Passive income has become a buzzword for growing your wealth. But is any income truly passive? While you may think the idea of passive income is a lie, it’s often misunderstood. Passive income doesn’t mean that you can make money with no effort. Usually, with passive income, there is an initial start-up period where you have to be hands-on. Then, in most cases, you’ll be able to generate money over time with less management.
Realistic Passive Income
So while passive income isn’t a lie, you may have to alter your expectations of its meaning. While the term may be overhyped, there are still some forms of passive income that are worth exploring. Here are some examples of passive income and just how much effort they will entail.
Dividends
Dividends are payments made by a company to its stock holders. They’re typically made on a monthly or quarterly basis, and are usually between 1 and 5 percent of the value of the shares of the stock. Dividends are one of the major ways that Americas wealthy become rich.
Dividends have a number of advantages including: scalability, liquidity and tax preferenced status. Dividends are scalable in the sense that the more stock you own, the great the amount of the dividend payment you receive. Unlike receiving hourly wages, which are limited by your labor time and energy, dividends are only limited by company profitability and the amount of shares outstanding. These can be in the billions and millions respectively. Dividends are liquid in that they’re usually paid in cash – which can be easily transferred to your bank account, unlike other assets such as precious metals. Lastly, dividends are typically taxed at long term capital gains rates, which are usually less than the tax rate charged to regular income.
If you want a good listing of which dividend stock to buy, consider reading Dividend Power’s excellent list of dividend stocks.
Real Estate Rentals
Real estate rentals, when managed the right way, take the most effort upfront. You’ll have to choose the best property and select a management company to manage your interests. Then, you’ll be able to be a bit more hands-off. But of course, if problems arise with the property or tenants, you’ll likely be putting in more work.
Online Courses and eBooks
Almost everyone has a marketable skill that they can turn into a course or eBook. The process of creating the material takes a lot of work upfront. However, once the course is created and marketed, you’ll be able to be more hands-off. Of course, you’ll still have to update the material, handle customer service, and any ongoing marketing efforts.
Peer-to-Peer Lending or Crowdfunding Investments
While peer-to-peer lending and crowdfunding investments may feel passive, you’ll want to heavily research them before handing over your money. After your initial investment, you’ll be able to passively collect any dividends.
Affiliate Marketing
The idea that affiliate marketing is passive income is far from the truth. Anyone who tells you differently is trying to prey on your desperation for quick money. First, you’ll have to work hard to build a following on social media platforms. This means creating constant content. Then, you’ll have to maintain your viewership and get monetized or secure brand deals. It’s not an easy job and is far from passive. Plus, only the top influencers are making good money on affiliate marketing. Most people struggle to make affiliate marketing lucrative for them.
The Bottom Line
Passive income is still earned. You use your time and skills to create income opportunities. If it were money for nothing, everyone would be doing it. Some passive income streams take more effort than others but no form of income is ever easy to acquire. If an opportunity seems too good to be true it usually is. Don’t fall for schemes that sell you easy passive income, they often target the desperate and only take advantage of you in the long run. Instead, use your talents to create a passive income stream that makes sense for you and helps you achieve your financial goals.
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Teri Monroe started her career in communications working for local government and nonprofits. Today, she is a freelance finance and lifestyle writer and small business owner. In her spare time, she loves golfing with her husband, taking her dog Milo on long walks, and playing pickleball with friends.
