Best Ways to Create Passive Income While Keeping Your Day Job

Although Covid has been detrimental in many ways, it has opened doors for entrepreneurs. People have explored new outlets and passions and sought ways to support themselves along the way, one of the primary methods of support being different passive income streams. Passive income is a type of unearned income that is acquired automatically with minimal labor to earn or maintain. Whether you are looking for your next side hustle or just want some extra cash, here are some ideas to help bolster your wallet.

Dividend Stocks

Dividend stocks are stocks that make regular distributions to their shareholders, usually in the form of cash payments (ie. dividends). Dividend stocks can be useful sources of passive income, but the best dividend stocks can also be excellent ways to increase your wealth over the long term.

Tips to Know:

• Choosing the right company to buy dividend stock from is challenging, but the most important decision you have to make. Look for companies that have strong earnings and have a history of paying dividends consistently.
• Focus not on dividend size but on dividend yield. The dividend yield, or the percentage of the share price you bought it for, paid in dividends annually, is more important than the dollar amount of dividends per share. The dividend yield shows you your return on investment.

Real Estate

Buying and owning real estate is an investment strategy that can be both satisfying and lucrative. Unlike stock and bond investors, prospective real estate owners can use leverage to buy a property by paying a portion of the total cost upfront, then paying off the balance, plus interest, over time.

Tips to Know:

• If you are looking at an investment property, run your numbers! Being thorough in your analysis will help you determine if the property will be profitable or if it will burn through your cash.
• If you don’t have the capital or don’t want to take on the additional work of an investment property, try renting out a room in your house through Airbnb. For minimal effort, you can turn your guest bedroom into a passive income stream.
• For people who want to invest in real estate but lack the know-how or capital, invest in a REIT (Real Estate Investment Trust). REITs allow anyone to invest in portfolios of real estate assets the same way they invest in other industries – through the purchase of individual company stock or through a mutual fund or exchange traded fund (ETF). The stockholders of a REIT earn a share of the income produced – without actually having to go out and buy, manage or finance property.

High Yield Savings Accounts

A high-yield savings account is a type of federally insured savings product that earns rates that are much better than the national average. They can earn around 1% APY. By comparison, the national savings average is 0.10% APY.

Tips to Know:

• Look for accounts that have high interest rates and low service charges. You want to make sure you don’t have to pay a fee each month. Some institutions don’t charge monthly fees, while others do but will waive them if you meet a balance minimum.
• Important terms to know:
  • Savings account: A deposit account from a financial institution that earns interest.
  • Money market account: A type of savings account that often offers higher interest rates in return for a steep minimum deposit. (Think $5,000 or more.)
  • Interest: Money a financial institution pays into an account over time.
  • Compound interest: Compound interest is the interest you earn on both your original money and on the interest you keep accumulating. In an account that pays compound interest, the return is added to the original principal at the end of every compounding period, typically daily or monthly. Each time interest is calculated and added to the account, the larger balance earns more interest.
  • Annual percentage yield: The APY, or annual percentage yield, is the amount of compound interest an account earns in a year. The calculation is based on the account’s interest rate and the number of times interest is paid during the year. A savings account with the highest APY grows faster than an account with a lower yield.

Certificates of Deposit

A certificate of deposit (CD) is similar to a high-yield savings account. Banks will offer you a premium interest rate, BUT you need to leave a lump sum untouched for a certain period of time. Most financial institutions offer CD terms in multiples of six months. So you can open one for six months, 12 months, 18 months, etc. Usually, the longer you agree to leave your money, the higher the interest rate you can get. At the end of the fixed term, you will get your money back, plus any interest you have earned during that period.

Tips to Know:

• CDs are great if you have a sum of money you know you won’t need in the short term, but you want to maximize your return without any risk.

Create a Course/Class

A great way to make money is by teaching others about what you love! Whether it be a school subject, sports, music, or any other hobby, recording videos to teach other people your skills can be a great way to generate some extra cash.

Tips to Know:

• Utilize Youtube or sites like Udemy to get your content out there.
• Choose a skill that you love and are an expert in. When you love the material, it’s easier for your audience to be engaged!

Sell Digital Products

Digital products are assets or pieces of media consumers can’t touch physically. These include downloadable or streamable files such as Kindle books, templates, plug-ins, or PDFs. Digital products are great passive income streams because they have high profit margins. You only have to make the asset once and you can sell it repeatedly online. There’s no storage or inventory needed. You can sell as many digital products as you want. Many creators scale their passive income by selling kits, printables, files, and other assets professionals can use.

Tips to Know:

• Selling digital products has many advantages that makes it uniquely attractive to entrepreneurs:
  • Low overhead costs: You don’t have to hold inventory or incur any shipping charges.
  • High profit margins: There’s no recurring cost of goods, so you retain the majority of your sales in profits.
  • Potential to automate: Orders can be delivered instantly, letting you be relatively hands-off with fulfillment.
  • Flexible products: You can offer free products to build your email list, monthly paid subscriptions for access to exclusive digital content, or licenses to use your digital products. You have a lot of options as to how you incorporate digital products into your business.

• Some things to watch out for:
  • You’re competing with free content: With digital goods, consumers can probably find free alternatives to what you’re selling. You’ll have to think carefully about the niche you target, the types of digital products you sell, and how to write your product descriptions. You’ll also want to offer high-quality products and know how to build your brand in order to compete.
  • You’re susceptible to piracy/theft: You need to take precautions and reduce these risks by employing the right tools to protect your products.
  • There are some restrictions on how to sell digital products: For example, you must sell physical products through the Facebook and Instagram sales channel according to their commerce policy.

Key Takeaways

There are many different ways that you can generate passive income. Both your capital and extra time can be invested in products or services that can start producing cash flow with very little maintenance. With success, soon you may be able to quit your day job.

If you have any questions on how to best prepare your family for the future, one of our advisers would be happy to help!