Earning a passive income may seem like a dream to many of us, but despite your (and 10 years ago my) preconceptions, it is possible to make at least some income passively.
To what lengths you are able to earn a truly passive income will depend on a range of factors, not least the method of earning, but also how much you invest (time based or financially) on the front end.
As someone who does earn money whilst not actively working, I feel pretty well placed to talk about passive income, and shortly I’ll be sharing with you some of the ways I have personally made money passively or semi-passively – as well as other methods that I’ve not explored but seem very viable options.
First though, let’s get on the same page and make sure we have a similar definition of passive income.
What Is Passive Income?
Passive income is the opposite of active income – which means you are actively doing something to generate money. Active income most often comes in the form of exchanging your time for money, and the most common form of this is employment.
If we reverse this, we can understand passive income to mean making money when we are not actively exchanging our time in return.
Some people might describe this as making money while you sleep, others might see it as a slower return on a long term investment.
What I can tell you from experience is that there is no better feeling than waking up to money earned from something you have front loaded with time and effort – and that can continue to make money almost on auto-pilot.
That is probably over simplifying the process – but all of the passive income ideas I am going to discuss today will have the potential to be just as simple as you want to make them.
Is Passive Income Right For You?
In order to generate a high level of passive income you need at least one of two things:
1 – Time
2 – Money
Now, I’m going to assume that most people searching for passive income ideas are going to have more of the first commodity rather than the second.
In reality, it doesn’t really matter which one you have – or even if you have both…
You will also need something else – the right mindset!
You see, either way, you are going to need to front load the project. Or to put it another way, you are going to have to put a lot in up front before you see any return.
Most of my passive income comes from having created multiple audiences online. Whether that be through YouTube, social media, content based websites, it doesn’t matter – the point is, I had to put a lot of time, energy and effort in to building those audiences before I could even think about monetising them.
I also had to invest time and money in learning about whatever it was I was doing.
Now I am doing the same with property investment – and so I’m back at the learning stage of the process once again.
If you don’t have a mindset that allows you to wait for that delayed gratification then the chances are you will not be successful with achieving a passive income.
Back when I was a teacher, I remember reading about a study that said if you ask a class of children to pass a packet of sweets around – then tell them they can take one and eat it now, or they can wait until after school and then have three – that the majority of children who were happy to wait (in other words for a greater albeit delayed gratification) went on to be more successful in life.
And so – if you are down with this and have an approach where you are happy to put plenty of work and/or money in now, in return for greater (passive) rewards further down the line, then read on… if not – then passive income is not for you.
Passive Income Ideas (pros and cons for each)
As mentioned, there are a number of ways to generate passive income. Some of these can come in the form of a side hustle, whereas some may start that way and become a way of replacing a full time income.
Let’s take a look at some of the best passive income methods that I have both used or consider to be viable.
Blogging
You could consider this website to be a blog. I personally don’t quite see it that way but essentially a blog is a website that contains written content that people read for varying purposes.
It could be informational, review based, entertaining, instructional etc.
As I mentioned earlier, if you have an audience or attention, then this can be monetised in one way or another.
Blogging (or creating content websites) has been my primary source of passive income for over 5 years now and although it can take a good 12 months to get some traction, it’s a great way of building an audience and generating revenue in a relatively passive way.
Some of the ways in which you can make money with a blog include:
- Recommending products or services and making affiliate commissions on sales you refer
- Using display ads that make money each time they are shown to a reader
- Selling banner/ad space
- Sponsorships
- Memberships
My preferred method of monetisation is affiliate marketing on content sites. This is a great way to recommend truly useful products or services to your audience and to be compensated for them.
You don’t need huge traffic numbers to make good money and some programs even offer recurring or repeat commissions on future sales – which is 100% passive once you’ve signed a customer up.
If you’d like to learn more about blogging, and in particular affiliate marketing ,then why not check out my YouTube channel – The Affiliate School.
Online Courses
If you do develop an audience then online courses are a great way to make a passive income. Again, you will need to front load this with the time it takes to create the course, but once it’s there you can earn from it for years to come – so long as the content is still relevant.
You can even pre-sell your course before you create it so you’ll know if it will sell, or is viable to put together.
If you don’t have your own platform or audience, but have knowledge and experience in your topic to share, then platforms such as Udemy are a great place to host your course and although they will take a cut of your sales, you leverage their user base and have no technical limitations holding you back.
Memberships
Similar to a course is an online membership. This was actually the first passive income method I tried when I had a football blog around a decade ago.
This is slightly less passive as you will likely need to create content each month to keep your members interested and to continue to give them value – however, as your members list grows you will be doing the same amount of work but for greater financial reward.
Let’s use my football blog example. I charged users £3 per month for access to tips on selecting their fantasy football squads.
At its peak it had around 250 users and I was working around 2 hours per week to create the members only content. So let’s say 10 hours per month was spent and that was making £750 per month.
That’s £75 per hour.
However, if I had continued with it and built the membership up to 500 members – then I’d still be spending 2 hours per week writing content, but my monthly earnings would be £1500 per month…
£150 per hour! But that extra £75 an hour is completely passive.
This is where we start to see the value in having an audience – and that can be built using YouTube, TikTok, Instagram, Twitter etc – and there is a platform to suit each personality type – my advice here is to choose the one that suits you best.
Dropshipping
Dropshipping is essentially an e-commerce method that allows you to sell without physically needing to be involved with the product.
I can tell you from experience that e-commerce is tough. It requires marketing, logistics, customer service, dealing with returns etc.
Dropshipping will remove some of the headaches from this process – although you may still need to put systems in place to deal with the marketing and customer service side of the business.
However, if you can develop a strong brand, find products that you can source at low cost from the East and sell them in the West for a higher price, then this can be an extremely lucrative business model to run – and one that is much more passive than running your own e-commerce site where you are hands on with the inventory.
I’d say this model suits people who are strong with implementing systems and processes – so if that’s not you, you may be better suited to one of my other passive income ideas.
Property Investment
People say ‘you can’t go wrong with property’, and whilst you should always take what people say with a pinch of salt, there is some truth to it when looking at property investment as a long term plan.
And that’s exactly the way most people should look at property. There are of course some short term methods such as property flipping, but these can be a little more risky and might have tighter profit margins.
If you are playing the long game then simple domestic buy to lets, holiday rentals and business property leasing can pay dividends for years to come whilst increasing in asset value.
This is where you can look at debt as a positive thing – as your property values increase, you can refinance them and bring equity out of the property to either pay yourself (passive income) or re-invest in more property.
BRR (Buy, Refurb, Refinance) is a method that I am currently exploring which essentially means buying properties that need work, refurbishing them and then re-mortgaging them as their value increases – then using that money to re-invest.
If you do this with one property you might see a return of £350 per month after fees. Do this with 10 properties and suddenly you’ve turned it in to a full time salary at £3500 per month – and of course you can then move to 20, 30, 50 properties for example.
This will never be 100% passive as property always comes with some headaches, but if you build letting agents in to your monthly fees then this will remove 90% of the headaches and you could be running a 15 property portfolio for a few hours per month.
That sounds pretty passive to me!
YouTube Or Podcasts
You’ll see a theme here – online audiences. Creating a YouTube channel or podcast is easier than you might think – and with most of us having a relatively high quality camera in our pockets these days, all most of us will need to invest in (to begin with at least) is a microphone (£20 for a budget one).
If you don’t fancy going all in and creating a whole website or if writing isn’t your thing, then leverage the power of visual and aural media.
TikTok is another option too – and as I mentioned earlier, there will be a platform that works for your personality, content type and audience demographic.
My key piece of advice here is to front load on value for your audience. Don’t focus on making money until you have a well established audience that trusts you – and then, you still don’t want to overdo it.
Podcasts and YouTube channels can be monetised through sponsorships, memberships (Patreon etc.) and even affiliate marketing. You can of course also leverage any audience you build here to feed in to other passive income methods such as courses and blogs mentioned earlier.
Rentals – Car/Room/Driveway
There are plenty of ways outside of property to make passive income in the offline world – sometimes we just need to think a little more creatively.
Do you own anything of value to others but that you might not miss for a few hours each week? If so, it could start to form a piece of your passive income.
Rentals are great for this – the more obvious ones are renting a spare room out or even renting an unused garage or driveway. But you can also rent out your possessions too – car rental sites and apps such as HiyaCar allow you to make money from renting out your vehicle.
If you have other high end equipment such as cameras or drones, then you can make money through companies such as Fat Llama – an online marketplace where you can advertise your goods for rental and make relatively passive income.
Drones go for around £24 per day on average, so if you arrange a weekly rental that’s £168 per week for just arranging the collection and drop off.
Have a think about what you own and see if there is a way to monetise the rental of it.
Stocks and Shares (with dividends)
Stocks and shares or even a good old fashioned savings account are one of the oldest forms of passive income investment. This is one example where you will need the finances up front and maybe some time – as you will need to fully understand what you are investing in and consider the risk appetite you have. You’ll also need to ensure you can out perform the rate of inflation – which at the time of writing could prove tricky.
For the risk averse it’s better to go with funds (where the investments are managed for you), whereas if you have a little more knowledge you might want to choose your own investments.
Shares or stocks that pay dividends can work well. These tend to be in larger companies and so are usually a little more secure, and receiving a dividend payout of the companies profits each year can be an added bonus.
Unless you have a huge amount to invest though, this is unlikely going to replace your full time income and the more involved your are, the less passive it obviously becomes.
Verdict
There are plenty more passive income methods that we could explore, but above are my favourite ideas and ones that are worthy of your consideration. The key is to choose something you think you can stick to, as you will need a fair amount of time, energy and maybe even money to put in up front – before you see your passive return.
Even then, the chances are it won’t be 100% passive… but making money whilst you sleep really is the dream – and is 100% achievable!