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Passive income can help give you more financial freedom and flexibility, but how do you go about generating it? While some passive income ideas are easy to set up, others may require a bit of upfront work and ongoing maintenance.
We've put together a list of the best ways to earn passive income into categories, and how much effort each involves:
Passive income ideas
Investing
Property
Online ventures
Brick and mortar businesses
Renting out your assets
One thing to keep in mind is that certain passive income ideas may be more effective during certain economic conditions. For example, during times of rising interest rates and high inflation (like we have now), a high-interest savings account may be a more reliable source of passive income than something like property.
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Investing
Investing is perhaps the most hands-off way to earn passive income. All you have to do is deposit some money into an interest-bearing account and leave it there while the cash starts rolling in. Of course, your income will depend on the level of interest the account offers, will how much you put into the investment and how long you leave it there.
Here are some passive income investment ideas:
These won't generate tons of interest for you, but they're dependable and it's better than letting you money fester in your checking account. Some brands like ubank offer competitive rates at 5.1%
p.a.
If you're a peer to peer lender (you are the investor) you can lend out money privately to borrowers. Platforms like RateSetter let's you decide on the target rate you want to receive and the amount you want to lend. You're then paired up with a portfolio of borrow loans to match your preferences.
This is where you pool your money together with others to invest in a common range of assets. If the fund does well, you do well. IG Share Trading allows users to invest in index funds with a $0 monthly fee.
These are kind of like savings accounts, but you invest a specific amount of money for a specific amount of time. They are also dependable but you won't be able to access your money until the agreed time is up. Check out this competitive offer from Citibank.
These are like managed and index funds, but instead of buying units in the fund, you are buying shares in the ETF. This setup makes it simpler and less expensive to invest. IG's Share Trading platform allows users to trade ETF's with no monthly fee.
Buying and trading shares in the short term isn't exactly passive, so if you want to earn passive income in the share market, your best bet is to buy shares in established companies with a track record of success or take an investment strategy that focuses on the long-term growth of a company. Look for companies that pay dividends. There are heaps of competitive share trading platforms out there including IG Share Trading as well as the winners of our 2019 Finder awards Saxo Invested Australia and Self Wealth.
This is a fancy name for Automated Investing, a relatively new type of investment that is starting to take off in Australia. Robo Advice replaces a human investment adviser with a computer algorithm that invests and rebalances your portfolio for you based on your investment timeframe and risk tolerance. Without the need to pay advisers' salaries, Robo Advisers can offer attractive returns.
You always hear stories about people striking it rich in real estate. That's because it is a tried and tested way of bringing in some extra cash. Not only does the price of your assets tend to go up in the long term, but you can also earn rental income along the way.
These days, affording a rental property is out of many people's reach especially in Australia's big cities. But buying rental property is not the only way to get into the real estate game. Here are some other ways to invest in real estate:
This is a no-brainer if you already have a property which you don't need to live in. You can either use the traditional rental market or go through the share economy with a platform like AirbnB host. (This may take additional work, so it's not truly passive but there's the advantage of higher returns than traditional real estate).
This is another way for the average investor to invest in real estate projects they couldn't otherwise afford. They are less complicated than REITs and usually involve buying a stake in a specific real estate project rather than buying a stake in a real estate company with many holdings.
Online businesses were tailor made for passive income since you can automate much of the work, and there are numerous ways to do it. Here are just a few:
A dropshipping business is one where you sell your customers items you don't even own yet, like printed t-shirts. When someone places an order through your online t-shirt shop, you place the order with the t-shirt manufacturer who then ships it directly to the customer. Other than setting up the website, handling paperwork and counting your profits, you're hardly involved.
If you have a blog, website, YouTube channel or any other online channel that gets traffic, you can earn money by recommending software, products and services to your audience and receive a kickback every time someone buys something. Just make sure they are products you can actually stand behind.
If you don't already have a following it can take some time to build one up.
Effort involved: Medium
If you've got the chops, you can attempt to do what hundreds have done before you, and that's to become Instagram famous (or YouTube, or Snapchat or whatever). If you can build a passionate enough following, you can make money by advertising, running affiliate links, being a spokesperson for brands and creating your own line of products.
To make it in this game, you have to have a ton of personality, dedication and creativity to pull it off.
Effort involved: High
If you're good at something like woodworking, affiliate marketing or yoga, you can build a following by sharing your knowledge through online channels like YouTube or ebooks. After you build your following, you can start to make money by selling more products like online workshops, more ebooks and branded products. Advertising and sponsorships are also possible.
As long as you're persistant, your skills should sell themselves, although it will take a little while to build a following from scratch.
Effort involved: Medium
Brick and mortar businesses
There are a couple of brick and mortar businesses that fly under the radar, and which can bring you in a decent level of passive income:
Buying a vending machine and stocking it with snacks is a small investment. The trick is finding a spot for it in a high-traffic area. When one vending machine starts pulling in money you can buy a second, a third and so on.
Compared to the other suggestions here, this will take a little more effort to get off the ground. Your biggest challenge will be to find high traffic areas that don't already have vending machines.
Like vending machines, storage facilities are quite low maintenance and its an industry that is expected to grow. If you can rent a space in an old warehouse and convert it into storage facilities, you might just have a winner on your hands!
It will take a bit of up-front investment and renting the right space for the right price could be tricky.
Effort involved: High
Rent out your stuff
There are many opportunities out there to make money renting out the stuff you own. Cars are the most popular choice, but similar services exist for other items as well. If you have a lot of nice stuff you don't use, it might make sense to rent it out rather than sell it.
Here are some examples:
Effort involved: Low
Use a peer-to-peer hospitality services like Airbnb to rent out the extra room you never use or even your whole house when you're away on vacation.
ToolMATES is a peer-to-peer tool rental website that lets you make money by renting out your tools to someone who needs them. You can post anything from small hand tools to heavy machinery.
Effort involved: Low
Rentzi is a globalplatform that lets you rent all the other bits and bobs others might need. Examples include golf clubs, Macbooks and snowboards.
There are companies out there who will pay up to $600 per month if you slap a big brand logo on the side of your car.
Effort involved: Low
Companies like Car Next Door give you the ability to rent your car out to other people on an hourly or daily basis. So if you car's just sitting there a lot of the time, why not put it to good use bringing you in some passive income?
Alison Banney is the money editorial manager at Finder. She covers all areas of personal finance, and her areas of expertise are superannuation, banking and saving. She has written about finance for 10 years, having previously worked at Westpac and written for several other major banks and super funds.
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