Is it possible to earn a paycheck while sitting on the couch watching television? Absolutely, but it takes a bit of work beforehand to set things in motion. By developing online assets, investments and interest payments, you can put your dollars to work so they provide gains while you sleep. Here are the details and the best ways to put $1,000 of passive income into your pocket every month. For help managing your money — no matter how you earn it — consider working with a financial advisor.
What Is Passive Income?
The IRS defines passive income as earnings generated by someone who isn’t materially participating in the endeavor, meaning you work less than 500 hours annually on a project or less than 100 hours if you put in more time than the rest of any coworkers involved.
Essentially, passive income is created by developing assets that earn money by themselves. For example, creating a blog with affiliate links will provide earnings every time a reader clicks through to a specific product. This way, you make money in perpetuity for the work you did once.
How to Find Ways to Make Passive Income
Passive income comes from assets, like a YouTube channel or an online store. In most cases, though, you need resources to start out. Whether you buy a better webcam or take a writing course, generating passive income means investing money to get yourself going. Therefore, saving money beforehand is key.
To that end, your first steps are researching the passive income streams that appeal to you, identifying your starting costs and saving the money you need. In this phase, it’s crucial to avoid financial risk. Piling money into a high-yield savings account is an excellent choice because you can earn 4% APY in an account with FDIC insurance.
Putting serious cash into a savings account that compounds monthly can also serve as a first exposure to passive income. You’ll put your dollars to work and watch your money grow. Once you save the money you need, you can invest it in more lucrative passive income streams.
Low-Involvement Passive Income
These options put the ‘passive’ in passive income because they require less work to get going. However, they have less earning potential than high-involvement passive income streams.
Purchase Series I Bonds
Rising interest rates have made Series I bonds a viable passive income investment. Specifically, you can purchase these bonds with a 4.3% APY through October 2023, after which the government will modify the rate (this occurs every six months). Plus, the U.S. Treasury backs these bonds, meaning your risk is almost zero.
Additionally, Series I bonds earn interest for thirty years, making them a suitable long-term investment. On the other hand, you can sell your bonds after holding them for at least a year. However, you’ll lose the most recent three months of interest if you sell them before holding them for five years.
Create a CD Ladder
A certificate of deposit (CD) is like a short-term savings account with an excellent interest rate. Therefore, you can continuously purchase new CDs as they mature and reinvest your gains. You can buy a CD at most banks and credit unions.
CDs mature in one to five years, depending on the specific product. The longer the term, the higher the interest rate. Because your CD money isn’t accessible while it matures (unless you want to forfeit your gains), it helps to create a CD ladder. This way, a portion of your investment is always available.
For example, your ladder could look like this:
So, you’ll receive part of your investment back after a year and can reinvest or pocket the profits. Then, you’ll get another portion of your investment back after another year and the final $2,500 plus interest three years after that. Your ladder will provide a stream of income at different milestones, boosting your liquidity as an investor.
Become a Paid Online Shopper
If you’re a dedicated online shopper, you can turn your pastime into cash. For example, Rakuten pays between 1% and 20% for each online purchase you make, with no upward limit on earnings. While this perk isn’t a license to impulse spend every night, it can provide a passive income boost to purchases you would make regardless. You’ll also get a $10 welcome bonus for signing up (or more for using specific affiliate links).
Use Rewards Credit Cards
A rewards credit card pairs perfectly with online shopping (and any other shopping you do). There are dozens of excellent rewards cards available, such as Discover (1% to 5% cash back per purchase) or Chase Freedom Unlimited (1.5% to 5%). This way, all your purchases, from grocery stores and gas stations to vacation expenses, will provide an income stream. Remember, paying your credit card monthly is essential for this strategy. Otherwise, you’ll pay at least 15% APR on your balance, putting yourself in the hole instead of getting ahead.
Use a Robo-Advisor
Robo-advisors are digital investment companies using algorithms to grow a diversified portfolio of assets. The advantages are the low management costs and balance requirements. For example, Betterment charges $4 per month to invest, with no minimum balance requirement (you can achieve even lower fees with a sufficient balance or monthly deposit). Because human advisors charge at least 1% of the assets managed and often require a high minimum balance, robo-advisors are an inexpensive, accessible way to receive capital gains. In addition, your portfolio will rebalance itself periodically, meaning you don’t have to lift a finger.
High-Involvement Passive Income
These methods require more elbow grease but can provide thousands of dollars per month:
Invest in the Stock Market
Since 1926, the top 500 companies in the stock market (as tracked in the S&P 500 index) have returned an average of about 10% per year. Therefore, the stock market remains one of the most lucrative passive income options.
You can open an investment fund, dump money into an S&P 500 index and let it grow. However, you can also become a more involved investor by researching companies and industries and allocating money to stocks in companies with high growth potential. While doing so requires more work, you may see higher gains if you can stomach the risk.
Invest in Real Estate
Real estate can provide passive income in various ways. First, you can purchase shares in a real estate investment trust (REIT) if you don’t want to own or manage physical property. Instead, you’ll have shares in a company that invests in mortgages and commercial real estate. You’ll receive gains when the company’s investments flourish. Because federal law requires REITs to return at least 90% of their profits to shareholders, you’ll see profits any time the company does well.
Next, you can purchase rental properties to develop monthly income from rent payments. This strategy involves managing property and can get hectic if you acquire multiple properties (fortunately, you can hire a company to manage your properties when you scale). The payoff is thousands of dollars per month, which can offset the mortgages for your properties and pad your wallet. As you pay off the homes, each rent payment becomes worth even more. Plus, property appreciation gives you an opportunity to sell the property for substantial gains.
Start a YouTube Channel
The typical YouTuber receives $18 per 1,000 views on their videos. So, you can transform a hobby or passion into a series of money-making videos. For example, if you have a particular skill, such as DIY home improvement, your how-to videos can educate the masses and provide hefty returns.
Start a Podcast
Similarly, your favorite topics, movies, books and more can become profitable discussion material on a podcast. So, choose what interests you most, purchase a high-quality microphone and start talking. Like a blog, a podcast can provide earnings through advertisements, affiliate sales and membership subscriptions.
Create a Course Online
Likewise, you can turn a special skill or interest into web-based training. So whether you’re a social media marketing savant or a workout expert, you can transform your knowledge into a purchasable set of online classes.
Write a Book
While writing a book requires time, editing and publishing costs, book royalties can provide sizeable passive income. Additionally, your earnings can snowball if you release multiple books. Plus, you can also pair this strategy with an online writing course if you become a well-known author in your genre.
Remember, you can write physical books or eBooks. The advantage of eBooks is the inexpensive publishing, mass availability and sales potential. Specifically, Publishers Weekly reported eBooks sales for 2022 to be $2.57 billion, a 6% increase from the year prior.
Maintain a Blog
Writing a blog can be an excellent creative outlet and passive income generator. Whether your focus is pet training or gardening, you can write with expertise and direct readers to the products you use. This way, you can earn affiliate income, gain an online/social media audience and accumulate an email marketing database.
Create Leads For Another Business
If you want to create a website but don’t have a specific idea for earning money, you can increase sales for another company instead. For instance, you can write about topics pertaining to the business and provide links to the company’s website. This way, every click can earn a commission. In addition, you can use social media and Google ads to generate leads.
As a result, competence in Digital Marketing and SEO is essential for this strategy to work. The payment structure usually involves a flat monthly fee or a pay-per-lead model. This flexible business model has great potential for scaling up to generate an unlimited monthly income.
Sell Stock Photography
Many internet-based entrepreneurs lack the time or inclination to snap their own photographs for their websites. Instead, they resort to stock images, which are generic and expertly captured photographs. These photographs are usually acquired as a set or via a monthly membership to a stock photo website.
So, if you want to diversify your income sources as a photographer, you could create and sell styled stock photo bundles. For instance, you could offer a package of 15 stock photos with a business theme for $15. Then, you can market your product to websites and businesses. By doing this, you can earn a continual flow of revenue from images you captured once.
Rent Out a Room
If you have additional rooms in your home and are open to having guests, you can utilize online platforms such as VRBO to rent out a room in your house. Moreover, you could rent out your entire home if you travel frequently. The cost of renting a room varies based on location and the area you reside in, meaning you could charge hundreds of dollars per night in a high-demand area.
Rent Out Your Car
Similarly, you can rent out a car if you have a second one or don’t drive much. Platforms such as Turo connect car owners with customers who need a vehicle temporarily. Renting out your car a couple of weekends per month can create hundreds of dollars of extra income for an asset you already own.
The Bottom Line
There are numerous options for generating $1,000 a month in passive income. Your path toward earning this self-sustaining income stream depends on your strengths, interests and the amount of time and work you put into the project. Therefore, your way forward may be as simple as becoming an Airbnb host or involve researching the real estate market and purchasing a rental property. Remember, your passive income will have specific tax implications, so it’s best to understand how an asset will affect your taxes before going all in.
Tips for Making $1,000 a Month
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