Passive income can be a great way to help you generate extra cash flow, whether you’re running a side hustle or just trying to get a little extra dough each month, especially as the sting of high prices and the aftermath of new tariffs hits consumers hard. Passive income can help you earn more during the good times and tide you over if you suddenly become unemployed, if you voluntarily take time away from work or if inflation keeps chipping away at your purchasing power.
With passive income, you can have money coming in even as you pursue your primary job, or if you’re able to build up a solid stream of passive income, you might want to kick back a little. Either way, generating passive income gives you extra security.
And if you’re worried about being able to save enough of your earnings to meet your retirement goals, building wealth through passive income is a strategy that might appeal to you, too.
If you’re thinking about creating a passive income stream, check out these strategies and learn what it takes to be successful with them while also understanding the risks associated with each idea.
Top passive income ideas:
What is passive income?
Passive income includes regular earnings from a source other than an employer or contractor. The Internal Revenue Service (IRS) says passive income can come from two sources: rental property or a business in which one does not actively participate, such as being paid book royalties or stock dividends. While legally that’s true, in practice passive income may take other forms.
“Many people think that passive income is about getting something for nothing,” says financial coach and retired hedge fund manager Todd Tresidder. “It has a ‘get-rich-quick’ appeal … but in the end, it still involves work. You just give the work upfront.”
In practice, you may do some or all of the work upfront, but passive income often involves some additional labor along the way, too. You may have to keep your product updated or your rental property well-maintained in order to keep the passive dollars flowing.
But if you’re committed to the strategy, it can be a great way to generate income and you’ll create some extra financial security for yourself along the way.
Passive income is not…
- Your job. Generally, passive income is not income that comes from something you’ve been materially involved in such as the wages you earn from a job.
- A second job. Getting a second job isn’t going to qualify as a passive income stream because you’ll still need to show up and do the work to get paid. Passive income is about creating a consistent stream of income without you having to do a lot of work to get it.
- Non-income-producing assets. Investing can be a great way to generate passive income, but only if the assets you own pay dividends or interest. Non-dividend-paying stocks or assets like cryptocurrencies may be exciting, but unless you’re staking your coins, they won’t earn you passive income.
Passive income ideas for creatives
1. Write an e-book
Writing an e-book can be a good opportunity to take advantage of the low cost of publishing and even leverage the worldwide distribution of Amazon to get your book seen by potentially millions of would-be buyers. E-books can be relatively short, perhaps 30-50 pages, and can be relatively cheap to create, since they rely on your own expertise.
You’ll need to be an expert on a specific topic, but the topic could be niche and use some special skills or abilities that very few offer but that many readers need. You can quickly design the book on an online platform and then even test-market different titles and price points.
But just like with designing a course, a lot of the value comes when you add more e-books to the mix, drawing in more customers to your content.
Opportunity: An e-book can function not only to deliver good information and value to readers, but also as a way to drive traffic to your other offerings, including audio or video courses, other e-books, a website or potentially higher-value seminars.
Risk: Your e-book has to be very strong to build up a following and then it helps if you have some way to market it, too, such as an existing website, a promotion on other relevant websites, appearances in the media or podcasts or something else. So you could put in a lot of work upfront and get very little back for your efforts, especially at first.
And while an e-book is nice, it will help if you write more and then even build a business around the book or make the book just one part of your business that strengthens the other parts. So your biggest risk is probably that you waste your time with little reward.
2. Sell photography online
Selling photography online might not be the most obvious place to set up a passive business, but it could allow you to scale your efforts, especially if you can sell the same photos over and over again. To do that, you might work with an organization such as Getty Images, Shutterstock or Alamy.
To get started, you’ll have to be approved by the platform, and then you license your photos to be used by whoever downloads them. The platform then pays you every time someone uses your photo.
You’ll need photos that appeal to a specific audience or that represent a certain scene, and you’ll need to tease out where the demand is. Photos could be shots with models, landscapes, creative scenarios and more, or they could capture real events that might make the news.
Opportunity: Part of the value of selling or licensing your photos through a platform is that you have the potential to scale your efforts, especially if you can provide pictures that will be in demand. That means you could potentially sell the same image hundreds or thousands of times or more.
Risk: You could add hundreds of photos to a platform such as Getty Images and not have any of them really generate meaningful sales. Only a few photos may drive all of your revenue, so you have to keep adding photos as you search for that needle in the haystack.
It may require substantial effort to go out and shoot photos, then process them and keep up with the events that may ultimately drive your revenue. And motivation could be hard to maintain: Every next photo might be your lottery ticket, though it almost certainly won’t be.
3. Create an app
Creating an app could be a way to make that upfront investment of time and then reap the reward over the long haul. Your app might be a game or one that helps mobile users perform some hard-to-do function. Once your app is public, users download it, and you can generate income.
Opportunity: An app has huge upside, if you can design something that catches the fancy of your audience. You’ll have to consider how best to generate sales from your app. For example, you might run in-app ads or otherwise have users pay a nominal fee for downloading the app.
If your app gains popularity or you receive feedback, you’ll likely need to add incremental features to keep the app relevant and popular.
Risk: The biggest risk here is probably that you use your time unprofitably. If you commit little or no money to the project (or money that you would have spent anyway, for example, on hardware), you have little financial downside. However, it’s a crowded market and truly successful apps must offer a compelling value or experience to users.
You’ll also want to make sure that if your app collects any data that it’s in compliance with privacy laws, which differ across the globe. The popularity of apps can be short-lived, too, meaning your cash flow could dry up a lot faster than you expect.
Which passive income source is best?
The question of which passive income source is best depends on several factors, but some of the most important include the amount of money you have to invest, the total opportunity size, your interest and ability in the area, the amount of time you need to invest and the potential to succeed.
Typically, the lower the barriers to entry, the more crowded the field of competitors and the lower likelihood of success.
So you’ll need to weigh the opportunity against these factors and see which passive income strategy works best for you. But it can be helpful to have natural ability and an interest in your target area, because these can help motivate you in the early days when things are likely to be tougher.
There are passive income opportunities for people who are starting out with some money and even those who have no money to start.
How can I make passive income with no money?
If you have little or no money to start, you’ll have to rely mostly on your own time investment to power you through, at least until you build up a little money.
That means focusing on passive income sources that take advantage of the following traits:
- An area where you’re an expert. Here you can build your expertise into a useful product or service for consumers, e.g. design, software coding and others.
- An upfront work-heavy opportunity. You’ll need an opportunity that requires a time or work investment, such as creating a course, building out an influencer profile or other options.
In effect, you’re substituting your time for your lack of capital, until you can get enough capital to expand your set of opportunities.
How can I make passive income with money?
Money can provide you with more passive investment opportunities. If you have money to invest in a passive opportunity, you have not only the opportunity set above but a new range, too. Money is a prerequisite for taking advantage of the following passive income areas:
- Investing in dividend stocks, preferred stocks or REITs. Investing in stocks means you need money upfront, but you’ll receive some of the most passive forms of income around.
- Save with bonds or CDs. Other purely passive activities include buying bonds or CDs.
Here you can use your money to make money with little or no effort on your part, if that’s what you’d like to do. Of course, you could pair your money with a lot of time investment to move into an even more lucrative niche, too.
How many income streams should you have?
There is no “one size fits all” advice when it comes to generating income streams. How many sources of income you have should depend upon where you are financially, and what your financial goals for the future are. But having at least a few is a good start.
“You’ll catch more fish with multiple lines in the water,” says Greg McBride, CFA, chief financial analyst at Bankrate. “In addition to the earned income generated from your human capital, rental properties, income-producing securities and business ventures are a great way to diversify your income stream.”
Of course, you’ll want to make sure that putting effort into a new passive income stream isn’t causing you to lose focus on your other streams. So you do want to balance your efforts and make sure you’re choosing the best opportunities for your time.
Passive income ideas for beginners
- High-yield savings account. A high-yield savings account can be an easy way to get an extra boost on your savings beyond what you’d receive in a typical checking or savings account. It won’t be much, but it’s a simple way to get started with passive income.
- Certificates of deposit. CDs are another way to generate some passive income, but your money will be tied up more than it would be in a high-yield savings account.
- Real estate investment trusts. REITs are a way to invest in real estate without having to put in all the effort that comes with managing properties. REITs typically pay out the majority of their income in dividends, making them an attractive option for investors looking for passive income.
Minimize your taxes on passive income
A passive income can be a great strategy for generating side income, but you’ll also generate a tax liability for your effort. But you can reduce the tax bite and prepare for your future, too, by setting yourself up as a business and creating a retirement account. This strategy won’t work for all these passive strategies, however, and you’ll have to be a legitimate business to qualify.
- Register with the IRS and receive a tax identification number for your business.
- Then contact a broker who can open a self-employed retirement account such as Charles Schwab or Fidelity.
- Determine which kind of retirement account might work best for your needs.
Two of the most popular options are the solo 401(k) and the SEP IRA. If you stash the cash in a traditional 401(k) or SEP IRA, you can take a tax break on this year’s taxes. The solo 401(k) is great because you can stash up to 100 percent of your earnings into the account, up to the annual maximum. Meanwhile, the SEP IRA allows you to contribute only at a 25 percent rate. In addition, the solo 401(k) permits you to make an additional contribution of up to 25 percent of your profits in the business.
If you’re thinking of going this route, compare the differences between the two account types or look at the best retirement plans for the self-employed.
Note: The Hussnain Ahmad also contributed to this story.
