If you’re wondering about the best way to make passive income, you’ll get a different answer from just about everyone. If the person you ask is honest, the best answer is “It depends.”
What does it depend on?
Many factors, but here are some of the most important:
- Your skills and abilities
- Your interests
- The time you have available
- The money you have at your disposal
Having studied and tested the best way to make passive income thoroughly over the years, with some successes and many failures, here are my thoughts on the best way to make passive income, depending on your unique situation.
1. The best way to make passive income if you’re patient
If you have patience or are ready to work on developing it, long-term investing is one of the best ways to make passive income. Unfortunately, I am generally not a patient person, but in 2015 I was inspired by this post from Mr. Money Mustache and decided to save and invest 50% of my income. Less than 10 years later, the result is that I am well on my way to being financially independent by the time I am 40 years old. In other words, by age 40, I could stop earning money and live off my accumulated money.
While 50% savings may sound insane, and it feels insane at first, over time, it has simply become a habit, and I don’t even notice it. I will say it’s easier if you have a budget, and it also gets easier as you make more money.
The Strategy
Here’s an overly simplified breakdown of the strategy:
- Make income (the more, the better)
- Spend less than you make (the less you spend, the better)
- Invest a large amount of your savings in the stock market automatically monthly. Generally, the more you invest, the faster you’ll enjoy the benefits of passive investment income.
- Choose to reinvest the dividends.
- Rinse, wash, and repeat for years.
- When you hit your goal number, you should be able to safely withdraw 3-4% of your portfolio every year without running out of money, according to the 4% rule. (Obviously, nothing with money is guaranteed, but it should work, especially if you withdraw 3% instead of 4%).
For example:
- Make and take home $100,000 each year
- Live off of $50,000 a year
- Invest $50,000 a year. You can pick a target date fund or one that follows the S&P 500. Companies like Vanguard are great because they have low fees.
- Reinvest the dividends.
- Continue to do this. Invest more when you get raises.
- If your goal was $1.25 million, you should reach that goal within 15 years if you started from $0 and got an average of 7% return each year (see the image below for example).
- After 15 years, you can stop working and start living off of $50,000 a year in passive income from the growth and dividends provided by your investments.
2. The best way to make passive income if you’re creative
As I said, I’m not a patient person. So, once I set up my long-term investment strategy so I didn’t have to work after I was 40, I still decided I didn’t want to wait 12 years until I had to stop working for someone else. So, I decided to work on creating a passive income business where I could leverage my creative skills. Specifically, I started creating digital products and selling them on Etsy.
The Strategy
Here’s a breakdown of the strategy:
- Figure out a problem someone has and is searching for online.
- Then, create a digital product in Canva or an app/tool of your choice (like Excel, Word, Photoshop, etc.) that solves that problem.
- Create marketing images of the digital product in Canva/Photoshop/etc.
- Open an Etsy store and post your product on Etsy.
- Add SEO-optimized keywords and give it an SEO-optimized name.
- Make money passively from a product you created once.
For example:
- Maybe you’re great with Excel, and you realize people are searching for “bookkeeping in Excel template” (they are, btw- 880 a month, to be exact, according to Ubersuggest).
- Create a “bookkeeping in Excel template.”
- Take screenshots of your template, upload them to Canva, and add a title and cute graphics to highlight your product.
- Open an Etsy store.
- Post your first product on Etsy using the title “Bookkeeping in Excel Template” with keywords like “bookkeeping” and “Excel template.”
- Enjoy making money passively from a product you created once.
- Bonus tip: you can also post on Pinterest, YouTube, Medium, or in groups where your target market hangs out to drive more traffic to your shop.
Learn more:
- Interested in learning more about selling digital products on Etsy? Check out this free workshop.
3. The best way to make passive income if you have unique skills that other people want/need
Digital products you sell on Etsy are amazing, but what’s better than $5-$10 items and making passive income? Selling $100-$1,000 items and making passive income. If you have a unique skill others want to learn, you can make passive income by selling your knowledge through online courses.
The Strategy
Here’s a breakdown of the strategy:
- Figure out a problem someone has and is searching for online.
- Create a digital course in Teachable or a tool of your choice that solves that problem.
- Create marketing images of the digital course in Canva.
- Write sales copy.
- Set up a landing page and a way to take payment.
- Find ways to market to your ideal customer.
- Make money passively from a product you created once.
For example:
- Maybe you’re great with HubSpot, and you realize people are searching for “how to use Hubspot” (they are, btw- 320 a month, to be exact, according to Ubersuggest).
- Create an online “How to use Hubspot” course and host it on Teachable or Thrivecart.
- Create marketing images of your digital course in Canva.
- Write sales copy and come up with a catchy name and what people will get from taking your course.
- Use your platform (Teachable or Thrivecart, for example) to create a landing page for your course.
- Market to your ideal customer and drive traffic to your sales page by creating free YouTube videos with short tutorials, writing on Medium, or answering questions from your target market on Quora or Hubspot-based Facebook or Linkedin groups.
- Enjoy making money passively from a product you created once.
4. The best way to make passive income with real estate
I love the idea of real estate investing through owning rental properties, but honestly, it doesn’t feel very passive to me. I have friends and family that own rental properties. While sometimes it can be amazing, I’ve also overheard them dealing with broken refrigerators at a tenant’s house while they’re on vacation. #nothankyou
The good news is that’s not the only way to make money with real estate. For example, you can make more passive income by investing in real estate investment trusts (REITs), or if you’re an accredited investor, you can invest in larger real estate funds like this one.
The Strategy
Here’s an overly simplified breakdown of the strategy:
- Make income (the more, the better)
- Spend less than you make (the less you spend, the better)
- Use some of your savings to invest in a REIT or private fund.
- Choose to reinvest the dividends.
- Rinse, wash, and repeat for years.
For example:
- Make and take home $100,000 each year
- Live off of $50,000 a year
- Invest some of the $50,000 (perhaps $10,000) a year into REITs or a private real estate fund if you qualify.
- Reinvest the dividends
- Eventually, turn off dividend reinvestments and enjoy your passive income
5. The best way to make passive income if you are a good writer
If you’re good at writing, another way to make passive income is by writing online. You can do this by writing a book and self-publishing it on Amazon or writing niche articles for a specific target market. If you write articles online, there are many ways to make money. You can recommend products or services you’ve vetted and trust that help solve your target market’s pain points. This is called affiliate marketing. If you drive enough traffic to your website or blog, you can also monetize your writing by adding ads to your website. You can also sell sponsorships.
The Strategy
Here’s an overly simplified breakdown of the strategy:
- Pick a niche that you want to write about
- Find affiliate partners on Impact
- Write articles that discuss brands you are affiliated with
- Add affiliate links to your articles
- Drive traffic to your articles
- Rinse, wash, and repeat
- Make passive income when people click on your affiliate links.
For example:
- Let’s say you want to write about health for people with diabetes
- Find an affiliate partner like Quest Diagnostics on Impact.com
- Write articles related to health.
- Add affiliate links to your affiliate partners when they make sense in the article.
- Drive traffic to your articles by leveraging SEO, reposting where they make sense, and getting back-links
- Rinse, wash, and repeat
- Make passive income when people click on your affiliate links
Learn more:
- The Surprising Way I Earned $13k Passively In A Week Without An Email List Or Social Media Following
Common Passive Income Mistakes to Avoid
While passive income can be a powerful tool for building long-term wealth, it’s important to avoid mistakes that can undermine your success.
Avoid Get Rich Quick Schemes
One mistake is investing in schemes that promise quick and easy returns with little effort. Instead, do your research and understand that every investment comes with risk and no guarantees. Additionally, you must invest something to get the desired results. If you don’t have the money, you must put in the time. If you don’t have the time, you can speed up your results by investing more money.
Diversify
Another passive income mistake is failing to diversify your passive income streams. If you don’t remember 2008, go back and do your research. In 2006 people who invested in real estate lived large, and many lost it all when the real estate market crashed. I’m not trying to bash real estate but highlight the importance of diversification. Nothing is guaranteed in life except for the inevitability of change.
The Bottom Line
Passive income does exist and can be a valuable tool for building long-term wealth and financial security. Investing in dividend-paying stocks, creating digital products, teaching people what you know, investing in real estate, and/or promoting other people’s products makes earning a steady income stream possible without actively working for it. However, it’s important to avoid common pitfalls and mistakes to ensure long-term success and remember that just because the income is passive doesn’t mean it doesn’t require up-front work. With the right strategies, mindset, and patience, anyone can build successful passive income streams and achieve financial freedom.
You may like these:
- Oprah Winfrey Quotes & 5 Important Lessons on Becoming a Billionaire
- How to Get Rich From Nothing: 6 Surprising Lessons from Andrew Carnegie
- How to Make Money Online That Is Legit: 12 Easy Ways to Make Money Online
Passive Income Resources
If you’re ready to earn income passively, I created a free Ultimate Passive Income Startup Checklist. It helps with the biggest challenges people struggle with when making passive income.
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P.S. This post contains affiliate links.
P.P.S. The information provided on this blog is for educational and entertainment purposes only and should not be construed as financial advice. The content is not intended to be a substitute for professional financial advice, and you should always consult with a qualified financial advisor or other professional before making any financial decisions. The author and publisher of this blog make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.