6 ways to start earning passive income

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You’ve probably heard the term “passive income”, often touted as easy money or something only the wealthy get to enjoy. After all, who doesn’t want to earn money while sipping drinks on the beach? 

In truth, it’s a little more complicated. But, with some careful financial planning and proficiency, it’s probably more achievable than you think. Adding passive income to your bottom line can empower you with more freedom, flexibility, and, of course, money. Here’s a breakdown of what passive income is and how you can start to earn it. 

What is passive income?

Passive income is money earned in a way that doesn’t require constant, active involvement. The most common example of passive income is owning a rental property, but it can also refer to money earned from a partnership or business venture in which less effort is required of you than traditional income streams. 

If you rent a property to someone else, they pay you rent, which is income. Because you collect this money without spending a lot of time at the rental, it’s considered passive income. 

The notion of passive income requiring little effort can be deceiving, however. Often, you’ll need to invest your time and money upfront without receiving any money in return before you can reap the benefits down the road. The goal here is to invest your time and money wisely, so that your efforts will both make you the initial money back and lead to future profit. 

An example of passive income

Let’s say working a 9-to-5 job, you might earn $25 an hour. On the side, you start making YouTube videos, each of which takes you an hour to make. 

At first, your videos probably won’t earn you anything. But if you keep making them and your followers and engagement grow, you can start making money from the video advertisements. 

Each hour you put into making a video for your YouTube channel doesn’t lead to an immediate payout, but it might over time. Even when you’re not making new videos, your popular older videos are still racking up views, which means money for you—that’s your passive income. 

Passive income is rarely passive forever, and most passive income streams should be looked at as businesses. Like normal businesses, if you want to keep your passive income alive, you need to keep reinvesting. Keeping a passive income stream going is usually easier than starting it up, but it also can mean having to put in more time or effort eventually.

6 ways to earn passive income 

There are a variety of ways to start earning passive income, which range in effort, upfront money required, and return on investment. Here are some popular ways to put your time and money towards something that will earn money for you in the future.

Earn interest on your savings.

One of the most straightforward ways to earn passive income is to keep your savings in a high-yield savings account. By putting your funds into a savings account, you can let the money do the work for you as it earns interest. Varo offers a high-yield savings account that will earn you a 2.50% annual percentage yield (APY), which is much higher than most traditional banks¹. (APY is the rate of interest your money makes you after one year in a savings account).

Invest your money.

Investing can be a smart way to get a return on your money, but remember, it comes with the risk of losing it as well. Stocks and bonds may regularly pay out dividends and coupon payments, but some only pay out when you sell them. To be a good investor, you need to do your due diligence in researching and monitoring the market to help maintain the best spread of investments. You can also invest in loans and real estate, but these are usually harder to start with due to the higher initial investment cost.

Make and monetize content.

Creating content for platforms like YouTube or Instagram is becoming a more and more popular way to make passive income from advertisements and paid partnerships because there isn’t a high financial buy-in required to get started. If you have specific expertise or talents, eBooks, online courses, and blogging are other popular types of content to build and monetize.

Start an online business.

Building any business, whether online or in a brick & mortar location, takes a lot of effort and investment. But, like other passive income streams, it can reap rewards later on after a lot of initial upfront work. Ideally, you can reach a level of success with your business so that you’re able to hire others to run your day-to-day operations.

Rent out your property.

There are a variety of ways to generate money by renting out what you already own. Homes, apartments, and vehicles are the most common, but you can also rent out parking or storage spaces, provided you’ve done the proper research on what’s permitted in your area. If you have to manage customer support, cleaning between rentals, and sometimes complex tax ramifications, it may require a bit more effort on your part than other passive income streams.

Earn rewards or cash back on purchases.

You might not see this as a traditional passive income stream, but you can use rewards credit cards, various cash-back apps, and other tools and programs to make a return on purchases you were going to make anyway.

Don’t expect instant returns

If you want to make a significant return, most opportunities require a large initial investment, whether it’s money or time. 

If you don’t have money to invest, try to monetize your expertise, hobbies and interests, or subjects you like to study. You may be able to turn side hustles into money, and eventually, into a business. 

Many people make good money through endeavors like creating videos of themselves playing video games, selling sewing patterns, and writing fiction eBooks. The more popular the topic, the more money you could make. 

Investing time to actively build your passive income streams comes with an added benefit—the valuable skills you can learn along the way when it comes to budgeting, time management, tax forms and permits, or even tracking the stock market. 

When done right, setting yourself up to earn passive income isn’t just a good way to bolster your future financial success, it’s also a great way to utilize the skills you already have while learning some new ones along the way. That’s a win-win, even if you’re not sipping drinks on a beach.

^{¹ According to The Ascent’s review.}

^{Unless otherwise noted above, opinions, advice, services, or other information or content expressed or contributed by customers or non-Varo contributors do not necessarily state or reflect those of Varo Bank, N.A. Member FDIC (“Bank”). Bank is not responsible for the accuracy of any content provided by author(s) or contributor(s) other than Varo.}