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Passive Income: What It Is and 6 Ways to Start Earning

July 29, 2020

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Passive income is always a popular topic. Who doesn’t want to earn money while sipping drinks on the beach? 

But, in truth, it’s a little more complicated. Let’s break it down.

What is Passive Income?

Passive income is money you earn that doesn’t require you to invest time or money into.

While that sounds great, often, you’ll need to put in many hours of work without receiving any money in return or you’ll need to already have startup money to invest on hand. 

Usually, passive income is possible once you’ve invested lots of time or money at a loss at the beginning of a project. 

Hopefully if you invested wisely, your money and time will make you money back later.

An example

Let’s say working a 9-to-5 job, you might earn $10 an hour. 

On the side, you start making YouTube videos. It takes you an hour to make one video. 

At first, your videos probably won’t  earn you anything. But if you keep making videos and your following grows, you can start making money from the advertisements on the videos. 

Each hour you put into making a video for your YouTube channel doesn’t lead to an immediate payout, but 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. 

Most passive income streams are businesses. 

Like normal businesses, if you want to keep your passive income alive, you need to keep reinvesting.

Keeping a project going is usually easier than starting up, but also usually means putting in more time or effort eventually.

6 Ways To Earn Passive Income 

There are many ways to start earning passive income. 

These are some popular ways that you can put your time and money towards something that will earn money for you.

  • 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. 

    This will make sure that your money makes you money by staying put over time.Varo has a popular high-yield savings account that will earn you 2.80% annual percentage yield (APY). APY is the rate of interest your money makes you after one year in a savings account. 

  • Invest your money
    You can sometimes earn money by investing it. Remember when you invest you always risk losing money.

    Stocks and bonds may regularly pay out dividends and coupon payments. Some pay out only when you sell them.

    To be a good investor you need to spend lots of time researching the market to make the best spread of investments.

    You can also invest in loans and real estate, but these are usually harder to get in because of the higher investment cost.

  • Make and monetize content
    Making content for platforms like YouTube is becoming a more and more popular way to make passive income, because there isn’t a high money buy-in.

    Ebooks, online courses, and blogging are other popular types of content to build and monetize.

  • Build or buy a business
    While online businesses look good because they don’t need money to start, buying an offline business can be very profitable if you have the money.

    Again, you might need to put in a lot of work to start, but you may be able to hire someone to do day-to-day operations.

  • Rent out your property
    There are many ways to rent your property.

    Homes and vehicles are popular, but you can also rent people space on your land to camp, or even rent out old baby gear, cameras, and storage space.

    Some of these may be semi-passive if you have to manage customer support and cleaning between rentals.

  • Earn rewards or cash back on purchases
    You might not see this as a traditional income stream, but you can use rewards credit cards, various cash-back apps, programs to make money on purchases you were going to make anyway.

    For example, some of these can earn you cash back whenever you buy gas.

Don’t Expect Instant Returns

If you want to make more than a few dollars, most opportunities require a large initial investment—either money or time. 

If you don’t have money to invest, try to monetize hobbies and subjects you like to study. 

People make good money 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 another benefit—the valuable skills you can learn along the way. 

You may be able to turn side hustles into money, and, eventually, maybe into a business

That’s a win, even if you’re not on a beach.

Opinions, advice, services, or other information or content expressed or contributed here by customers, users, or others, are those of the respective author(s) or contributor(s) and do not necessarily state or reflect those of The Bancorp Bank (“Bank”). Bank is not responsible for the accuracy of any content provided by author(s) or contributor(s).

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Louis DeNicola

Louis DeNicola

Louis DeNicola is a freelance finance writer based in Oakland, California. He specializes in consumer credit, personal finance, and small business finance, and loves helping people find ways to save money. In addition to Varo, Louis works with a variety of financial services firms, credit bureaus, and educational websites, including Credit Karma, Wirecutter, Funding Circle, and Experian.

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