How to Generate Passive Income
Wouldn’t you like to have money that comes to you without having to work for it? This is the essence of investing, where your money works for you rather than you working for money. It’s a dream! No, wait, it isn’t a dream! This is the reality of what investing can do for you when it goes well. So, if you want to know how to generate passive income, you have to figure out what to invest in or get professional advice on how to invest. Even when you don’t have much money to spare, you might think you can’t invest, but that’s not true. There are many ways to put your money to work without suffering the nominal rates of savings accounts. What follows is a list of ideas I’ve tried and others I’ve yet to try personally.
Types of Passive Income
- dividend-paying stocks
- p2p lending
- rental property
- commission from advertising
- credit cards/reward cards
- digital products (similar to royalties)
Passive Income Streams that Work for Us
The number one stream of passive income that works for us is number one – dividend-paying stocks. We are only at the beginning of this journey. Still, the psychological rewards of regularly seeing dividends deposited in your account help keep your motivation high, even when you don’t have many stocks at the beginning.
Credit cards/reward cards are also a high earner for us. We get several £ per month for doing nothing other than our regular spending. This is free money! As long as you pay off your credit cards and don’t let them charge you interest every month, then you’re good to go. My credit card gives me 3% cashback on fuel and rail fares – a welcome help in a country with high petrol prices.
I started my p2p lending experiments in 2006. Since then, I have had a small amount of money still in the p2p lending sphere, which has been quite successful. I’ve had no bad debts, and the rates I’m getting are around 7.5% gross. You have to declare this income on your tax return, of course.
Interest on cash also works, although with interest rates being so low in the UK, it takes a lot of work to gain a decent amount of interest on cash. We were lucky enough to get NS&I Index-Linked Certificates when they were last on sale. These pay RPI+0.5%, so you are guaranteed to make money above inflation. Sadly, these are no longer on sale, although a similar option could be investing in index-liked gilts. You can even do this through your broker with a Vanguard UK Inflation-Linked Gilt Index, which has a 5-star rating from morningstar.
Passive Income Strategies to Try
We want to try rental income from commercial or residential property. The idea of making up some slightly shabby terraced houses appeals to me – they’re cheap to buy and good first rental homes for young people, students, or singles. The problems involved would be potentially tying up thousands of pounds in a property that might not be rented out immediately. Structural problems could tie up more of your money, or you might get really bad tenants who wreck your house and steal everything! This one is not for the faint of heart.
Receiving money from royalties or selling digital products is a good strategy to earn passive income. You have to put in a lot of work at the beginning, but after that, it is just promotion and marketing to get sales. If you could create good music or write a good book, there are many ways to promote and do everything online nowadays. I’ve often thought about writing a book, so watch this space, and you might see one written by me sometime in the not-too-distant future.