Why is passive income so important? The answer really depends on yourself and your particular goals.
- Perhaps you’re someone who loves your job but would like some extra spending power for your hobby.
- Perhaps you’re someone who’s looking to create a large passive income stream over many years to help fund retirement.
- Perhaps you may even just love the thrill of making extra money for the sake of the hustle itself.
There are way more reasons than the aforementioned above, but whatever your reason for seeking passive income streams, it all comes down to personal preferences and resources.
If you’re starting out young and from scratch, you might not have a nest egg to utilize, as opposed to someone who’s been working for a while. Everybody’s timeline differs as well.
In this post, our goal is to expose you to many different options to choose from. We’ve got something for everyone, and our goal is for you to benefit immensely from one or more of these.
1. Passive Retirement Savings App
For those new to investing or taking their time learning to do so, an app can make the daunting process a whole lot easier.
Take the Acorns app: it has a Round-Ups feature that you can combine with the Acorns Later feature to get money into a retirement account without having to think about anything. It takes a bit of initial set-up and you’re good to go. This is how it works:
- The Round-Ups feature allows you to spend as usual, but every time you make a purchase, the app will round up to the nearest dollar and automatically deposit it into an account for you. Say you buy a coffee for $4.55; the app will then round it up to $5.00 and put the difference, $0.45, into your account.
- The Acorns Later feature is a retirement and tax-advantaged account made available to you in the form of a Roth, traditional, or SEP IRA. You’ll want to activate this feature because when combined with the Round-Ups feature, every time you’re spending as per your usual habits, you’re also securing your future little by little. Before you know it, you’ll have a nice nest egg waiting for you at retirement.
The cost for all of this is currently $3 under the Acorns Personal subscription tier. As something to get you started on the path to something that’s as important as your future, I’d say it’s worth it. Especially since once you set it up, you don’t have to worry about making any changes in your life.
Check out our full review of the Acorns App here.
2. Consolidation of Retirement Accounts
If you’re someone who’s had a work history at various places throughout your life, there’s a good chance you’ve opened some retirement accounts along the way. Unfortunately, keeping track of these accounts can often be time-consuming and messy. Every time you open a 401(k) account with your employer and move jobs later on, it’s your responsibility to transfer over the account. Since many people don’t know this, there are a plethora of lost retirement accounts online containing anywhere from a few thousand to tens of thousands of dollars each. What makes this even worse is that any fees that you’ve paid on the account will continue to be paid, thus draining your account slowly over time. Because of this, it’s in your best interest to locate these accounts and consolidate them all into a new account.
That could potentially be a lot of work, and normally, this wouldn’t be filed under passive income options. However, in today’s digitalized world, we have services that can do all the work for you for a small fee. Meet Beagle is one of these services that can do all that for you, and probably locate accounts that may not have even remembered you owned.
What’s great about Meet Beagle is that if you wanted to pay their monthly subscription fee of $3.99 to locate your accounts and then cancel after one month so that you can do all the work of consolidating the accounts yourself, you can! $3.99 to save potentially thousands of dollars is easily worth the cost.
If you like the app and want Meet Beagle to consolidate all the accounts into a single Meet Beagle-managed account, you could do so by continuing your monthly $3.99 subscription.
Check out our full review of Meet Beagle here.
3. Buy an Index Fund
But wait, isn’t that active investing on my part? Sort of. But you are also investing in a passively managed fund. If you’re looking to invest in the stock market, which you should at least in some way, shape, or form, the second closest thing you’ll get to passive income is via index funds. If you’re wondering what the absolute closest thing to passive income is, we’ll get to that in the next section.
Since you might argue that buying an index fund isn’t really all that passive, let me make it as passive for you as possible. I’ll give you a step-by-step so you’ll only have to do as little work as possible:
- Open up a brokerage account. If you need help deciding which, check out our post comparing Robinhood vs. Webull vs. TD Ameritrade.
- Buy shares of VTI.
- Don’t touch your shares for as long as you can.
Hopefully I’ve made that simple enough. You don’t even have to decide which share to buy. VTI has a great expense ratio of 0.03% and tracks a group of over 3,900 stocks in total. If you want to learn more about index funds in general, read our Index Funds post here.
4. Have a Robo-Advisor Buy Index Funds For You
If you still disagree with me and think buying yourself some index funds using the three steps above is still too active, then as promised, here’s the absolute closest thing to earning passive income in the stock market: Robo-Advisors.
With Robo-Advisors, you simply open an account with them and educate them a bit on your personal risk tolerance. For a small fee, they’ll manage your money and choose the best allocation to fit your risk level. Fees are very reasonable, and the great thing about these Robo-Advisors is that your money isn’t just invested in some funds you know nothing about. They usually outline exactly where they put your money into even before you give them the money.
The two best Robo-Advisors are currently Betterment and Wealthfront. You really can’t go wrong with either.
5. Rent Out Real Estate (Even If You Don’t Currently Own Any)
Any income received from renting out real estate is treated as passive income for tax purposes. It is buffered by amortization and depreciation, giving you a lower tax rate overall. From a practical perspective, managing real estate can really be as active or passive as you want it to be. You can get involved in the day-to-day yourself, or you can hire a local property manager for a cut of the income.
Aside from that, there are also plenty of options to help you obtain real estate as well if you don’t currently own any. Doorvest is a company that believes you should reach financial independence, and they foster this mission by helping you obtain a single-family home for investment purposes. If you’re at all interested in real estate and have always wanted to get started in renting out property, consider giving them a shot. In short, they’ll help hold your hand every step of the way by purchasing a home, getting it transferred to your name, and then taking care of tenancy and rental income for you.
Read our full review of Doorvest here.
6. Own Your Own Home to Build Equity
Aside from renting out property as passive income, you could also buy a home sooner than you normally would in order to build equity for yourself and invest in the potential appreciation of your own property. If you’re living somewhere and paying for it, you might as well have a portion of the payment contribute to increased ownership of the property in question. If you agree with this and haven’t been able to buy property as of yet, you just might be able to sooner than you think with a company known as Divvy Homes.
Divvy Homes allows you to become a homeowner sooner than via traditional means. The way it works is you and Divvy Homes will agree upon a property that Divvy Homes will then purchase. They’ll rent to you with a portion of your payment going towards an equity savings account. Once the balance in the equity savings account reaches enough for a down payment, you’ll then be able to purchase the home with that money, typically within 3 years.
Read our full review of Divvy Homes here to learn more.
7. Invest in REITs
REITs (Real Estate Investment Trusts) are attractive investments because of their high dividends as well as the ability to participate in long-term appreciation of real estate, which has shown itself to be a very dependable and consistent source of return in the US. Policy dictates that at least 90% of any taxable income made on assets must be paid out as dividends to shareholders.
Furthermore, you get to diversify across multiple real estate so as to not put all your eggs into one property, as well as the chance to partake in commercial real estate alongside residential real estate. As a whole, real estate serves as a great hedge against inflation.
With REITs, the money you put in stays liquid. You can cash out at any time, unlike with real property which takes awhile to unload and can often be held up for weeks and even months.
If you’re looking for a platform to start investing in REITs, we recommend looking into Fundrise, which is an investment platform that allows the average Joe a low-cost way to participate in real estate. Minimum to participate is $10.
8. Wrap Your Car
Certain companies pay you to wrap your car as an advertisement. You get to choose whether you want minimal, partial, or full coverage. The best part about it? You can just drive as you normally would while earning money for it. If you’re getting paid to do something you would’ve done anyways, that’s quite the passive side hustle.
If you’re interested in learning more about this, there are two main companies we recommend:
Anything outside of those two companies at the moment, we wouldn’t recommend working with. The reason is that in this industry, there are a lot of companies that purport to do something similar but don’t run their operations very professionally. They often come and go for that reason. However, Carvertise and Wrapify conduct themselves very professionally and have very secure and user-friendly apps to go along with it.
9. Invest in Businesses
Investing in startups is extremely risky. However, it can be a source of passive income when one or more of the startups you invest in start to take off. As such, this option for passive income isn’t for everyone.
We recommend OurCrowd if you’re interested in getting in startup investing. Because of the riskiness involved though, OurCrowd is made available only to accredited investors. Accredited investors include people who either make $200k per year (or $300k jointly with a spouse) or have at least $1 million in net worth, either alone or with a spouse. Even though people who make or are worth that much are already making good money, they still aren’t the usual players when it comes to angel investing.
OurCrowd brings the opportunity of angel investing to such investors who aren’t the usual multi-millionaires or billionaires that normally partake in such opportunities. OurCrowd provides the extensive due diligence required to vet companies, and you can then choose to invest with either a $10k, $100k, or $250k minimum. This gets you an investment in an individual startup, a managed fund that invests in groups of startups, or an entire team to manage a portfolio of startups, respectively.
10. Invest in Cattle
Yes, there are agricultural ETFs you can invest in, but did you know that you an actually invest in cattle directly? The company Agridime makes this all possible. When you purchase a cow, you’re actually registering yourself as the owner of a single, specific cow, and it costs roughly $2,000 for one. Agridime guarantees a 15-20% return after one year, when you can finally sell the cow on the open market.
Although this is a great return, know that these kinds of investments are not insured by the government. These types of investments should only be dabbled in after you’ve made your usual smart choices of investing into your 401(k) as well as some taxable brokerage accounts for retirement.
11. Invest in Wine (Seriously!)
Another fun investment opportunity to look into, especially if you’re a wine snob. I know I am. Despite how awesome this is, recognize that this is a serious investment that just happens to have certain appeal to people who love wine. Alternative investments have exploded in popularity in recent years, and have included investments in fine art, collectibles, and pre-seed startups.
One of the largest online wine platforms on which you can invest is known as Vint. With Vint, you can keep an eye on collections of alcohol obtained through recommendations made by an in-house team of sommeliers, winery directors, and financial analysts. These not only include wine, but other spirits such Whiskey as well.
Once you see a collection that catches your interest, you can then buy shares of that collection. When Vint’s team of financial analysts decide it’s a good time to sell, the collection will be sold and you’ll get your fractional share of the profits.
12. Refinance Your Student Loans
If you’ve got student loans, hopefully you’ve got some forgiveness coming your way soon. After all that, if you’ve still got some student loans, it could be worth it to look into student loan refinancing. One company we recommend looking into is Earnest, which has a stellar reputation amongst students and graduates alike.
With your student debt, you should be periodically applying with a soft credit check to numerous lenders on a yearly basis within the span of a month to see what the lowest interest rate you can secure is. We say within the span of a month max so that the negative effect caused by any hard pulls on your credit score is minimized as much as possible.
Different lenders have different criteria, so you can’t always depend on a single lender to give you the best rate. Although Earnest should be one of the ones you check out, it should not be the only one you apply to. And for most of the popular options out there, applications are super easy and quick to give you a loan agreement ready to sign, often within 10-20 minutes.
13. High Yield Savings Accounts
With rising interest rates, high-yield savings accounts are only getting better and better. One company that offers an extremely competitive APY is Credit Karma, and their account is called the Money Save account.
The reason we like Credit Karma’s Money Save account is because it consistently offers an APY that is well above the national average. How are they able to do that? By partnering with more than 800 banks. Credit Karma can move money around as needed to ensure that you’re getting the best possible rate in their network of banks.
Check out our full review of Credit Karma’s Money Save account here.
14. Money Market Accounts
Money market accounts are a type of savings account. The difference is that in money market accounts, you can’t just take out the money whenever you want. There is a minimum term you must commit to. The minimum you agree to contributes to your interest rate; the longer your term, the higher the interest you earn on it. It’s one of the safest and least risky financial products you can put your money into.
If you can get past the fact that some banks are online only, CIT Bank has a great Money Market account. They offer great customer service, no fees, and you can open an account with as little as $100.
Check out our full review of CIT Bank Money Market Account here.
15. Get Your Medical Debt Forgiven
This one doesn’t apply to everyone, but when it does, it’s a huge deal. Not many people know about it. If you’ve ever been hospitalized for anything and have a bill from it, there’s a good chance the hospital you were at has a Charity Care policy, which is a policy that is enforced in non-profit hospitals. Most hospitals in the US are non-profit.
Depending on your level of income, the hospital’s Charity Care policy may entitle you to a forgiveness of some or all of your medical debt.
Read here to learn more about it. Let your family and friends know. It could easily change someone’s life.
There you have it, some great ways to gain some passive income with varying degrees of effort and effectiveness, depending on your personal circumstances. As we learn more about other ways to do so, we’ll continue to update this list indefinitely. And if you believe we’ve missed any, let us know! We’d love to hear from you.