Active and Passive Income Streams

There are two types of income streams, active and passive. Your business is most likely using an active income stream. This is where you do some work or provide a service, and someone pays you for it. Very simple and a direct connection between the work and payment.

Passive income is where the income is not directly tied to the work you do. Don’t be fooled. Although it says passive income, there is still work required to generate the revenue. It doesn’t come for free. In general, the work needed for a passive income stream takes place early on, and the income comes later.

An excellent example of this is an online store. The work at the beginning is to build the website, upload your products, and then promote them. The passive income comes later as people begin to buy products from your store. It’s passive, as people can even buy products when you are asleep!

Teach online courses or sell instructional e-books

If you like the idea of teaching, but don’t have the physical space to host events or don’t like the idea of traveling, you may want to consider taking that curriculum online.

There are lots of sites online where new artists are looking to expand their knowledge by either watching video tutorials or downloading instructional books from professional artists.  Just about anyone with an artform can benefit from teaching classes online. Or, if you don’t want to be an on-screen personality, an instructional ebook is another way to create an educational resource to add to your passive income as an artist.

Don't know where to get started? Consider if you want to self-host your content or upload it to an established site like Skillshare. 

There is some cost/benefit analysis to be made: self-hosting may be a greater investment up front, but you don’t have to pay commission on every enrollment. However, brands like Skillshare bring in large audiences and have the time and resources to market their courses. Marketplace options like Skillshare won’t charge you up front but will pay a royalty on your courses.

And, don’t forget that with tools like Instagram and Facebook Live you can start building a following for your courses and test-drive ideas for classes or tutorials.

For artists that prefer writing, there are an endless amount of guides you can create for download. Check out these 32 places to upload your ebook and get started. If you are computer challenged or not design-inclined, you can always download an ebook template!

The benefits: Passive income as downloads for e-books or enrollment in an e-learning course. A chance to build your brand and grow your name. Opportunities for cross-promotion with your other income sources: prints, artwork, workshops etc.

The drawbacks: No face-to-face time with your students. No real control over the skill level/experience of your class. Better for the tech-savvy crowd.

Video

Profit Income

By selling a service or product for more than they cost, you use the basis of profit income. You could open a retail store and sell products, offer professional services and charge for your time, or combine the two.

It is one of the hardest steps to move from earned income to profit income, but it is the dream of many employees. Becoming self-employed or an entrepreneur can be a difficult road, and there are risks. 

Hire the right advisors

A solid personal recommendation is only the first step in finding the right advisors. Whether you’re looking for a financial or business advisor, check his or her online reviews, ask for references, find out what type of advising a candidate specializes in and do your homework. Look to see if your advisor has a certified financial planner (CFP) certificate and ask what industries his or her clients come from.

Related: 8 Money Mistakes to Avoid on Your Way to Being Wealthy

3. Start An eCommerce Business

If you have a little cash laying around for inventory, and you like the idea of selling physical products, you could start an eCommerce business.

Though, before we go any further, seeing how Be The Budget is a debt-free blog, we do not recommend going into any kind of debt to start any of the income streams on this list. Remember, if your goal is to make more money, the last thing you should do is take on debt.

Ok, now that I’ve gotten my debt-free spiel off my chest, starting an eCommerce business is a great way to earn some extra income. In fact, if you stick with it, this could easily transform into your full-time gig.

Like blogging, however, starting an eCommerce business can take quite a bit of time, and a whole lot of effort. But, for those that are up for a rather large challenge, this can be an incredibly rewarding path.

Offer AService

After your day job, your next step might be offering a service of some sort. This service should be based off of your skill set, your free time, and your hobbies.

A few ideas to get this started are:

  • Lessons
  • Writing
  • Resume Help
  • Coaching/Consulting
  • Tutoring
  • Babysitting
  • Social Media Management

There are both pros and cons to offering a service. The big pros are that you get to set the hours, choose the pricing, and pick the service. The cons are that it can take time to build up clients and that you’re still trading time for money.

We have a ton of other ideas for service-based side businesses here.

10. Teach Music Lessons

Do you know how many people want to learn to play an instrument? While I can’t give you an exact number, I can tell you it’s a lot.

So, if you know how to strum some chords, tickle the ivory, or play any musical instrument at all, I highly recommend teaching music lessons as a way to earn some extra income.

In fact, if you like the idea of teaching music lessons as a way to diversify your income, you should check out my previous post: How Much To Charge For Music Lessons. You might be surprised how much money you can charge as a music teacher, as well as the different options available.

Rent out your property

In a best-case scenario, you’ll get to enjoy additional income without having to work too hard for it, which is why so many people invest in rental properties. Being a landlord is expensive, but once you own the property, there’s often very little work required to cash rental checks each month. 

Even if you don’t have the money to invest in a home, you can diversify your income by getting creative and renting out other property you own, like a storage locker, parking spot, or even your car! 

There are opportunities to make money everywhere, whether that’s through an online marketplace, on a gig app, or in your local neighborhood. If you’re interested in learning more about how to diversify your income in the gig economy and which gig apps to join, you can check out our other blog posts and sign up for our newsletter for the latest updates!

Which passive income source is best?

The question of which passive income source is best depends on several factors, but some of the most important include the amount of money you have to invest, the total opportunity size, your interest and ability in the area, the amount of time you need to invest and the potential to succeed. Typically, the lower the barriers to entry, the more crowded the field of competitors and the lower likelihood of success.

So you’ll need to weigh the opportunity against these factors and see which passive income strategy works best for you. But it can be helpful to have natural ability and an interest in your target area, because these can help motivate you in the early days when things are likely to be tougher.

There are passive income opportunities for people who are starting out with some money and even those who have no money to start.

How can I make passive income with no money?

If you have little or no money to start, you’ll have to rely mostly on your own time investment to power you through, at least until you build up a little money. That means focusing on passive income sources that take advantage of the following traits:

  • An area where you’re an expert. Here you can build your expertise out into a useful product or service for consumers, e.g. design, software coding and others.
  • An upfront work-heavy opportunity. You’ll need an opportunity that requires a time or work investment, such as creating a course, building out an influencer profile or other options.

In effect, you’re substituting your time for your lack of capital, until you can get enough capital to expand your set of opportunities.

How can I make passive income with money?

Money can provide you with more passive investment opportunities. If you have money to invest in a passive opportunity, you have not only the opportunity set above but a new range, too. Money is a prerequisite for taking advantage of the following passive income areas:

  • Investing in dividend stocks or REITs. Investing in stocks means you need money upfront, but you’ll receive some of the most passive forms of income around.
  • Save with bonds or CDs. Other purely passive activities include buying bonds or CDs.

Here you can use your money to make money with little or no effort on your part, if that’s what you’d like to do. Of course, you could pair your money with a lot of time investment to move into an even more lucrative niche, too.

Start a side business

One of the safest ways to diversify your income is to create a side business or freelance service. Strategize your choice of a side business by treating it like an apprenticeship. Even if you just want to mow lawns and do some gardening on weekends, use these jobs as an opportunity to figure out how to squeeze in some small business bookkeeping, work on your marketing skills, and upsell clients.

A side business takes some hustle, but treating it like an entrepreneurial pursuit can pave the way for you to continue earning additional income whenever you need it.

Related: 105 Service Business to Start Today

What You Can Do to Diversify

Web-based businesses are a low-cost way to build passive income. Creating your own website can generate passive income from advertising, referral fees, and the sale of products or services. Platforms like Shopify make it easy and affordable for anyone to create and manage an online store. The big investment is the time it will take to research and build a plan.

Helen Buttery leads special operations for American Writers & Artists Institute (AWAI), a company that helps develop content writing and online business-building skills. "Web-based businesses can be a great source of supplemental income. You can create the site at home. Let it work while you are employed or working on other projects. The site can be on any topic, so you can pick a subject matter that matches your interests," she said in an email interview with The Balance.

"The key to success is matching your interests with a large enough internet audience and making it easy for them to find you," she said.

Freelance online

Now it’s easier than ever to take some of those talents, skills, and interests to a broader audience. Remote work has been on the rise as technology and online platforms have enabled workers to complete projects regardless of where they live. The opportunities are endless and all you need to get started is an electronic device to work on and an internet connection. 

You can take your local services online and offer them to anyone, anywhere. Teach English to kids from across the world, write articles for startups looking to expand their content footprint, and more! You have the ability to not only grow your own skill sets and freelance experience, but you can help individuals and companies at a distance. 

There are various platforms for you to consider depending on your expertise and interests. Just about anybody with marketable skills can tap into a global marketplace on platforms like Fiverr and Upwork. It’s a great way for you to pick up work whenever you want. 

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Make Prints of Your Artwork Available

Prints are a great option for customers who love your artwork and imagery, but might not be able to afford it yet.

On the other hand, prints are great for artists because it allows for passive income for your business. This means that you do the majority of the work up front and then continue to get money through print sales. Of course, it will require some occasional ongoing promotion on social media to keep the sales up, but passive income requires considerably less effort and more flexibility than creating a new, original artwork.

You can mark that you have prints available of a piece on your Artwork Archive profile, or use one of the many print-on-demand sites. Print-on-demand sites like Society6, Redbubble, Fine Art America, along with countless others, allow artists to easily print their artwork on phone cases, totes, clothing, linens, wall art and more, for a small commission fee.

The benefits: Prints and print-on-demand objects are easy to create with some work up front. You can find a new audience with prints and focus.

Having your prints listed on Artwork Archive or on a print-on-demand platform increases your exposure and new collectors might notice and reach out about custom or original pieces.

The drawbacks: There is a lot of noise on print-on-demand sites like Society6. It can be difficult to stand out among the thousands of artists and artworks. Successful artists on these sites spend a lot of time up front promoting their profiles, interacting on social media and creating unique sales opportunities. The profit margin can also be low on prints or print-on-demand objects like cards. You may have to spend money up front for the products that may only return a few dollars on each purchase. 

Tip: Be active! Let your fans know what you just posted on you Artwork Archive portfolio by sharing it on your Facebook page or Instagram profile. You can even create some urgency around your prints by doing 24-hour limited edition sales. Give your followers a heads up about when your prints will be on sale and generate a buzz around the sale for a week or so beforehand. Then, put your limited edition print (ex: 100-200 prints) up for sale.

The Bottom Line

Passive income can work for you while you sleep, and it might be a source for building wealth. A diversified income can provide some protection against losing your main job or other economic downturns.

Diversifying by adding active income, like driving for a ride-share company or taking on a "side hustle," is a way to pay off debt or save money. But it means making a time commitment. Investing in the financial markets, owning rental property, or creating a web-based business provide chances to build passive income, but be sure to do your research.

Don't let your side-income streams put your full-time job at risk unless you can survive without it.

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