There has never been a better time to generate passive income as a beginner.
Passive income can be a great way to help you generate additional cash flow, and the economic turmoil caused in large part by the COVID-19 crisis is a testament to the value of having multiple income streams.
In 2021, amazing passive income ideas have emerged, allowing beginners to earn even more money easily. What’s passive income after all?
Passive income is money that is generally received on a regular basis with little or no effort. But you should use your time and effort to the fullest to create multiple passive income that will continue to grow in the future.
Either you need to do a lot of work, in the beginning, to set up your passive income idea, or / and you need to regularly invest at least some of your time, effort or money in maintaining this income.
Either ways, a passive income gives you additional security.
You must first have an idea to generate passive income, and then you can count on that income for years to come.
What is Passive Income?
A passive income is that income that we generate without dedicating all of our time and work to generate it. What some call “earning money while you sleep.”
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In this type of income, the greatest investment of time and personal effort is made at the beginning: to configure it, analyze it and decide what to buy and its subsequent exploitation format.
Once this is done, the profits begin to be generated almost autonomously.
Passive income arises as a result of investments that periodically – and without additional effort – generate profits on a regular basis.
Examples of passive income
Some examples of passive income are the following:
• Real estate rental: homes, garages, premises, offices, others (directly, through real estate or platforms such as Airbnb).
• Sublet a space of your trade (in the best Cowork style, currently very current).
• Invest in hotel points that provide earnings for set periods.
• Investments with periodic interest: bonds, stocks, others.
• Create and sell your online course: you produce it only once and you sell it unlimitedly.
• Copyright: write a book, a song, a music, another. You can even invest by buying the copyright of a third party. Michael Jackson bought the Beatles!
• Patents: create something and patent it.
• Publish videos on YouTube and earn money from advertising (tutorials, ideas, explanations on how to do different things, trips, others).
• Invest in a profitable business: others work it and you receive a part of the profits for being a partner.
• Create and sell courses or content online.
• Monetize a blog.
• Outsource your own business for others to manage.
• Convert your business idea into a franchise.
And so many more …
Passive Income Generation
An important point to keep in mind is that passive income involves a great initial effort. And I emphasize them because in general this point is not usually emphasized and many times there is the false belief that passive income is synonymous with “easy money”.
Quite the contrary, to build a profitable passive income you have to put in a lot of work and energy in the beginning.
That is, when we are laying the foundations of that business that will give us the income.
I give you an example. If your idea is to develop an online course of the canned type (I generate it once in video or similar and it is sold unlimitedly), to get there you have to go through different stages.
First , to be an expert on the subject to be dictated, which takes years of training and experience; paratroopers are rarely successful on this plane.
Second , you have to think and structure the course in a dynamic, attractive and intelligent way, since the competition is great and you have to stand out.
Third , you have to do a good production and editing of the course so that it is really good from the visual as well.
Fourth , a good marketing strategy is needed for its dissemination and commercialization.
Fifth and last , it must be updated regularly so that it does not become obsolete and lose value.
I don’t think I need to add much more… passive income sounds easy and effortless, but it really is a lot of work!
Ideas for Passive Income 2021
1. SALE OF INFORMATION PRODUCTS
A popular strategy for passive income is to set up an information product, such as an e-book or an audio or video course, and then relax as you cash in from the sale of your product. Courses can be distributed and sold through sites like Udemy , SkillShare, and Coursera .
Alternatively, you could consider a “freemium model”: build a following with free content and then charge for more detailed information or for those who want to know more. For example, language teachers and stock pickers can use this model.
Free content acts as a demonstration of your expertise and can attract those looking to move to the next level.
Information products can generate an excellent income stream, because you earn money easily after the initial outlay of time.
However, “it takes a lot of effort to create the product and to make good money from it, it has to be great. There is no space for garbage out there. “
You need to build a solid platform, market your products, and plan for more products if you want to be successful.
“A product is not a business unless you are very lucky” and “The best way to sell an existing product is to create more excellent products.”
Once you have mastered the business model, you can generate a good income stream.
2. DIVIDEND SHARES
Shareholders of companies with dividend-generating stocks receive a payment at regular intervals from the company. Companies pay cash dividends on a quarterly basis from their earnings, and all you need to do is own the shares.
Dividends are paid per share, so the more shares you own, the higher your payout.
Since income from stocks is not related to any activity other than the initial financial investment, owning dividend-generating stocks can be one of the most passive ways to earn money. The money will simply be deposited into your brokerage account.
For example, companies that issue a very high dividend may not be able to keep it. Graves cautions that too many newbies go to market without thoroughly researching the company issuing the shares.
“You have to research each company’s website and be comfortable with their financial statements,” says Graves. “I should spend two to three weeks researching each company.”
That said, there are ways to invest in dividend-yielding stocks without spending a great deal of time evaluating companies. Graves advises opting for exchange-traded funds or ETFs.
ETFs are mutual funds that hold assets like stocks, commodities, and bonds, but are traded like stocks. ETFs also diversify their holdings, so if a company lowers its payment, it doesn’t affect the price or dividend of the ETF too much.
ETFs are an ideal choice for beginners because they are easy to understand, highly liquid, inexpensive, and have a much higher potential return due to much lower costs than mutual funds .
Another key risk is that stocks or ETFs can go down significantly in short periods of time, especially in times of uncertainty, such as in 2020 when the coronavirus crisis shocked financial markets.
Economic stress can also cause some companies to reduce their dividends entirely, while diversified funds may feel less affected.
3. CREATE AN APPLICATION
Building an app could be a way to make that initial investment of time, and then reap the payoff over time. Your application can be a game or one that helps mobile device users to perform some difficult function. Once your application is public, users download it and you can generate income.
An app has a huge advantage if you can design something that grabs your audience’s attention.
You will need to consider the best way to generate sales from your application. For example, you can run ads in the app or have users pay a nominal fee to download the app.
If your app gains popularity or receives feedback, you may need to add incremental features to keep the app relevant and popular.
The biggest risk here is probably that you are using your time in an unprofitable way. If you commit little or no money to the project (or money that you would have spent anyway, for example, on hardware), you have little financial downside here.
However, it is a crowded market and truly successful applications must offer compelling value or experience to users.
You’ll also want to make sure that if your app collects data, it complies with privacy laws, which differ around the world.
The popularity of apps can also be short-lived, meaning your cash flow could run out much faster than expected.
4. RENTAL INCOME
Investing in rental properties is an effective way to earn passive income. But it often takes more work than people expect.
If you don’t take the time to learn how to turn it into a profitable company, you could lose your investment and something else, says John H. Graves, an accredited investment trustee (AIF) in the Los Angeles area and author of “The Solution to 7%: can afford a comfortable retirement “.
To earn passive income from rental properties, Graves says you need to determine three things:
• How much return do you want on your investment?
• The total costs and expenses of the property.
• The financial risks of owning the property.
For example, if your goal is to earn 10,000 Euros a year in rental cash flow and the property has a monthly mortgage of 2,000 Euros and costs another 300 Euros a month for taxes and other expenses, you would have to charge 3,133 Euros in monthly rent to reach your goal.
And the pandemic has also posed new challenges. Due to the economic downturn, you may suddenly have tenants who can no longer pay their rent, while you may still have to pay a mortgage of your own.
Or, you may not be able to rent the house as much as you used to, as income drops.
And home prices have risen rapidly in recent times due in part to low mortgage rates, so your rents may not be able to cover your expenses. Therefore, you will want to weigh these risks and have contingency plans to protect yourself.
5. A BOND LADDER
A bond ladder is a series of bonds that mature at different times over a period of years.
Staggered maturities allow you to lower your reinvestment risk, which is the risk of reinvesting your money when the bonds offer too low interest payments.
A bond ladder is a classic passive investment that has attracted retirees and near-retirees for decades.
You can sit back and collect your interest payments, and when the bond expires, you “extend the ladder,” transferring that principal to a new set of bonds. For example, you can start with one-year, three-year, five-year, and seven-year bonds.
In one year, when the first bond expires, you have bonds left for two, four, and six years. You can use the proceeds of the recently expired bond to buy another year or extend it to a longer duration, for example, an eight-year bond.
A bond ladder eliminates one of the main risks of buying bonds: the risk that when your bond matures you will have to buy a new bond when interest rates might not be favorable.
Bonds carry other risks as well. While Treasuries are backed by the federal government, corporate bonds are not, so you could lose your capital if the company defaults.
And you will want to have a lot of bonds to diversify your risk and eliminate the risk that a single bond will affect your overall portfolio. And if overall interest rates go up, it could lower the value of your bonds.
Because of these concerns, many investors turn to bond ETFs, which provide a diversified fund of bonds that you can set up on a ladder, eliminating the risk that a single bond will hurt your returns.
6. INVEST IN A CD OR HIGH-YIELD SAVINGS ACCOUNT
Investing in a high-yielding certificate of deposit (CD) or savings account at an online bank can allow you to generate passive income and also earn one of the highest interest rates in the country. You won’t even have to leave your home to earn money.
To get the most out of your CD, you’ll want to do a quick search for the best CD rates in your country or the best savings accounts .
And you will still enjoy a guaranteed return on principal of up to 250,000 Euros, if your financial institution is backed by the FDIC.
As long as your bank is FDIC-backed and within limits, your capital is safe. Therefore, investing in a CD or savings account is the safest thing you can get.
However, although these accounts are safe, these days they return even less than before. And with the Federal Reserve targeting 2 percent inflation, it is likely to lose to inflation at least in the short term.
However, a CD or savings account will perform better than keeping your money in cash or in an interest-free checking account, where you will receive approximately zero.
7. RENT YOUR HOME FOR THE SHORT TERM
This simple strategy takes advantage of the space that you are not using anyway and turns it into an opportunity to earn money.
If you’re going on a trip for the summer or have to be out of town for a while, or maybe you just want to travel, consider renting your current space while you’re out.
You can publish your space on any number of websites, such as Airbnb, and set the rental terms yourself.
You will collect a check for your efforts with minimal additional work, especially if you are renting to a tenant who may be on site for a few months.
You don’t have many financial downsides here, although allowing strangers to stay in your home is an outlier risk for most passive investments. Tenants can deface or even destroy your property or even steal valuables, for example.
8. ADVERTISE ON YOUR CAR
You may be able to earn some extra money just by driving your car around town. Contact a specialized advertising agency, which will evaluate your driving habits, including where you drive and the number of miles.
If you match one of your advertisers, the agency will “wrap” your car in the ads at no cost to you. Dealers are looking for newer cars and drivers must have a clean driving record.
While you have to get out there and drive, if you’re already getting the mileage anyway, this is a great way to make hundreds a month with little to no additional cost. Drivers can be paid by the mile.
If this idea sounds interesting, be very careful to find a legitimate trade to partner with. Many scammers set up scams in this space to try and scam you out of thousands.
9. CREATE A BLOG OR YOUTUBE CHANNEL.
Are you a Thailand travel expert? A Minecraft expert? A sultan of swing? Take your passion for a topic and turn it into a blog or YouTube channel, using ads or sponsors to generate your income.
Find a popular topic, even a small niche, and become an expert on it. In the beginning, you will have to create a content set and attract an audience, but you can create a steady stream of income over time, as you become known for your engaging content.
You can take advantage of a free (or very low-cost) platform and then use its great content to build a following.
The more unique your voice or area of interest, the better it is for you to become “the” person to follow. Then attract sponsors.
You will have to create content at the beginning and then create continuous content, which can take time. And you should be really passionate about the product, as that can help you stay motivated to continue, especially in the beginning, as your followers are still finding you.
The real downside here is that you can waste a great deal of your time and resources, with little to show, if there is limited interest in your topic or niche.
Your area of expertise may be too niche to really attract a profitable audience, but you won’t be sure about that until you experiment.
10. FLIP RETAIL PRODUCTS
Take advantage of online sales platforms, such as eBay or Amazon, and sell products you find at discounted prices elsewhere.
You will arbitrate the difference in your bid and ask prices, and you may be able to create a follow-up of the people who follow up on your offers.
You will be able to take advantage of the price differences between what you can find and what the average consumer can find.
This could work especially well if you have a contact who can help you access discounted products that few people can find. Or you may find valuable merchandise that others have simply overlooked.
While sales can happen anytime online, which helps make this strategy passive, you’ll definitely have to rush to find a trusted source for products.
In addition, you will have to invest money in all of your products until they are sold, so you need a solid source of cash.
You will have to really know the market in order not to buy too high a price. Otherwise, you may end up with products that no one wants or whose price you must slash to sell.
Residual income vs passive income
Passive income is also called residual income, and they are really almost the same, the difference is that residual income is generated first and over time they become passive income, here is the explanation.
The residual income are those income obtained and again after completing a job or investing directly , without going back to do the job again. It usually arrives in specified quantities and at regular intervals.
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For example a writer, the royalties he gets after writing that book, the payments for the sale of books, for using the name of the book, etc.
Another example is in certain sales, once the sale is made, you can continue to receive income each time the customer makes the next purchases. This income comes in on a regular basis from time to time and the amount of this income is normally pre-negotiated on the initial sale.
This income is normally confused with passive income immediately and although it could be said that they are the same, in the residual income there is an initial effort on your part to be able to generate it, in the sale, in the investment or in the work; its characteristic is that it intervenes directly to be able to start generating them and normally a follow-up (work) is continued to continue making them arrive.
As this effort diminishes and you see yourself less and less involved in the creation of residual income and these continue to arrive again and again , and even grow, until reaching the point of not having to be present or intervene directly in them, this income they automatically become Passive Income.
Passive income is income that is generated without the need for your presence or that you are actively involved to generate it , that was already done with some work or investment (assets) in the past, but even so, the income continues to arrive day after day.
Residual has matured, since the work or investment (assets) made initially increase its value and increase the residual income, creating a snowball effect, increasing the amount of income significantly.
It is the income that everyone should aspire to have, since it is not simply generated while you are sleeping but it can increase over time.
And although this sounds very tempting and fairy tale-like, generating passive income requires a lot of work and sometimes a large investment, it can take months, years, etc. achieve it but once you do it is really worth it.
At first it may seem confusing to differentiate both income, but it is important to learn to differentiate them since if we look at the characteristics in the definitions, residual income can be called passive income, but never the other way around.
Once you’ve put effort and work into making money, you’ll be looking to turn that residual income into passive income over time.
Final Thoughts on What’s Passive Income
That’s it on what is passive income here on nairalanceblog. The idea is always to achieve financial autonomy and passive income is a great way of approaching it, because they make us less dependent on our salaries.
It is important to move forward at this point and increase our passive income over time. In each case, it will happen according to one’s own possibilities, but the fundamental thing is to never lose focus and, sooner rather than later, they will arrive.
If we manage to have a good mix of passive and active income we can have very good profits. You just have to cheer up and jump in.