Researched and written by business journalist
Leonie Bauer
Ever thought about making passive money? That is, having an income that doesn’t require active work? Well, then this article is just for you. Passive income has become an increasingly popular topic among people seeking financial independence and flexibility.
In 2023, keeping pace with the evolving passive income landscape and identifying the most promising ways to generate revenue is key. Unlike traditional employment where your income is directly tied to your time and effort, passive income allows you to earn money with less ongoing effort once the initial setup is complete. It’s like having an income-generating machine that works for you even while you sleep!
In this article, we’ll explore a variety of passive income ideas tailored specifically for 2023. From established strategies like dividend investing and real estate rental to emerging trends like peer-to-peer lending and creating digital products, we’ll cover a range of options. Whether you’re a seasoned investor or someone just starting on their passive income journey, this article will provide insights and actionable ideas to help you make informed decisions.
What Is Passive Income?
Passive income refers to the money earned on a regular basis with little to no effort required to maintain it. Unlike active income, which requires ongoing work or time investment, passive income is generated from assets or investments that have been set up to generate revenue automatically.
Passive income can be derived from various sources, such as real estate properties, royalties from intellectual property, such as books, music or patents and dividend or interest income.
You should know, though, that while passive income may require less active effort to maintain compared to a regular job, it often requires initial investments, time, or expertise to set up. It can still involve some level of ongoing management.
Additionally, passive income is not always entirely “passive” and may require periodic monitoring or adjustments to ensure optimal performance and returns.
Passive Income Ideas for 2023
Dividend Investing
You may have heard of dividend investing before. But did you know that it’s one of the most widely used practices for generating passive income? Let us explain.
Dividend investing is an investment strategy where you focus on investing in stocks or other financial assets that pay regular dividends. A dividend is a distribution of a portion of a company’s earnings to its shareholders, typically paid out in cash or additional shares of stock. The aim is to generate passive income by relying on these regular dividend payments.
The goal of dividend investing is to build a portfolio of dividend-paying stocks or assets that provide a steady stream of income over time. You can use this income for various purposes, such as supplementing your regular salary, funding retirement, or reinvesting to grow your portfolio further.
This kind of investing is considered a form of passive income because, once you as an investor have purchased dividend-paying stocks, you can receive regular dividend payments without actively participating in the day-to-day operations of the company. It provides a means for you to generate income from your investments without the need for active trading.
When pursuing a dividend investing strategy, make sure you focus on companies with a history of consistent dividend payments, strong financials, and a track record of increasing dividends over time. Examples are Coca-Cola, Johnson & Johnson, Procter & Gamble Co. or 3M Company. They may diversify their holdings across different industries and sectors to reduce risk. Additionally, dividend reinvestment plans (DRIPs) are often utilized, allowing investors like you to automatically reinvest your dividends back into purchasing more shares of the dividend-paying stock. This way you can compound your investment over time.
Please note: While dividend investing can provide regular income, it’s important to consider the risks. Companies can cut or cancel their dividends in times of financial difficulties or economic downturns. Especially during periods of inflation and recession, such as we are experiencing this year, dividend cuts may occur. Additionally, focusing solely on dividend yield may lead to neglecting other important factors, such as the company’s financial health, growth prospects, and overall investment strategy.
Real Estate Rental
Renting real estate can be attractive to those of you seeking passive income and tax benefits, long-term wealth accumulation, planning for retirement, and those with a knack for property management.
But it may not be suitable for everyone. It requires careful consideration of factors such as financial resources, time commitment, risk tolerance, and knowledge of the local real estate market.
With that in mind, let’s break down why real estate rental is an opportunity for generating passive income. Once you’ve identified a suitable property, financing options, property management and the rental price, you can rent out your (residential or commercial) property to tenants.
You can generate regular rental income from tenants. If the rental income exceeds the property expenses (mortgage payments, property taxes, insurance, maintenance costs), you can generate positive cash flow. Positive cash flow provides a steady stream of income without requiring active involvement on a daily basis.
And don’t forget about appreciation. Real estate properties have the potential to appreciate over time. While not guaranteed, historically, real estate tends to increase in value in the long run. By owning a property, you can benefit from the appreciation, which can significantly boost your passive income when you decide to sell the property in the future.
What’s more, real estate rental offers various tax benefits, such as deductible expenses (mortgage interest, property taxes, repairs) and depreciation. These deductions can reduce your taxable rental income, effectively increasing your cash flow.
While rental properties do require some degree of management, you have the option to hire a property management company. They can handle tasks such as finding tenants, rent collection, property maintenance, and dealing with tenant issues. By outsourcing these responsibilities, you can minimize your involvement and enjoy a more passive income stream.
Please note: It’s important to note that real estate rental is not entirely passive, especially in the initial stages of acquiring and setting up the property. There may be some upfront work involved in researching properties, securing financing, and preparing the property for tenants.
Peer-to-Peer Lending
Peer-to-peer lending, also called P2P, can be a potential source of passive income due to its nature and mechanics. P2P lending platforms act as intermediaries, connecting borrowers who require funds with individual lenders willing to lend money. As an investor/lender, here’s how you can generate passive income with P2P lending.
P2P lending enables you to directly invest in loans issued to borrowers. That’s called direct investment. You can choose the loans you want to fund based on the borrowers’ profiles, creditworthiness, loan terms, and risk ratings provided by the platform. By diversifying your investments across multiple loans, you can mitigate the risk of default and earn a passive income.
When you lend money through a P2P lending platform, you earn interest on the principal amount you lend. The interest rates are typically determined based on the borrower’s creditworthiness, loan term, and prevailing market conditions. As borrowers make their loan repayments, you receive a portion of the interest as passive income.
P2P lending platforms often provide “automated loan servicing”, which includes collecting borrower payments, distributing payments to lenders, and handling delinquencies and defaults. This automation minimizes your involvement in the day-to-day management of the loans, making it a relatively passive investment.
As borrowers repay their loans, you can reinvest the principal and interest received into new loans. Reinvesting allows you to compound your earnings and potentially increase your passive income over time.
Please note: It’s important to note that P2P lending is not risk-free, and there are potential risks associated with defaults, economic downturns, and platform reliability. It’s crucial to conduct thorough research, understand the risks involved, and choose reputable and established platforms to invest in.
While P2P lending has the potential to generate passive income, it’s essential to monitor your investments periodically and stay informed about the performance of the loans in your portfolio to ensure the desired returns are being achieved.
Royalties
Did you know that royalties can also be a passive income source? Yup, creative work can make it happen. Royalties from creative work involve creating intellectual property that continues to generate revenue even after the initial creation.
As a creator, you can produce various forms of creative work such as books, music, films, artwork, patents, software, or designs. The key is to create something that has market value and has the potential to be licensed or sold to others.
Once you’ve created the intellectual property, you can enter into licensing agreements with individuals or organizations interested in using or distributing your work. These agreements define the terms under which your work can be used and specify the royalties you will receive for each use or sale.
Royalties are typically calculated as a percentage of the revenue generated from the licensed use or sale of your creative work. For example, if you are a musician, you may receive royalties based on the number of streams or downloads of your music, sales of physical copies, or performances of your songs. If you are an author, you may earn royalties from book sales or licensing your work for adaptation into other formats like movies or television shows.
The benefit of royalties is that they can provide ongoing income for as long as your work continues to be used or sold. If your creative work gains popularity or becomes a timeless classic, the royalties can continue to flow in over an extended period, even without active involvement from you.
Please note: While royalties can be a passive income source, it’s important to actively manage and promote your intellectual property. This may involve marketing efforts, maintaining relationships with licensees or distributors, and protecting your work from unauthorized use or piracy.
High-Yield Savings Accounts and Certificates of Deposit (CDs)
High-yield savings accounts and certificates of deposit, also called CDs, are financial instruments that can generate passive income through interest payments. Here’s how they work.
A high-yield savings account is a type of bank account that offers a higher interest rate compared to traditional savings accounts. By depositing your money into a high-yield savings account, you can earn interest on your balance. The interest is typically calculated and paid to your account on a regular basis, such as monthly or quarterly.
Passive income is generated as long as you maintain a balance in the account. The interest you earn is considered passive because it accrues without requiring any active effort or involvement on your part.
The interest rate offered by high-yield savings accounts can vary depending on market conditions and the financial institution offering the account.
Certificates of Deposit (CDs) are time deposits offered by banks and credit unions. When you invest in a CD, you agree to leave your money deposited for a fixed period, known as the CD’s term, which can range from a few months to several years. In return, the financial institution pays you a fixed interest rate that is typically higher than what you would earn in a regular savings account.
CDs generate passive income because once you invest in a CD, you don’t need to actively manage it or make any further decisions. The interest is calculated and paid based on the terms of the CD. At the end of the CD term, you receive the original principal amount plus the accumulated interest. You can choose to reinvest the principal and interest in another CD or use the funds as desired.
Please note: Both high-yield savings accounts and CDs have different interest rates and terms depending on the financial institution and prevailing market conditions. The interest rates on these accounts may vary over time, so it’s essential to monitor and compare rates to maximize your passive income potential.
It’s crucial to consider factors such as inflation and taxes that can impact your overall returns. Inflation erodes the purchasing power of your money over time, and taxes may apply to the interest earned, reducing your net income. Consulting with a financial advisor can help you determine the best strategy for incorporating high-yield savings accounts and CDs into your passive income portfolio.
Affiliate Marketing
The last investment idea we’d like to explain for generating passive income is affiliate marketing. Affiliate marketing can be a good source of passive income because it allows you to earn commissions by promoting other people’s products or services.
To start with affiliate marketing, you need to partner with affiliate programs or networks. These platforms connect advertisers (companies or individuals selling products/services) with affiliates (people promoting those products/services). Common affiliate networks include Amazon Associates, ClickBank, and ShareASale.
As an affiliate, you choose products or services from the affiliate program’s offerings that align with your target audience or niche. You receive a unique affiliate link or code that tracks the traffic and sales generated from your promotions.
When someone clicks on your affiliate link and makes a purchase or performs a desired action (such as signing up for a service), you earn a commission. Commissions can be a percentage of the sale amount or a fixed fee, depending on the affiliate program.
One of the main advantages of affiliate marketing is that you don’t need to create or manage the products/services being promoted. The product development, inventory management, and customer support are handled by the advertiser. Your role is primarily focused on driving traffic and conversions through your promotional efforts.
Affiliate marketing provides an opportunity to diversify your income sources by promoting different products or services across various niches. Additionally, if you already have an established online presence, such as a blog, website, or social media following, you can leverage those platforms to promote affiliate products and monetize your existing audience.
Please note: While affiliate marketing has the potential to generate passive income, it requires upfront effort to build an audience, create compelling content, and effectively promote affiliate products. Success in affiliate marketing often involves understanding your audience’s needs, choosing relevant and valuable products, and utilizing various marketing techniques such as content marketing, email marketing, social media promotion, and search engine optimization (SEO).
Passive income refers to the money earned on a regular basis with little to no effort required to maintain it. It is generated from assets or investments that have been set up to generate revenue automatically. Some common sources of passive income include real estate properties, royalties from intellectual property, such as books or music, dividend or interest income, high-yield savings accounts, certificates of deposit (CDs), and affiliate marketing.
Dividend Investing
Dividend investing is an investment strategy where you focus on investing in stocks or other financial assets that pay regular dividends. Dividends are distributions of a portion of a company's earnings to its shareholders. The goal of dividend investing is to build a portfolio of dividend-paying stocks or assets that provide a steady stream of income over time. Examples of companies with a history of consistent dividend payments include Coca-Cola, Johnson & Johnson, Procter & Gamble Co., and 3M Company. Dividend reinvestment plans (DRIPs) are often utilized to automatically reinvest dividends back into purchasing more shares of the dividend-paying stock, compounding the investment over time [[6]].
Real Estate Rental
Renting real estate properties can be an attractive option for generating passive income. By renting out residential or commercial properties to tenants, you can generate regular rental income. If the rental income exceeds the property expenses, such as mortgage payments, property taxes, insurance, and maintenance costs, you can generate positive cash flow. Additionally, real estate properties have the potential to appreciate over time, further boosting your passive income when you decide to sell the property in the future. Real estate rental also offers various tax benefits, such as deductible expenses and depreciation. While rental properties do require some degree of management, you have the option to hire a property management company to handle tasks such as finding tenants, rent collection, and property maintenance [[7]].
Peer-to-Peer Lending
Peer-to-peer lending, also known as P2P lending, is another potential source of passive income. P2P lending platforms act as intermediaries, connecting borrowers who require funds with individual lenders willing to lend money. As an investor/lender, you can generate passive income by directly investing in loans issued to borrowers. The interest rates are typically determined based on the borrower's creditworthiness, loan term, and prevailing market conditions. P2P lending platforms often provide automated loan servicing, which minimizes your involvement in the day-to-day management of the loans. By reinvesting the principal and interest received into new loans, you can compound your earnings and potentially increase your passive income over time. However, it's important to note that P2P lending is not risk-free, and there are potential risks associated with defaults, economic downturns, and platform reliability [[8]].
Royalties
Royalties can be a passive income source generated from creative work. As a creator, you can produce various forms of intellectual property, such as books, music, films, artwork, patents, software, or designs. By entering into licensing agreements with individuals or organizations interested in using or distributing your work, you can earn royalties based on the revenue generated from the licensed use or sale of your creative work. The benefit of royalties is that they can provide ongoing income for as long as your work continues to be used or sold. However, actively managing and promoting your intellectual property is important to maximize its potential [[9]].
High-Yield Savings Accounts and Certificates of Deposit (CDs)
High-yield savings accounts and certificates of deposit (CDs) are financial instruments that can generate passive income through interest payments. A high-yield savings account offers a higher interest rate compared to traditional savings accounts, allowing you to earn passive income as long as you maintain a balance in the account. CDs are time deposits that pay a fixed interest rate over a fixed period. They generate passive income as the interest is calculated and paid based on the terms of the CD. It's important to consider factors such as inflation and taxes that can impact overall returns when utilizing high-yield savings accounts and CDs for passive income [[10]].
Affiliate Marketing
Affiliate marketing is a method of earning passive income by promoting other people's products or services. As an affiliate, you partner with affiliate programs or networks and choose products or services to promote. When someone makes a purchase or performs a desired action through your affiliate link, you earn a commission. Affiliate marketing allows you to leverage your online presence, such as a blog, website, or social media following, to promote affiliate products and monetize your existing audience. However, success in affiliate marketing requires upfront effort to build an audience, create compelling content, and effectively promote affiliate products [[11]].
Please note that while these are popular passive income ideas, it's important to conduct thorough research, understand the risks involved, and consider individual financial goals and circ*mstances before pursuing any investment strategy.
