updated October 6, 2022
A key part of achieving financial independence is to create passive income streams to allow you to retire from your 9-5 work and live off of passive income. But what does it mean for income to be PASSIVE?
What is Passive Income?
I’ll put this in allied health terms – which is how I understood it better when I first learned about this. When movement is ACTIVE, the patient is moving their body on their own volition and activating their muscles to create the movement, while the allied health professional such as a PT or an OT, sits nearby and watches. When movement is PASSIVE, the patient does no work, and the PT/OT places their hands on the desired body parts and moves it for the patient, allowing the patient to lay back and relax.
Now if you’re the patient, what sounds better to you?
Bringing it back to how this relates with income, you want your income to come in without you lifting a finger at the time the money is coming in. You want to be the patient in this scenario!
Is Passive Income Totally Passive?
Not quite. Sure, passive income streams require some work on the front end. But once you put in that work on the front end, you can ride it out for as long as you please. Passive income allows you to let money for you while you sit on the beach in the Caribbean on a Wednesday in January.
What are Examples of Passive Income?
Here are some of my favorite examples of passive income:
Long Term, Low Cost Index Funds
I love index funds so much as a form of passive income. You can read more about them from my earlier blog post by clicking here.
In a nutshell, index funds are mutual funds or exchange-traded funds (ETFs) that are designed to track the performance of stock market (or bond market) indices such as Dow Jones, NASDAQ, and the S&P 500.1
The philosophy behind index funds is that this type of investment allows you to pay low fees, brings diversification of a few asses classes, to which you hold onto for the long term.
Plus, it also allow you to not worry about spending your precious time researching different stocks, and having to pick and choose which ones you think will do well.
High Yield Savings Accounts
I am also a big fan of the good ol’ HYSA – read more about it in this blog post. It’s not a ton of money coming your way, but it’s way more than the low APY your average brick and morter bank is giving you.
While a traditional savings account has a 0.01% APY (eww), HYSA’s have on average around a 0.5% APY (yay!). When you take compound interest into consideration, you can rest assured your money is not losing its value over time.
Cash Back Rewards Cards
I only advocate credit cards if you are a responsible spender with ZERO consumer debt. But if you are, take advantage of some awesome credit cards that have cash back rewards.
I personally love my Costco Anywhere Visa, since we shop at Costco all the time, including gas. With cash back rewards of 4% on gas, 3% on restaurants and travel, 2% on Costco, and 1% on literally everything else, it is definitely worth it for us. But do your research, and find what cash back rewards cards would work best for you and your situation!
E-Printables and Digital Downloads
I am not a graphic designer by any means. But I started my own Etsy store, The Great Cardsby, where I create digital downloads of beautiful scenery that I’ve stumbled upon during my travels. I love traveling, and I want to share my travels with the world, and what better way to also make some money off of it through Etsy?
These digital downloads are sent to the customer immediately after purchase, so you don’t have to do any work once you’ve put it on your site. Plus, this gives the customer more freedom to choose the size and printer that they would like to use for their download. I always find it fun when I’m on vacation and I see in my email that I made some money off of one of my Etsy store collections!
Real Estate Investing
So real estate investing takes a good amount of planning and research to do correctly. But whether you decide to do buy-and-hold, short term, or medium term rental properties, it’s a great way to make passive income down the line! For us, we took Paula Pant’s Your First Rental Property Course, because we knew NOTHING about how to invest in real estate. And honestly, taking this course was the best decision we had ever made! It gave us the education we needed to make sure we invested in real estate the right way.
This is one of the main ways I started making my money off of this blog! My first two affiliates, Student Loan Planner and Trusted HouseSitters, give me special links that I put in my blog posts. Since access to my blog is free, affiliate marketing gives me the chance to make some money off of your visit, because when you click on that special link and purchase something from them, I get a percentage of the cut. I just have to remember to put the links in when I post my blog!
Website with Online Advertising
So I’m still working on this aspect of my website, but having advertisements on your website is a great way to make some cash on the side, and this is even easier than affiliate marketing. Every time you get someone to visit your site, if they see the ad, you get paid. And sometimes, if they click on the ad, you may get paid more! I will edit this post and have more details once I figure this out more on my end. Be patient with me, I’m still new at this blog thing 🙂
As you can see, some of these ideas do take some time on the forefront to get started. But once you set these up, you’ll see how easy it is to make passive income whenever you want.
And there are so many other forms of passive income! I selected these because I know the most about these, but I would love to hear more ideas. Comment below with ways you make passive income!
- Vicki Robin, Your Money or Your Life, Revised edition (New York, NY: Penguin Books, 2018)
Like what you read? Check out some of my other most clicked blog posts!
- What is a Roth IRA?
- What are Low Cost Index Funds?
- Housesitting – How We Stay For Free While Traveling
- What is a High Yield Savings Account (HYSA)?
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This is a nice list to get people started thinking about passive income. I wanted to add a note about index funds being used interchangeably with ETFs. I’m not sure the Vicki Robin quote you referenced is still accurate today. The way I understand it, an ETF (like $VTI) can be purchased any time of day and has no minimum purchase requirement. An index fund is only purchased at the close of the day and, with $VTSAX for example, does have a $3,000 minimum to get started with it. But I’m still learning here, too, so let me know if I’m missing something. https://www.nerdwallet.com/article/investing/etf-vs-index-fund-compare
Ahhh okay, thanks for this Jeff! I think you’re right on this 🙂
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