A little extra income can go a long way when you have a tight budget. And in today’s digital age, earning passive income online has become more accessible than ever. Though passive income isn't a get-rich-quick scheme by any means, it involves frontloading the majority of the work and enjoying the payoff with minimal direct involvement. There are endless ways to earn passive income online, including everything from opening a certificate of deposit to creating and selling digital products. If you're intent on adding a passive income stream to increase your monthly cash flow, check out the seven ideas below.
Generating a passive income stream may help you reach your retirement goals faster. To find out how much faster, speak with a financial advisor.
1. Dividend Stocks
Dividend stocks are shares in companies that regularly distribute a portion of their earnings to shareholders in the form of dividends. This form of investment is particularly appealing to those seeking passive income because it allows investors to earn money simply by holding stocks.
Passive income generated from dividend stocks is relatively straightforward: Investors purchase shares in a dividend-paying company and, in return, receive regular dividend payments. The amount of income depends on the number of shares owned and the dividend yield. Reinvesting these dividends can also amplify returns through compounding, allowing investors to buy additional shares and potentially increase their future dividend income.
2. Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) are companies that own, operate or finance income-generating real estate. They provide investors with an opportunity to invest in real estate without directly owning or managing properties. REITs are typically publicly traded on major stock exchanges, making them easily accessible to individual investors.
REITs generate passive income by collecting rent from the properties they own and then distributing the majority of their income as dividends to investors. Because rent is a relatively consistent source of income, REITs can generally provide investors with a somewhat stable source of passive income. 3. Certificates of Deposit (CDs)
Certificates of Deposit (CDs) are a type of savings account offered by banks and credit unions. When an investor purchases a CD, they agree to deposit a certain amount of money for a fixed term, which can range from a few months to several years. In return, the bank pays fixed interest at a rate typically higher than that of a regular savings account. Because CDs are federally insured, they're considered a low-risk investment.
CDs generate passive income through the interest they accrue over the deposit term. Once the term is completed, known as the maturity date, the investor receives their initial deposit back along with the interest earned. You can use a CD calculator to find out exactly how much you can earn throughout your CD's term.
3. Digital Products
Selling digital products lets you generate passive income by leveraging the internet to reach a broad audience. Digital products are intangible assets that you can sell, and customers can buy, online. Common examples include e-books, online courses, software, photography, music and design templates.
Unlike physical products, digital goods don't require inventory or shipping, making them highly scalable with minimal overhead costs. Once you create them, you can sell them repeatedly with little active involvement. For instance, an author can write an e-book and sell it through platforms like Amazon Kindle or their own website, earning money every time a copy is sold. Similarly, an educator can develop an online course and host it on platforms like Udemy or Teachable, earning revenue from course enrollments without ongoing teaching commitments.
4. Physical Products
6 Ways to Earn Passive Income Online
While physical products aren't something you can create online, you can earn passive income by selling them online. Doing so involves creating, sourcing or manufacturing tangible items and selling them to consumers. Though the sale of your physical products may not require much active involvement, this method of earning passive income typically requires more upfront effort and investment compared to digital products.
There are certain ways to make physical product sales more passive. Automating or outsourcing various business aspects, such as production, inventory management, and fulfillment can help. Print-on-demand services, where products are created only when an order is placed, can also lead to a more passive business model.
5. Affiliate Marketing
Affiliate marketing is a performance-based marketing strategy where individuals earn commissions by promoting products or services offered by other companies. This arrangement involves an affiliate partnering with a business, known as the merchant, to promote their products through unique referral links. Whenever a customer purchases through one of these links, the affiliate earns a percentage of the sale.
Affiliate marketing is popular among influencers and content creators who can integrate product recommendations into their content. For example, a blogger who writes about fitness can include affiliate links to workout equipment or supplements, earning a commission each time a reader purchases through those links.
6. Dividend Exchange Traded Funds (ETFs)
Dividend Exchange Traded Funds (ETFs) are investment funds that hold a collection of dividend-paying stocks and trade on stock exchanges like individual stocks. These funds track specific indices, which means they typically include a diversified portfolio of dividend-paying companies across various sectors. This diversification reduces the risk associated with investing in individual stocks, providing a more stable and predictable income stream for investors.
Dividend ETFs are appealing to those seeking passive income because they offer the benefits of dividend payments without managing a portfolio of individual stocks. As an investor in a dividend ETF, you receive regular dividend payments proportional to the number of shares you own. You can also reinvest these payments to purchase additional shares, creating a compounding effect that increases income over time.
Bottom Line
6 Ways to Earn Passive Income Online
Earning passive income online can add more flexibility to your budget and bring you closer to reaching your financial goals. In today's interconnected digital world, there are endless opportunities for earning passive income online. While any passive income stream requires an initial investment of time, effort or capital, it can generate consistent income with minimal ongoing effort. Consulting with a financial advisor can provide valuable insights and help maximize the potential of these passive income opportunities.
Tips for Financial Planning
Understanding how your income can play into your long-term financial picture is crucial to making a smart investment plan. A financial advisor may have the expertise to help you with all of these things. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
An investment calculator can help you determine what your return on investment might be depending on what you choose for your portfolio.
