Passive Income Ideas

Passive Income is generally defined as a stream of income earned with little or no ongoing effort needed from the individual receiving the passive income in order to grow the stream of income. Passive income is income that is not proportional to the time you physically put into acquiring it. Active income (typically one’s regular job or additional part time jobs) is a direct exchange of your time and skills for money.

Examples of passive income include royalties earned from stock photography or from a digital course you create. In both cases, the content, whether self hosted or on a larger website, generally require little or no maintenance or additional financial investment to maintain the source of income.

The intriguing thing about passive income is that it can be generated literally while you are sleeping, freeing up additional time for hobbies or allowing you to increase your earnings by performing some other form of work while still generating previously established streams of passive income.

An example of this would be a person working a 9–5 office job where they are paid a fixed salary. This same person also receives regular passive income from an eBook that he wrote on gardening over two years ago. The office job requires direct effort to produce the agreed upon amount of income. The employee, whether hourly or W2, is trading their time for money.

The eBook is different. Regardless of what is going on in the office employee’s life, the book is listed for sale in its digital form on Amazon and the author does not have to perform any work (beyond the initial creation of the content) to maintain this stream of income. The employee can literally never check on that book and they will still receive their royalties, every month.

Why is Passive Income Important?

There are many articles dedicated to exploring the various ways to make passive income. But many fail to consider the underlying question — why is passive income (as opposed to active income) important?

The answer is actually a fairly simple relationship between time and money. Time is the most valuable commodity. There are only 24 hours in a day. Time is the greatest equalizer because not a single person can have more of it. It can never be recreated or re-spent. It exists once, then it’s gone. And that’s precisely why passive income is so important — because time is more valuable than money.

Unlike money, which can be earned, saved, spent, invested, squandered and lost, we can’t tuck away minutes on a clock. We can’t expect dividends on seconds or hours in the bank, or invest the time that we didn’t use on something else. Considering that most of the free world needs to work for a living, consuming much of the time they do have, this precious commodity needs to be prioritized.

Passive income is one of the most important strategies that that the rich utilize to get richer. It’s how you detach your ability to earn from the limited time that you have in a day. With passive income, you make money while you sleep. You also make money while you’re awake. It’s automatic and simply keeps coming in.

“If you don’t find a way to make money while you sleep, you will work until you die.” — Warren Buffett

However, creating a passive income stream is far from easy. It takes an enormous amount of effort and investment of your time with very little return in the beginning. It involves an overall sense of frustration and an enormous learning curve. Still, it’s one of the most worthwhile investments of your time that you could possibly engage in.

As the chart below illustrates, any amount of passive income earned is exponentially more valuable than the equivalent amount of money earned through traditional work (trading time for money).

$100 in passive income per month may not sound like a lot. However, to generate the equivalent of $100 in monthly passive income, you would need to have $30,000 invested earning 4%. This 4% return is fairly conservative when compared to the historical average annual return of the S&P 500, which is around 7% (after inflation).

What is NOT Passive Income

Some ideas commonly touted by financial “gurus” as passive income which are not actually passive income. I hate to see these ideas misrepresented as I have been involved with many of these businesses myself, and know that they are time and capital intensive.

• Vending Machines /Laundromat— I had a contract to provide food and vending services to Accenture. I purchased, managed, and restocked a number of vending machines. I can assure you that vending machines are far from passive income. You either need to spend enormous amounts of time fixing and restocking the vending machines or you need to pay someone to perform this function on a regular basis. Just because something is automatically dispensed to consumers does not mean it is passive income.
• Real Estate/Rental Properties — Real estate development, speculation, or even renting out property is not passive income. Unless you pay someone to manage your properties every month, you will be responsible for a wide range of tenant issues. And if you’re paying a person or company to mage your property, this is no different than any other traditional business.
• Paying off Debt — While it is a good idea to pay off high interest debt, this is often falsely classified as passive income. Paying off debt offers little in the way of systematization, scalability, and unlimited income potential.
• Raw Land Flipping — I am still shocked when I see other authors include this on their list of passive income ideas. Raw land flipping (or renting) is not only extremely difficult, but it requires a ton of active effort on the part of the owner.
• Refinancing Mortgage — Like paying off debt, this is potentially a good idea (depending upon interest rates, market conditions, and your opportunities to invest in certain ventures). However, this is by no means passive income. It cannot even be classified as income, let alone passive income!
• AirBNB/Rideshare — While renting out unused space in your house or driving your car for Uber can be profitable, both of these ventures require active effort. Uber is especially time intensive and requires drivers to work 60+ hours per week to scrape by in many cities. There is also the additional maintenance and depreciation that occurs when you drive your car more than you normally would. While some of these costs may be fixed (car payment, insurance, etc.) the additional wear and tear on your car can be devastating to people who rely upon their car for day to day transportation.

What is Considered Passive Income?

So if the ideas above are not considered passive income, what are some examples of true passive income streams?

For the purposes of this list, passive income ideas must meet the following criteria:

Recurring Payments — Passive income is income that requires no effort to generate on a recurring basis.

Systematization — Passive income streams must be derived from a systematic process. The ability to develop and perfect these processes is a key element of passive income.

Automation — The ability to outsource or rely upon automated systems allows passive income streams to remain truly passive.

Scale and leverage — After establishing a system that successfully generates income, this system must be able to be grow quickly, through the introduction of automation and other methods that allow you to scale a process.

Income Potential — Passive income cannot be constrained by the total potential income it generates. This is one of the basic qualities that separates passive income from a traditional salaried job.

• Vending Machines /Laundromat— I had a contract to provide food and vending services to Accenture. I purchased, managed, and restocked a number of vending machines. I can assure you that vending machines are far from passive income. You either need to spend enormous amounts of time fixing and restocking the vending machines or you need to pay someone to perform this function on a regular basis. Just because something is automatically dispensed to consumers does not mean it is passive income.
• Real Estate/Rental Properties — Real estate development, speculation, or even renting out property is not passive income. Unless you pay someone to manage your properties every month, you will be responsible for a wide range of tenant issues. And if you’re paying a person or company to mage your property, this is no different than any other traditional business.
• Paying off Debt — While it is a good idea to pay off high interest debt, this is often falsely classified as passive income. Paying off debt offers little in the way of systematization, scalability, and unlimited income potential.
• Raw Land Flipping — I am still shocked when I see other authors include this on their list of passive income ideas. Raw land flipping (or renting) is not only extremely difficult, but it requires a ton of active effort on the part of the owner.
• Refinancing Mortgage — Like paying off debt, this is potentially a good idea (depending upon interest rates, market conditions, and your opportunities to invest in certain ventures). However, this is by no means passive income. It cannot even be classified as income, let alone passive income!
• AirBNB/Rideshare — While renting out unused space in your house or driving your car for Uber can be profitable, both of these ventures require active effort. Uber is especially time intensive and requires drivers to work 60+ hours per week to scrape by in many cities. There is also the additional maintenance and depreciation that occurs when you drive your car more than you normally would. While some of these costs may be fixed (car payment, insurance, etc.) the additional wear and tear on your car can be devastating to people who rely upon their car for day to day transportation.

Comprehensive List of Passive Income Ideas

1. Stock Photography

Do you like photography? Do you have a smart phone with a camera? If so, you may be able to convert your photos into a passive income source.

Photography websites such as Shutterstock provide you with platforms to sell your photos. They may offer either a percentage or a flat fee of each photo that is sold to a site client.

In this way, a single photo could represent a passive income opportunity, since it can be sold again and again, without any additional effort after initially uploading the photo.

You simply need to create your photo portfolio, upload images to the photo platform, and then the activity becomes completely passive. All the technicalities of photo sales are handled through the web platform. You simply collect a check (or PayPal payment) each month for the royalties you receive on your photos.

What’s the Catch?

When evaluating any passive income idea, it’s important to look for any unforeseen costs or roadblocks. When it comes to stock photography, it used to be extremely expensive to own professional photography equipment and time consuming to upload photos.

Now, with smartphones having such sophisticated cameras, it is possible to submit photos from your day-to-day life which can be licensed as stock photography.

This has both lowered the barriers of entry while also increasing the competition among photographers.

However, no longer needing expensive photography equipment has largely outweighed the increased competition, in my experience.

There is such a large demand for stock photography of virtually everything that you do not need “stunning” photos of exotic places to get downloads. In fact, some of my best photos (taken with a professional high-quality camera) have never even sold once, while random photos snapped with my iPhone have sold multiple times!

As I’ve learned, focusing on niche content and keyword tagging to boost photo visibility in various search engines is more important in stock photography than spending hours getting the perfect shot.

To be clear — that’s not to say that time consuming and ultra high quality photography isn’t worthwhile. They are just not as efficient to sell on most stock photography sites. Images taken using professional equipment need to be sold directly to marketing agencies and end users to receive fair payment.

Below are some examples of photos taken with an iPhone that I was surprised to see outselling some of my “better” photos:

Even in a category as saturated as “pink flowers” this image sells consistently. 

Images of everyday objects (such as money) are utilized by bloggers to add color to their articles. 

2. Write an eBook

There are three primary methods through which entrepreneurs can make additional income with an eBook:

1. Submitting an eBook file to a Major Platform (i.e. Amazon KDP)
2. Self-Hosting and Selling Your Own eBook
3. Utilizing Service That Converts eBook Files to Physical Books (i.e. CrateSpace)

In all three processes, the key to generating passive income is the fact that you can upload a digital version of your book once, and then you receive subsequent payments or royalties for a copy of this work. You are not responsible for marketing the book or processing the actual transaction.

Amazon (or other large book retailers) provide this function. While Amazon does take a 30% commission on most books, this is a reasonable fee as it allows writers to focus on writing more content, and spend less time worrying about running an eCommerce store.

What’s the Catch?

For many, writing their first eBook can be daunting. It’s one thing to make a series of witty posts; but writing a whole book can feel quite overwhelming.

Keep in mind though that you can always start by writing under a pen name and that eBooks do not need to be as long as traditional print books, to be successful.

Learn More

If you want to learn more about passive income produced through eBook creation and sales, below are two article that explains the process in more detail:

3. Creating an Online Course

If you consider yourself an expert on a particular topic, digital products are a great way to package that information and sell it to others looking to learn.

If there’s an abundance of free blog posts or tutorials on YouTube about what you’d like to teach, you can compete by delivering content that promises not education but transformation. In other words, don’t sell the product — sell the customer’s own potential after buying your product.

Similar to eBooks, online courses are another great source of passive income. While not quite as easy as eBooks to produce, online courses rely upon the same concepts:

1. Upload useful digital file to major hosting site
2. Allow consumers to download product for a fixed royalty
3. Collect royalties.

Unlike most eBooks, online courses are unique in that they can be sold at a much higher margin than most digital products.

There are (valuable) online courses that cost thousands of dollars. However, the principle remains the same — create valuable content once, and then focus on organizing and selling it to as many people as possible, through an automated process.

Some of the major platforms for online courses include:

• Gumroad
• Thinkific
• Podia

Below is an example of two courses that I created. The first is my Medium Writing Course and the second is my  Substack Newsletter Course: