinclined to select individual preferred stocks, opting for a preferred stock fund provides a solution. This approach offers a diversified portfolio of preferred stocks, thereby reducing overall investment risk.

25. Invest in a Closed-End Municipal Bond Fund

Municipal bonds provide investors with tax-free dividend income in exchange for funding public projects for states and cities. A closed-end fund that focuses on this market segment holds various bonds and boosts overall returns by borrowing money to purchase more bonds. Similar to investing in CDs or dividend funds, a closed-end fund represents a passive income stream.

Opportunity: Opting for a closed-end municipal bond fund could present an appealing avenue to earn tax-free income, particularly for individuals residing in high-tax states or in high tax brackets. These funds typically offer higher dividends compared to an average municipal bond due to their utilization of leverage, albeit accompanied by its inherent risks. Nonetheless, the fund diversifies its holdings across different bonds to mitigate overall risk. It’s advisable to acquire closed-end funds at a significant discount to their net asset value to further mitigate risk.

Risk: When interest rates increase, bond prices, including those of bond funds, decrease (and vice versa). However, the leverage employed by closed-end funds exacerbates this effect, causing a steeper decline compared to individual bonds during market downturns. Furthermore, the fund may need to reduce its dividend payout to cover increased borrowing costs, further impacting its price. Consequently, closed-end funds can experience volatility as interest rates fluctuate rapidly.

Which passive income source stands out as the best?

Determining the optimal passive income source depends on several factors. Key among these are the amount of money available for investment, the overall size of the opportunity, personal interest and expertise in the field, the time commitment required, and the potential for success. Typically, when barriers to entry are lower, competition is fiercer, and the likelihood of success diminishes.

Therefore, it’s essential to carefully evaluate each opportunity against these factors to determine which passive income strategy suits you best. Natural ability and a genuine interest in the chosen area can be particularly beneficial, especially during the initial stages when challenges are more prevalent.

Passive income opportunities exist for individuals with varying levels of financial resources, catering to both those starting with capital and those without initial funds.

How can I generate passive income with no money?

If you lack funds to start, you’ll primarily rely on investing your own time until you accumulate some capital. This involves concentrating on passive income streams that capitalize on the following characteristics:

1. Expertise in a particular field, where you can transform your knowledge into a valuable product or service for consumers, like design, software coding, and other areas.
2. Opportunities that require substantial upfront effort, such as developing a course, establishing an influencer presence, or exploring other avenues.

Effectively, you’re exchanging your time for the absence of capital until you amass enough resources to broaden your range of opportunities.

How can I generate passive income using money?

Money opens up various passive investment opportunities. If you possess funds to invest in passive ventures, you not only access the opportunities mentioned earlier but also a new range. Having money is essential for tapping into the following passive income avenues:

1. Investing in dividend stocks, preferred stocks, or REITs. Investing in stocks requires upfront capital, but it yields some of the most passive income streams available.
2. Saving through bonds or CDs. Another entirely passive option involves purchasing bonds or CDs.

With your funds, you can generate income with minimal or no effort on your part, if that’s your preference. Alternatively, you could combine your money with significant time investment to explore even more lucrative niches.

How many income streams should one aim for?

There isn’t a universal answer when it comes to generating income streams. The number of income sources one should have ought to align with their current financial status and their future financial objectives. However, starting with at least a few is advisable.

Greg McBride, CFA, chief financial analyst at Bankrate, suggests, “You can increase your chances of success by diversifying your income streams, such as through rental properties, income-producing securities, and business ventures, in addition to earned income from your human capital.”

Naturally, it’s crucial to ensure that focusing on a new passive income stream doesn’t detract from the attention given to existing streams. Thus, it’s important to maintain a balance in efforts and select the most promising opportunities for one’s time and resources.

ideas for generating passive income

• Opt for a high-yield savings account. Such an account offers an easy avenue to augment your savings beyond what a typical checking or savings account would yield. While the returns may not be substantial, it presents a straightforward starting point for passive income.

• Explore certificates of deposit (CDs). CDs provide another avenue for generating passive income, albeit with a longer tie-up period compared to high-yield savings accounts.

• Consider real estate investment trusts (REITs). REITs offer a means to invest in real estate without the extensive involvement required in property management. They typically distribute a significant portion of their income in dividends, rendering them an attractive option for passive income seekers.

Minimize your taxes on passive income

by actively managing them. Generating side income through passive means is a great strategy, but it also incurs tax liabilities. You can reduce these liabilities and prepare for your future by establishing yourself as a business entity and creating a retirement account. However, not all passive strategies are suitable for this approach, and you must operate legitimately as a business to qualify.

Take proactive steps such as registering with the IRS and obtaining a tax identification number for your business. Then, reach out to a broker, such as Charles Schwab or Fidelity, who can assist in opening a self-employed retirement account. Assess which type of retirement account aligns best with your needs.

Two popular options include the solo 401(k) and the SEP IRA. By contributing to a traditional 401(k) or SEP IRA, you can receive tax breaks for the current year. The solo 401(k) offers flexibility, allowing you to contribute up to the annual maximum, while the SEP IRA limits contributions to 25 percent of your earnings. Additionally, the solo 401(k) permits an extra contribution of up to 25 percent of your business profits.

Before proceeding, compare the nuances between the two account types or explore the best retirement plans available for the self-employed.

Note: Spilfy also played a part in contributing to this story.