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Passive income is one way to increase your bank account’s balance. While some ideas for passive income may require work upfront, they can be set up to provide additional income over time with minimal effort later on.
Earning extra money without your direct involvement can be helpful when you need more cash to reach your financial goals and if you need a financial cushion when your budget is tighter.
Whether you’re looking for a flexible side hustle, a way to boost your retirement savings, or want to save extra for your child’s college expenses, there are several passive income ideas worth exploring.
Understanding passive income
So what is passive income, and what makes it so great? Passive income is a way to make money without trading your time for an hourly or salary-based job. With a traditional job, freelance work, or self-employment, you must work to get paid.
Passive income is attractive because it allows you to earn money whether actively working or not. It still requires work upfront, but with a passive income stream, you can set up systems and processes that can continue generating income even if you’re taking a break or on vacation.
Some passive income streams, like investing in stocks or real estate, can yield income for years.
Best 10 passive income ideas to try out
Earning passive income can be pursued full-time or part-time. You don’t always need a ton of money to invest upfront. Here are 10 of the best ways to make passive income.
1. Earn income from sponsored posts on social media
Social media has paved the way for a lucrative opportunity to generate income passively. With enough followers and engagement, brands will pay for sponsored posts and partnerships. The key is to build an authentic and engaged audience.
While content creation and ongoing engagement involve upfront work, sponsored posts can generate significant revenue. Plus, your existing sponsored content can be used as an example to help you gain additional similar opportunities.
2. Flip retail products for profit
Flipping retail products is simple: buy low, sell high. This could involve flipping limited-edition sneakers, vintage clothing, or online bargains to sell at a premium. You may want to check out liquidation stores, clearance sales, or even gently used items from thrift stores to find products to resell. Setting up price alerts by creating wish lists with your favorite retailers is one of many savings hacks that can help you spend less on items and increase your profit potential.
You’ll need to search for items and list them on different platforms. You can consolidate your tasks by setting aside one to two days per week to organize your inventory and create listings. Then, you only need to wait to make a sale, ship the item, and get paid.
3. Rent out a room in your home
Airbnb, VRBO, and similar services make it simple to rent out your spare room or your entire home to travelers. You set your nightly rate and availability. Service fees and costs like cleaning and turnover can eat into earnings, but for many, the return is worth it.¹
Airbnb offers a free tool that helps you estimate how much you could earn by listing out your space. For example, if you decide to rent out a private room in the Lincoln Park area of Chicago, you can charge $88 per night or earn $616 for a seven-day stay before fees and operating costs.²
4. Invest in bonds and bond funds for passive income
When you buy bonds, you are loaning your money to a company or government entity that pays you regular interest and returns the principal upon maturity. Bonds are an attractive option for passive income because, unlike stocks, the return is more predictable and has lower risk.³
You can expect a steadier income stream and use bonds to diversify your investment portfolio. The maturity rate for bonds is flexible and can range from one year to 10 years or more, so you can explore different options based on your passive income goals.⁴
5. Deposit funds in a high-yield savings account or CD for passive returns
High-yield savings accounts and certificates of deposit (CDs) can also provide secure and effortless returns. With a high-yield savings account, the money you save will earn interest, and you can withdraw it at any time, although there may be a monthly limit.
Certificates of deposit have a set maturity date ranging from a few months to a few years. This means you’ll have to wait to access funds to avoid paying a penalty. However, there are some no-penalty CD options as well if you think you may need the money before the maturity date arrives.⁵
6. Invest in Real Estate Investment Trusts (REITs) for rental income
REITs are companies that own, operate, or finance income-generating real estate. They provide an opportunity for passive income and portfolio diversification by allowing investors to pool their money together to invest in real estate projects.
Many REITs pay out dividends. Plus, you don’t need to worry about day-to-day landlord responsibilities.⁶
7. Earn income by renting out a parking space
If you live in a city or a popular area for events or attractions, you may want to consider renting out parking spaces for passive income. You don’t have to live in a big city either. If you live near a popular zoo or farmer’s market, for example, people may be willing to rent out your space weekly to park.
Just make sure to check with your landlord or homeowners association first if you have one. Renting out your spot through apps or local websites can make it simple to earn money when you’re not even home.
8. Rent out household items to generate extra cash
Another way to earn passive income is to rent out several useful household items. From power tools to cameras and bicycles, there’s likely something in your home that someone else needs, and renting it out could be a quick and easy way to earn passive income.
9. Advertise with your car
Some companies will pay you to wrap your car in advertisements. If you have a long commute or regularly drive through highly populated areas, this could be an effortless way to earn passive income.
These companies pay an average of $200 to $280 per month if you’re selected. The money will not replace your day job but could be used to cover a bill or some weekend fun.⁷
10. Participate in crowdfunded real estate ventures
Real estate crowdfunding platforms allow you to invest in a diverse range of properties. From residential to commercial, these ventures can provide you with a piece of the real estate pie without the hassle and overhead costs of owning property outright. Some may require an initial investment of $1,500 or more to get started.⁸
Pros and cons of passive income streams
While passive income ideas offer a way to earn money without constant effort, consider the pros and cons before diving into any opportunity.
Pros
- Provides an additional income stream to supplement earnings. By diversifying your income sources, you can potentially increase your overall earnings without necessarily putting in more hours at your primary job.
- Offers financial protection by diversifying income sources. By having passive income streams, you create a safety net that can help you weather economic storms, like if you lose your job.
- Can potentially be set up without significant effort. Once you have set up a passive income stream, it can continue to generate revenue without demanding a significant amount of your time and energy.
- Allows for flexibility in managing multiple income streams. You can choose which opportunities to pursue based on your interests, skills, and available resources.
- May have tax advantages. Some passive income sources are taxed at lower rates. In some cases, passive income from rental properties or investments may be taxed at lower rates compared to active income from employment if you are able to write off certain expenses.⁹ (Consult with a tax professional to understand the specific tax implications for your situation).
Cons
- Requires realistic expectations and understanding of the effort involved. Building a successful passive income stream is not a get-rich-quick scheme, and success can come from consistent effort over an extended period.
- Initial work is often necessary to set up passive income streams. Depending on your passive income stream, you may need to perform research, learn new skills, create systems, learn marketing, and do other work to get started.
- Managing multiple income sources can be complex. Each source may have its own requirements, deadlines, and legal considerations.
- Taxation of passive income can vary based on the source, leading to challenges in tax planning and compliance. Different types of passive income may be subject to different tax rates and reporting requirements, and failing to report income properly can result in penalties and legal consequences.¹⁰
What’s the ideal number of passive income streams?
There is no one-size-fits-all answer to the ideal number of passive income streams. It ultimately depends on your financial goals and personal preferences. Some may prefer to have multiple diverse sources of passive income, while others may be content with just one or two.
Managing too many passive income streams can become overwhelming and take away from other aspects of your life. Try to start with one and go from there based on your comfort level and available resources.
Earning passive income is worth a try
Passive income can provide more flexibility in your finances and a buffer for the typical ebbs and flows of life and your expenses. And it can help you save up for a specific financial goal or be used to get out of debt faster.
Before jumping into any passive income opportunity, consider your risk tolerance, return expectations, and the amount of time you’re willing to invest. If you plan to diversify your income streams with passive income, learn how to file taxes with multiple jobs.