Monetising an asset without putting in eight hours of work is attractive, but passive income requires time and money.
Payment for full-time or freelance work is active income, where you receive compensation for a job at an allotted time. You work for the money. Passive income can be earned through assets you own, rather than direct payment for your skills or time. Your money, or assets, works for you. That's why some people refer to passive income as "earning money while you sleep".
"Passive income always requires something up front: time or money. However, the idea that it becomes passive after you do the work is what's alluring about it," writes Robert Farrington, a student loan and personal finance expert, on his website.
Passive income ideas
Generating a passive income stream will take some time. It requires making smart investments and accepting risks. Traditionally, passive income comes from investments made in:
- rental properties
- a business you do not actively manage yourself
- Stocks, bonds, or other financial instruments
Passive income sources rely on knowledge, skills, or assets you've already accumulated. For example, you can build an income stream based on your skills (asset building) or rent or lease an asset you own (asset sharing).
Financial experts recommend focusing on and mastering one passive income idea at a time. Here are seven passive income-generating ideas for investing, asset building and asset sharing.
1. Earn royalties on your photos or artwork
Licensing photos or artwork is one of the best examples of asset building. If your Instagram followers grew because of your photos, you already have assets to build your portfolio and start submitting to the likes of Shutterstock or Adobe Stock.
You can sell your photos to different marketplaces on Wirestock, which provides 85 per cent of all royalties earned on the platform. For example, if Getty Images buys your photo for US$2, you get US$1.70.
Try Merch by Amazon if you've dreamed about seeing your art on t-shirts. The platform handles product pages, printing and shipping when it gets a T-shirt order with your design. You earn a royalty on every product sold.
2. Design printables or templates
Use your spreadsheet skills and design budget planner templates – a template can sell from US$2 – US$20 on Etsy.
Graphic designers looking for inspiration may want to check out PlannerKate, which sells stickers for planners and organisers on Etsy. CNBC reports that the long-time top Etsy seller saw 580,000 transactions bring in US$2.5 million in 2020 alone.
3. Create a website or blog
One of Tiktok's most popular financial influencers, Sharon Tseung, became a millionaire at 30 as a digital nomad. She started with an Etsy shop where she sold Adobe Photoshop and Microsoft Word templates.
Sharon credits running a blog for giving her high-paying technical skills, from copywriting to affiliate marketing. She has used those skills with another potential earner, crafting her website's passive income online courses and guides.
4. Rent out a spare room or space
Property rental can be a profitable passive income source.
Sharon's other passive income stream is real estate. She owns 32 rental units. She earns rental income monthly, which she uses to buy more properties and renovates to increase their value.
There are other ways to maximise the spaces you own.
- Rent out rooms to boarders like college students or weekly commuters who live outside the city or become an Airbnb host.
- Market a guest room or unused part of your garage as an alternative to expensive self-storage facilities.
- Turn an empty lot you own near public spaces (offices, malls, schools, supermarkets or train stations) into a parking space.
5. Try real estate investment trusts (REITs)
Building a rental portfolio, as Sharon has done, requires skill and hard work. An alternative is to invest in real estate investment trusts (REITs) listed on stock exchanges. You can buy or sell REIT shares through a brokerage account.
Before making such investments, make sure you do your due diligence. Research the types of properties held by the REIT. Track the record of the REIT's sponsor or management. The prices of REITs can also be more volatile than the actual properties' market values due to market speculation and trends. Talk to a broker or financial advisor to better understand REITs.
6. Turn your car into a moving billboard
"Car wrap advertising" can be a good source of asset sharing. In Indonesia one car wrap can earn up to US$70 a month. Make sure to understand the contract with the advertiser. U.S.-based car advertising companies specify the miles or hours of driving and locations to get compensated.
Consumer brands will use well-known and reputable car ad agencies to place ads on cars instead of approaching you directly.
7. Ask your financial advisor about investing in stocks
Investing in funds can help your portfolio become more diverse since you're buying many stocks or bonds at once.
Investing in the capital markets is another way to earn passive income. Make sure you know your risk tolerance before you start.
On her popular podcast, personal finance expert Farnoosh Torabi often recommends index funds because "they are cost efficient and, on average, have great returns relative to actively managed funds."
An index fund is a pooled investment vehicle set up to match or mirror a specific market index, allowing you to invest in a basket of companies. For example, putting money in an index fund that tracks the Standard & Poor's 500 index (S&P 500) means you've invested in the stocks of 500 companies. As a result, your investment portfolio becomes more diverse.
"If you commit to investing US$5 a day in an index fund that tracks the market, you could have upwards of US$85,000 in 25 years (assuming a 5 per cent rate of return)," Torabi writes in one of her columns.
Invest in wellbeing first
Build your savings first and then take steps to protect your financial wellbeing with a medical protection plan before working on your passive income plan. There's nothing like emergency care or hospitalisation to deplete savings. Invest in your health to safeguard your financial freedom and enjoy your investment returns.
You can achieve financial independence with a solid money management foundation. Watch as finance experts Anna Haotanto and Lachlan Campbell of the AIA Voices community share tips you can do today to achieve financial wellness in the future.
AIA Voices is a community of influential and educational voices from around Asia to talk about life, health and wellness. A platform to educate, motivate and inspire people to make positive behavioural changes on their health and wellness journey. Providing an opportunity for communities across Asia to connect, collaborate, and learn from each other. Designed to drive AIA One Billion, our ambition to engage a billion people to live Healthier, Longer, Better Lives by 2030.
The News with Shepard Smith – CNBC. 2021. Meet the moms who run some of Etsy’s top-selling businesses. [online] [Accessed on 7 September 2022]
So Money with Farnoosh Torabi – Podcast. 2020. Episode 989: What are some smart ways to earn passive income? [online] [Accessed on 7 September 2022]
O, The Oprah Magazine. 2016. Things Everyone Thinks About Money That Just Aren't True. [online] [Accessed on 7 September 2022]
The College Investor. 2022. 35 Passive Income Ideas You Can Use To Build Wealth In 2022. [online] [Accessed on 7 September 2022]
Digital Nomad Quest. 2022. From $30k/Year to Millionaire by 30 (My Financial Freedom Journey). [online] [Accessed on 7 September 2022]
Business Insider. 2021. A 30 year old with a $1 million net worth explains the 4 steps that got her there. [online] [Accessed on 7 September 2022]
Yahoo! Finance. 2021. Car wrapping 'ads' up: Here's how much you can make. [online] [Accessed on 7 September 2022]
Mobil 123. 2021. How to make money from a private car besides being an online taxi. [online] [Accessed on 7 September 2022]
Investor.Gov – U.S. Securities and Exchange Commission. Index funds. [online] [Accessed on 7 September 2022]