Kara Pérez is the founder of Bravely Go, a financial platform focused on feminist economics and inclusive personal finance.
What is passive income?
The idea with passive income is to create one or more sources of income you do not have to actively work for. You don’t have to trade your time for money in order to make that money.
One popular way of making passive income is through house rentals, especially with short term rental sites. Leaving aside the gentrification that often comes with this specific money maker, the idea that running a short term rental is 100 percent passive — i.e. never needs your time and attention — is rarely true, especially if you have only one or two properties.
The Airbnb account needs to be managed and marketed, the property needs to be cleaned between each guest, property taxes need to be collected and paid, the income needs to be organized, and the yard needs to be mowed. Even if you outsource this work, at the beginning you’ll likely need to do some or most of these things yourself. (Once cash starts coming in, you can hire help.)
I’m not saying you can’t make money with short term rentals. I’m saying the money won’t magically appear in your bank account without any work. Despite what all the social media millionaires say, true passive income is incredibly rare. Most things require a human touch.
I prefer to think of “passive income” as “way less work income.” I know it’s not as catchy, but it’s the truth. And it’s very possible to use “way less work income” to build wealth.
How to Get Started
As a financial educator, what I try and help people do with their money and lives is to find the best financial fit for them. It’s not about duplicating what someone else has done, because you don’t necessarily have their tools, skills, time, or goals! Rather, what works for your life?
So to find out which passive income idea is the best for you, answer these three questions:
- How much time do I have to get this off the ground?
How much time do you have to devote to the upfront investment? With our Airbnb example, this would be finding a place to rent, buying it, potentially renovating it, furnishing it, and listing it on short term rental sites.
- What are my current skill sets and how can I build off of them?
Take what you already know and use it to make more money! You don’t need to reinvent the wheel here. Make a list of the things you are good at, or the skills that you have. What we’re looking for is something that you can offer to others and something that someone will pay for repeatedly.
- How much money do I want to bring in?
Is this a little something extra? Are you looking to replace your full time income? And if so, what’s your timeline to do so? Answering these questions will help you determine what you areas are worth your time and effort. Creating a full time passive income stream may take more time than simply bringing in an extra $100 a month.
Making Money With Less Work
After answering these questions you should have an idea of what you can pursue. For example, if you decide you have 5 extra hours a week, a skill set in cooking, makeup, design etc. and you want to make $500 a month, you now have a clear direction to move in.
Now, how do we make this as little work as possible?
You could record yourself cooking a certain recipe and sell videos with how to create it and then maybe create a series with a certain topic (e.g. recipes to make in 30 minutes or less, traditional Latin recipes, vegan twists on Latin staples etc). You could make videos for YouTube and get monetized so that the videos continue earning you money after filming only once. You could write a book and sell it for years to come through self-publishing. You can also create designs on Canva and sell them online or create a makeup channel sharing how-to videos and also monetize on Youtube or Patreon.
Remember: we’re putting in the work upfront to then make money off of it continuously.
Easy Passive Income Ideas
Even easier, you can use things like investments to make passive income. You can start investing with small amounts of money, and over time, thanks to compound interest, your money will start earning you money. Compound interest is when your money earns interest off itself. You invest $100 and it earns $10 in the stock market. That $10 is your interest, and over time, it can turn into a lot more money!
You can make even more by buying things like dividend stocks. A dividend is a payment that a company sends to its investors, basically as a “thank you” for investing in them. Between compound interest and dividend stocks, investing can be a very passive way to earn extra money.
Ultimately, passive income can be a great help when it comes to building wealth, and I encourage people to try and find a way to add it to their income. It’s always a good idea to earn money from more than one source, and the less work you have to do to make money, the better.