Building long-term wealth and increasing your financial stability is key to success, and passive income can help. Passive income means earning money without having to do any work — it’s one of the easiest ways to earn money and can guide you down a path toward financial freedom.
It’s been reported that 20% of American households earn passive income either through dividends, interest, or rental properties. Among those households who do have passive income, the median amount is $4,200 per year.
If you’re already investing in the stock market, consider buying shares of dividend stocks. Some companies pay out a percentage of each share’s value either monthly or quarterly just for owning the stock. Meanwhile, the value of the stock has the potential to grow over time. You can take the dividend payments and purchase more shares of the same stock, which will further compound your money. Dividend stocks are a smart way to make an effortless passive income.
Unlike earning a paycheck from your job, owning real estate works for you. Purchasing properties to rent them creates a passive stream of income. In addition, the value of your properties could increase over time, leading to an even higher return should you decide to sell in the future. It’s worth noting that being a landlord comes with responsibilities, including but not limited to property maintenance and building upkeep. You can hire a property manager to take care of manual tasks for you to make real estate investing a true passive income.
Collect Royalties From Intellectual Property
If you’re a writer or musical artist, for example, you could collect royalties from the sale of your intellectual property such as a book or album. Each time a book is sold or your song is streamed online, you’ll earn a percentage of the sale. While it takes time and effort to create something at first, you can earn passive income from the repeat sales of your work.
Peer-to-Reer Lending
Rather than parking your cash in a high-yield savings account or certificate of deposit, you can earn a passive income through peer-to-peer lending. You’ll lend your money to small businesses or individuals looking for capital in exchange for interest payments. Keep in mind that peer-to-peer lending can come with risks so be discerning when choosing the right platform and businesses to lend your money out to.
Create a Business That Operates Without You
This may seem counterintuitive, but setting up a business that can operate without your involvement can mean lots of passive income. By hiring the right individuals, setting up the right systems, and automating as many processes as possible, you can work on growing the business and not spend time working in the business.
Buy Annuities
An annuity is a type of agreement where you pay an insurance company in exchange for periodic payments of a determined amount of money for a specified period. There are immediate, deferred and variable types of annuities that offer payments at different times. Annuities can sometimes offer high returns but be aware that they also come with risk since the payouts are determined by the performance of the underlying assets that the insurance company buys with your money.
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