Here's What It Takes to Earn $1,000 a Month in Passive Income

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People who are in good shape financially often get there by upholding smart habits, like saving diligently and avoiding expensive debt. But a lot of folks in that boat also get there by setting themselves up with various passive income streams.

To be clear, when we talk about passive income, we're talking about income you earn without doing work on a regular basis. Some people might say that taking on a side hustle is a way to generate passive income, but that's just wrong. If you're earning $1,000 a month by driving many hours for a ride-hailing service, that's hardly passive income because you're spending all of that time behind the wheel.

On the other hand, there are steps you can take to earn $1,000 a month in true passive income without working every day. But be warned -- it generally takes a fair amount of money to get to a place where you're bringing in $1,000 in passive income per month.

1. Rent out property

The average U.S. rent today is $1,713 per month, according to RentCafe. So if you want to command $1,000 a month in passive income, buying a rental property may be a good bet.

Of course, doing so is easier said than done. You'll need the cash to put down on an income property, and you'll need to be in a strong enough financial position to qualify for a mortgage on a second home (unless you can buy one outright). And then you'll need to handle maintenance and upkeep on that property (or pay someone else to).

But there may be an easier -- and less expensive -- way to earn rental income. If you have a home of your own with a separate space, like a finished basement or garage, you may be able to rent it out for income without having to invest in a second property.

Of course, the drawback is having someone sharing your living space to some degree. But it's a good option if you're interested in earning passive income and can't afford to own an outside rental.

2. Put a lot of money into CDs

With CD rates hovering around 5.00% these days, it's definitely possible to earn $1,000 a month in interest. But to get $12,000 a year in passive income, you'll need to put $240,000 into 12-month CDs with a 5.00% APY. That's a lot of cash to keep in the bank.

Another problem -- and you can argue that it's a good one to have -- is that if you start out with $240,000 in a 12-month CD, you'll eventually reach the point where your balance exceeds $250,000 by a couple thousand dollars. That means you'll technically be beyond the standard $250,000 in FDIC insurance coverage you get.

3. Assemble a large portfolio of dividend stocks

If you put together a stock portfolio that gains value over time, you may be able to sell off assets at a profit and earn $1,000 or more in the process. But if you want more of a steady $1,000 per month, then you may want to turn to dividend stocks. Although companies that pay dividends are never required to keep doing so, many have not only upheld their dividend payments for decades, but increased them.

However, to earn $1,000 per month in dividend income, you need a lot of money invested in stocks. Now the exact amount you'll need will depend on the dividend yields you're getting. But if we assume 2%, then you'll need a $600,000 portfolio to generate $1,000 a month in dividend income.

Of course, you could specifically try to chase higher dividends if you have a specific monthly income goal. But do be aware that companies that pay larger dividends aren't automatically in the best financial shape. And what you gain in dividend payments, you might lose in terms of slower growth.

You may need to start small and work your way up

The idea of earning $1,000 a month in passive income might seem nice. But it's important to be realistic and recognize that to earn that much without having to do much, you need to start off with a lot of money.

If that's not your situation, start small. A $10,000, 12-month CD with a 5.00% APY will pay you about $42 a month in passive income. A $20,000 portfolio with a 2% dividend yield will pay you $33 a month. These might seem like tiny amounts, but over time, they can add up.

And remember, if earning $1,000 per month in passive income isn't in the cards for you, there's always the gig economy. That's not the same thing as sitting back and doing nothing to earn money. But if you're willing to hustle, you may be able to boost your income by $1,000 a month through effort and hard work.

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