Last year we focused our energy on becoming as frugal as possible. We will be continuing that trend, but our area of focus this years is passive income.
The idea is to earn more money without spending much of your precious time. Ideally, it’s about creating assets and income streams that continue to work for you even while you’re sleeping.
Here are some of the passive income ideas I’m either already doing, or considering doing this year:
1. Index fund investing for passive income
This takes the cake as the king of passive income in my opinion. You should carefully consider your own financial situation before investing – there are many potential risks involved that I can’t explain fully here. This article shouldn’t be considered financial advice in any way – get your own professional advice before investing.
Investing requires initial capital to start up, but after it is set up it is normally just a matter of setting up an automatic contribution when you get paid, and allowing compound interest to do its thing over a long period of time.
What you end up with is a stream of income that is constantly working for you while you’re at work or doing your own thing.
We have been investing with Vanguard for about a year, and it has been a very simple way to get exposure to Australia’s 300 largest companies. We invest in the “Australian Shares Fund” and are looking forward to expanding our investments into international shares, and bonds to make sure our investments are properly diversified.
2. Start a blog writing about something you love
I’m not going to make any rash promises that this is a guaranteed way to make money online. It’s not. You are likely to only make a small amount of money if anything at all. Why should you do it anyway?
If you’re writing about something you really care about then the time you spend blogging will be time well spent regardless of whether you make money. It’s a great way to delve into your hobby, or to keep yourself accountable if you’re working towards a goal like I am.
The general idea is to write a useful blog post on a topic that you know something about in the hopes that it is shared by your readers, or ranks highly in Google. Then you use that traffic to make money – either by running advertisements, or selling products.
This site, for example, pays me a bit of pocket money that now pays for my mobile phone, my internet bill and about half of my food for the month – which is pretty good I think! Here is my latest chart for passive income as of January 2014 to give you an idea:
3. Program an App for Android or iOS
If you are have programming skills, or are extremely computer literate you could try your hand at making a basic mobile app or game. There are thousands of resources online that make the process relatively easy, although it is an extremely competitive area.
The sheer traffic that the android and iOS appstores host every day means that if you are able to make an app that is useful, there is probably a market out there for it. If you are able to make a hit, then the sky is the limit. Flappy bird is a great example of the success that one person can have in their spare time. The creator is generating $50,000 per day from ad revenue on his free game.
If you have a great idea for an app that’s not in the appstore yet, what’s stopping you from having a go? Once it’s set up, you don’t have to do anything to maintain your shiny new passive income stream.
- Google has written a very good step by step guide for the rank beginner to app programming
- Here is another good starting guide which links to a number of quality tutorials
4. Real Estate investing
The idea is simple. Buy a house and rent it out to a tenant who pays your mortgage (or a large part of it) for you. If you’re lucky, the tenant’s rent will exceed your costs, leading to an annual profit.
Please see my disclaimer in the above section on index fund investing. This isn’t to be taken as financial advice.
Many people seem to be romantically attracted to the idea of owning a series of houses that earn them money every week – and it’s easy to dream ahead to the future and think about having 4 or 5 houses fully paid off, each earning a tidy weekly passive income.
But for me, real estate investing is not nearly passive enough for me to consider it over investing in shares through an index fund. You have to worry about the tenant not paying on time or at all, fixing broken toilets, evicting tenants who damage property, finding new tenants at the end of the lease – the list goes on.
Some people seem to be able to make it work, but I don’t think it’s something that I’m ever going to try. Consider it if the above list of potential problems doesn’t worry you.
- Buy it, rent it, profit by Bryan Chavis
5. Write an eBook
Are you an expert in a field? Or do you have a knack for telling a great story? The barrier for entry as a writer is almost nil these days. You just need a computer, a connection to the internet and you are set.
Writing a book is an incredibly challenging task, and one that can take years to complete. Once the book is written and published, it doesn’t take any effort to maintain – unless you revised it down the road due to a change in your field. The risk is that no one downloads or buys your book, but there is considerable upside if you manage to find a following. There are a number of places to publish books online these days like Amazon.
6. Become a YouTube star
If you’re able to find a following on youtube, you can quickly convert that traffic into cold hard cash that works for you 24/7 – which is obviously the best kind of passive income. This can be done by selling products in the description below your video, in the video itself, or by signing up for Google’s program that pays you for views.
It isn’t easy to create a YouTube channel that is popular. If you’re not a funny person, don’t try to upload wacky videos – it won’t work. But you might find traction uploading quality how-to guides in your field. Because there is so much traffic, no field is too small. Creating videos on YouTube is also a really good way to add quality to your blog or website.
7. Rent out a spare room on AirBNB
Renting out a space room on AirBNB is really easy and their site handles the advertising, payment and feedback system. The process of having your site advertised is quite passive, but having someone in your house has similar risks to real estate investing, that makes it quite hands on. It is worth considering if you are rattling around in a large house, or have a granny-flat that is vacant.
8. Peer-to-peer lending
There are two major sites that matches private lenders with people wanting to borrow money. The lenders receive higher returns than can be achieved from the bank or even the share market, and the borrowers can get access to money where banks won’t touch them.
Warning: This is incredibly risky. The returns often look attractive, but there is a very good change you’ll be left high and dry and empty handed – default rates are quite high and I can’t say I recommend this at all. If you want to check it out, go to the lending club or prosper.
9. Create niche websites
Unlike blogs, niche sites are normally not updated regularly with new content. Typically, a niche site is created to try to cause Google to send it traffic where there is limited competition. The site could be about an extremely narrow topic – like ‘best male toe nail clippers’.
Then using SEO and good marketing, the site should rank well in Google, if it’s created well. The traffic will be modest, but it can be converted into affiliate sales, or simply through Google Adsense. The site is then left to do it’s thing, while you move on to the next one.
A good stable of these sites can generate a very tidy passive income if done well. For the best guide on the topic I’ve ever come across, see Pat Flynn’s great series of articles that followed his epic Niche Site Duel.
10. Vending machines
Buy vending machines and put them into areas that receive high levels of foot traffic. The investment cost is high, but from then on it is a matter of restocking the machines as needed. If you are able to find success with your first machine, there is nothing stopping you replicating it many times over. This business model is very passive, but the high start up cost and low potential for super profits holds it back in my opinion.
More passive income ideas
The above are just some of the ideas I’m entertaining using this year. There are almost limitless other passive income possibilities – you are limited only by your imagination. The openness and accessibility of the internet gives almost everyone a chance to create an online asset that can work for them while they sleep.
As with anything in life, you have to be willing to put the effort in at the start. Passive income generation is not about doing no work, or taking advantage of some loop-hole, or tricking Google into sending you traffic using spammy SEO tricks.
It’s about providing a great service or resource that can stand alone once you are finished with it. Or by building an asset over time in the case of index fund investing.
I think it’s good to have many irons in the fire in case one fails. Multiple passive income streams is ideal – particularly if you can amass enough to stop working for The Man! Plant those money seeds and let your passive income trees blossom!
What do you do on the side to bring in some extra income? What are some of the best passive income ideas that you use that I haven’t listed here?