“Making money while you sleep” is a dream that many aspire to. Of course, you may be wondering which passive income methods are best to pursue if you are just getting started in your own business.
Read on for the BrandBuilders guide to beginner passive income, where we break down common misconceptions and help you get started.
The first step is always the toughest to make, and we want to give you the confidence that you can find a way to make money that is suited to your skillset.
The Dream of Passive Income
Before we get too far into our methods for earning passive income, it’s time for a reality check.
If you have been researching ways to make money online, you have probably seen your fair share of blog posts, YouTube advertisements, and general hubbub about different passive income ideas for people just like you.
Passive income is the holy grail of creating and growing wealth over time online – it’s what everyone is talking about doing, yet it often seems like a dream that is being sold to you.
Learning how to build passive income with an open mind and some elbow grease is a bit more complicated. There are endless ways to do it, but how can you know what makes the most sense for you?
To really answer this question, you need to dig deeper into which definition of passive income you are really pursuing.
What Does Passive Income Really Mean?
The textbook definition of passive income isn’t quite as glitzy and glamorous as YouTube gurus would lead you to believe. Investopedia defines it like this:
Passive income is earnings derived from a rental property, limited partnership, or other enterprise in which a person is not actively involved.
This is a traditional view of passive income. The key phrasing to take from this is that it takes minimal effort to maintain.
Earning money from a real estate venture like a rental apartment isn’t too much work if you hire someone to purchase it, take care of the property, and manage tenants. Even with the overhead costs you incur, you can still get used to having a tidy sum deposited in your bank account every month – all without any real work on your part!
The methods of passive income that we will discuss today can differ from this for one key reason: the type of investment.
Passive income that you earn from real estate like a rental property fits nicely with one kind of investment: an upfront monetary investment.
If you don’t have the kind of money to be shelling out for a rental property or large stock portfolio, this ideal passive income idea likely fits into another category of investment: an upfront time investment.
This differs in that you are taking time to apply your own special set of skills to something that will continue to earn you money down the road.
Another way to describe this is residual income.
Residual Income
Brady from BrandBuilders does a heck of a job explaining residual income in his video on How to Make Passive Income with Affiliate Marketing.
If you aren’t sure whether you want to make affiliate marketing your next income source, here’s a quick summary.
When Brady writes a blog post for his website, he is starting out at a loss of however much he values his time. A study from Hubspot shows that the average blog post sits around 2100-2400 words, which will take at least two hours to write, depending on the amount of research involved.
If Brady values his writing at $50 per hour, he is starting out at least $100 in the hole. To make matters worse, for the first three months, he doesn’t make money from the affiliate links in his post!
However, things start turning around later on once his site’s Domain Ranking improves, and then he finally starts making his first affiliate sales.
As his post becomes more popular, he goes from earning $100 on the post (enough to justify writing the post at all) to eventually making a total of $1,000 at the end of the year as it moves closer to the top of Google search rankings and readers start sharing it with their online marketing buddies.
Once the initial upfront time investment is made, the money he can make through residual earnings makes it worth his time.
His “hourly wage” for the post went from $0 to $500 residually after front-loading his work.
And was Brady waiting with his feet up after writing this one blog post, waiting for the dollars to roll in? Absolutely not!
He continued to create other blog posts, which he hoped could achieve the same success over time.
As long as his earnings per hour are always increasing, Brady is happy.
This is the basic principle behind popular passive income ideas, where your work is front-loaded, and most importantly, you are in control of how much you earn per hour!
Why You Should Focus on Building Passive Income
Passive income is important because once many people find their first great way to get paid from someone other than their 9 to 5 job, they quickly realize that their most important resource is time.
There are only so many hours in the day, and as much as you want to learn about online money making, spending too much time on certain tasks will burn you out and make it difficult to justify leaving an hourly wage or salaried position.
Passive income is the answer to the problem of making the most of your efforts every day. If you can continue to get paid for work that you did yesterday (or even months or years ago), you have created an additional income source that you can either spend as you wish, or continue to reinvest in new passive income ideas.
Here are our preferred ways to earn passive income. We are focusing on online ventures, but this doesn’t mean you should shy away from other tried and true methods like real estate or other ideas featured in our recent article, 21 Ways to Make Money While You Sleep.
The Top Methods for Building Passive Income
Blogging
It should come as no surprise that this is first on this list of the best passive income ideas. BrandBuilders is an affiliate marketing business and resource, and this is one of the most common ways that people are exposed to the idea of passive income.
The one major catch of blogging is that there will be a LOT of work upfront before you are able to earn passive income in an amount that will encourage you to keep doing it. The good news is, there are some ways around this!
Purchasing an Existing Blog
Don’t want to put all that effort into starting a blog with no guarantee of a payoff? Purchasing an existing blog is an easy way to get around this problem.
For some entrepreneurs, the idea of starting a blog means an opportunity to learn more about their passion, grow their SEO and content management skills, and build a business from the ground up. For others, it means a laborious process filled with many ways to fail at making money.
If you consider yourself part of the latter group (or if you just have some extra cash lying around), buying a blog may be right for you.
This allows you to take control of a blog with existing domain authority in a niche that is proven to be profitable, and all you have to worry about is keeping it moving in the right direction.
BrandBuilders offers several options for this in the form of pre-made sites and custom affiliate sites, with plenty of online support to get you to the point where you earn passive income.
Build a Blog From Scratch
Building a blog from the very beginning is another option for the ambitious online moneymaker. You just need some time (or money) on your hands, an attitude towards learning quickly, and a realization that you might stumble a few times along the way.
Most people honestly don’t fit the bill for starting a blog from scratch, but the most important thing to remember is that you need to be comfortable outsourcing certain parts of the process – or you risk running yourself into the ground.
If you are a writer, you can focus on creating strong content for your site and outsource keyword research, backlink strategy, and graphics. For those who aren’t writers, not having to worry about crafting clever blog posts leaves more time per month to focus on growing your site and coming up with other passive income ideas.
If this sounds like something that could work for you, explore options like our premium content offerings and check out our video on how to find the right freelancers on Upwork to help you out.
Dividend Income Investing
This type of investing makes the list because it is hard to find an article online about passive income ideas that doesn’t mention it at least once. Just like anything else that is popular the world over, you should take advice about dividend income investing with a grain of salt.
First of all, dividend investing is all about taking advantage of the fact that large publicly traded companies have a tendency to reward their shareholders by paying them in cold hard cash, usually on a quarterly basis.
These “blue-chip” stocks are desirable for this reason (among others). Companies prefer to pay dividends because it makes them seem more attractive to current and potential shareholders.
After all, if you are willing to give money away, you’re probably in good financial shape, right?
How to Earn Money With Dividend Investing
The most important thing about dividend investing is that (much like real estate) you need to invest a significant sum of money to make returns that go beyond paying for your coffee and muffin every day.
For many online dividend investors, this means investing their savings when they are getting started. An investment of at least $1,000 to $2,000 is a great place to start, especially when combined with other passive income methods.
Picking the right stocks for your dividend investing plan isn’t a piece of cake, so be sure you do your due diligence for this part of the process. We like this step-by-step dividend investing guide by Money After Graduation for getting started.
Some of the best points it makes are that you should pursue investments with a high dividend growth rate, meaning that the company has raised its dividend over time, resulting in higher payments per month for shareholders.
The article also mentions that you have a couple of choices when you are choosing a stockbroker, who will manage any stocks that you own.
If you use an online stock broker like Wealthsimple (or Questrade if you are a Canadian like me) you will be presented with a few options. You can either manage your trades yourself for a low fee or enlist the help of a robo advisor for your investments.
What Is a Robo Advisor?
Let’s be honest, when we first mentioned robo advisor, I am willing to bet that your ears perked up a little bit. Most people looking to make money online know that anything that saves you time – especially when it comes to making complex decisions on topics like finance – can go a long way in helping you make money down the road.
Robo advisors are essentially highly specialized software that can replace the job of investment advisors using algorithms, making adjustments on the fly based on your preference for risk and fluctuations in the market.
Because they aren’t living, breathing humans who require a salary to put a roof over their heads, robo advisors typically demand a much smaller fee than an investment advisor would.
This makes it one of the best passive income ideas around because if you’re a busy professional or entrepreneur, you’ll want to either front-load the work or put in very little work at all. You also lose less of your revenue along the way in fees with a robo adviser.
The other cool thing about robo advisors is that they are great for
- Experienced investors who have the cash to put away and don’t want the hassle of active investing.
- Newbies to the investing game.
If you are just getting started, you don’t have to worry about scraping together money to cover all the fees, and you can observe the moves that the robo advisor makes to gain insights for other investments that you might undertake later.
Whether you are using a robo advisor or not, dividend income investing is a strong choice for anyone from finance enthusiasts to those who just want to put their money away and trust that it will pay them back consistently over time.
Investing in Index Funds
It’s fair to say that a lot of what we write about on the BrandBuilders blog fits into the upfront time investment category of earning passive income. Whether starting an affiliate site from scratch, writing for medium (link to my story?) or purchasing a pre-made site from BrandBuilders, these methods are all about building something yourself.
So now, maybe it’s time that we talked about the simple way to grow a cash investment. Index funds are one of the best examples of making this happen.
The methods that we are sharing are used as additional passive income sources by the BrandBuilders team, and by other members of the extended affiliate/FBA/general online money making community.
Index funds are investments that are tied to the performance of a stock market index like the S&P 500, Nikkei 225, or other markets in the world.
These funds aren’t focused on “beating the market,” because, in a way, the fund that you are buying into IS the market! Index funds allow you to buy small portions of individual companies (for example, the S&P 500 is made up of 500 large American companies), and as long as long-term economic growth continues in the country’s fund, you can expect to have more money later when you sell your shares.
The key advantage of index funds is the lack of trading costs and management fees. These overhead costs cut into earnings from trading in the stock market – especially when compounded for many years or decades.
Without these fees, or any work at all really, index funds are the epitome of passive income. This is a long term investment that pays off like buying real estate in an up and coming neighborhood.
Investing in Mutual Funds
Mutual funds are another option for generating passive income through investing, although they can be thought of as their mass-produced equivalent.
The basic principle of a mutual fund is right in its name: “mutual funds” are made up of the money of thousands of individuals who invest mutually and see their money go towards a variety of asset types and industries. This diversification generally allows for steadier passive returns over time.
However, fees are deducted from the return of the fund, which is a real bummer considering that several other passive income methods that we discuss on this list are attractive because the money that you earn over time generally all ends up in your pocket.
Many believe that for this reason, mutual funds aren’t worth your time. This isn’t necessarily the case.
Mutual funds can work well if you follow the following pieces of advice:
- Invest in a mutual fund in a dividend sector. Funds that own stocks in large companies typically see better quarterly dividends. This means that you will see consistent payouts instead of having to wait to see any returns on the money that you invested.
- Make sure your distributions are paid out, not reinvested. Many mutual funds automatically put money earned in distributions right back into the investment. This isn’t a bad thing overall, but if your goal is passive income, then you should be receiving these dividends as cash.
- Check into distribution frequency with your fund. When you are choosing a mutual fund, you will be able to review information about how often they pay out their cash distributions. Passive income is generally thought of in monthly payments, so opt for this instead of annual or quarterly.
eCommerce
If there was ever a time to seriously consider selling a product online, this is it. COVID has forced retailers across the world to adapt to eCommerce whether they like it or not, and online retail platforms have seen massive growth.
Shopify, one of the most-used platforms out there, saw total sales growth of 47% in the first quarter of 2020 compared to the same period a year ago, and even as stores reopen, they are still keeping their online shelves stocked.
It has never been easier to set up an online store, which means fewer upfront costs and time for someone looking to generate passive income. However, one big decision needs to be made first: what is your product, and how are you going to get it to your customers.
Selling Your Own Product
This is the most straightforward option when it comes to eCommerce. However, it is also the furthest thing from passive income in many cases.
As an example, let’s say that you are selling your own line of golf club headcovers. Once you put in some work advertising your product, paying for sponsored content, and building a snazzy Shopify site to sell them, you start to see your first few sales trickle in!
However, this is where the fun ends. You still need to handle customer service, shipping, returns, and many other tasks that pop up as your business grows.
For this reason, selling your own product should not be considered passive income in all but a handful of cases.
If you outsource your fulfillment and customer service and sell an uncomplicated product, you might be able to approach earning passively, but it is unrealistic to expect earnings for a long period of time.
Especially for beginners, it is a much easier idea to pursue other eCommerce methods.
Dropshipping
Dropshipping has been king in the passive income world for the past several years.
The formula for this is simple: you can sell products online without having to worry about fulfillment. Dropshipping is offered by a wide range of third-party providers, including Amazon or buying products from China and reselling them via your own website.
However, this often results in relatively high costs and razor-thin margins in competitive industries. Since so many online “gurus” have made incredible amounts of money dropshipping, there are plenty of aspiring beginners who have already entered the fray.
We recommend trying out dropshipping with an open mind. If you go in expecting the kind of revenues that you see on YouTube ads, you will be sorely disappointed.
Still, looking to learn more? Check out this dropshipping guest post on Niche Pursuits by a veteran dropshipper who covers the ins and outs of the space.
Publishing Content
We will be finishing this list off with a personal favorite: publishing your own content on a site like YouTube, Medium, Udemy, and many more.
Although there is a wide variety of ways to make money through this method, the basic principle is more or less the same across all mediums. You will need to utilize a specific skill and front-load a significant amount of time and effort to create products like an article, eBook, or online course – then release it to the world.
Much like with the residual income example from earlier in the article, the earnings that you make later on can increase your “hourly wage” for the time invested in first producing this content.
We recommend content publishing as a good passive income stream for people with a pre-existing skill set who are looking to make extra money.
We would not recommend learning a new skill from scratch because it is profitable to sell online in the form of an eBook or online course. This is the domain of online marketing gurus, who sell informational products at huge markups, and have led to a massive amount of distrust in the market.
If you are curious about how this works, YouTube user James Jani does a great job of explaining more in his video on “fake gurus,” along with sharing how online education can be done effectively.
But that’s enough on how to avoid pitfalls in publishing content online. Here are some of the most effective methods that you can use for passive income ideas.
Passive Income from Medium
We recently published an article on how making money is possible on Medium. This post goes into detail about how to start writing and earning money from scratch.
Without getting into the nitty-gritty, we are confident in saying that if you are a writer (in any capacity), you should seriously consider giving this platform a try.
This isn’t because it has the possibility to earn large amounts of money, but rather because it can help to promote your other business interests (like an affiliate site), and you can publish writing with much more ease and less overhead than you could on WordPress.
Even though only 5.7% of Medium writers earned over $100 in June 2020, most of those writers aren’t posting very much content at all. Once you post content, it is completely hands-off, aside from any promotion you can decide to do.
We recommend reinvesting the earnings that you do make into other passive income sources. It likely won’t be very much income per month, but over time this money can turn into a much larger sum when you route it into dividend investing index funds or affiliate marketing.
Publishing Video Content on YouTube
If you have the skills to create slick video productions, an existing promotion strategy for your content, and a little bit of luck, YouTube can be one of the best passive income ideas out there.
Earnings come from ad revenue when your video receives more views, in addition to any products you sell or affiliate links that you use.
However, ad revenues are only significant if your videos are extremely popular. As this Entrepreneur article shows, to make thousands of dollars, you will need hundreds of thousands or even millions of views.
You should approach YouTube in the same way that writers approach Medium. It’s worth creating content in that space if you are savvy with video production. However, accept the reality that sustainable passive money from YouTube requires a LOT of work – and unless you can read the YouTube algorithm’s mind, it’s a bit of a lottery.
Creating Course or eBooks
Right off the bat, let’s make it clear that although online courses, eBooks, and information products are very much in vogue, this is one of the most speculative and messy passive income streams out there.
However, it can still work.
We recommend this if you have knowledge of a niche skillset. As an example, let’s say that niche is creating animations for corporate events and conferences.
Most courses for this niche will be priced in two main ways:
- Option 1: Create a low-cost course, and aim to earn income from a larger volume of students.
- Option 2: Create a high-cost course, and focus on earning income from fewer more-involved students.
There are plenty of low-cost courses available online on sites like Udemy, just like these options for animation courses which range from $15-$100. Other options exist for even cheaper prices (or for free) elsewhere online.
These courses are easy to put together using Udemy, so your work is largely front-loaded, and requires little updating further down the road.
On the other hand, high-cost courses are much more in-depth. If you are charging $1,000+ for a course, students will expect university-level instruction, which doesn’t sound much like passive income at all unless you fully outsource your customer service and course creation.
Most people won’t bite on an instructional offer like this unless there’s one specific benefit offered, which is that it can help them make money. This is the domain of internet gurus, who sell high-priced courses to people who want to start their own online business and quit their job, with mixed reactions from the people who actually end up taking the courses.
We recommend pricing your course somewhere in the middle of these two options.
Prices from $15 to $100 signify that the course shouldn’t take too much time to complete and that they won’t be too expensive for someone to take a risk on.
In conclusion, take the online course, eBook, or informational product route if you have authority in your niche, or have something unique to offer.
Otherwise, you risk spending a lot of time upfront for limited passive income opportunities further down the road.
Conclusion
Although it may not be the “make money while you sleep” dream that you may have thought, passive income is a way to earn money online sustainably in ways that are suited to your skillset.
We hope these passive income ideas leave you closer to making extra money on the side online – or even achieving the full-time passive incomes of your dreams!
Keep an eye on the BrandBuilders blog as we go further in-depth about these strategies – and for special sales, giveaways, and more for our affiliate marketing and Amazon-branded websites!
