6 ways to generate passive income

The allure of passive income lies in its promise of financial freedom and flexibility. This holy grail of financial freedom offers the promise of earning money with minimal effort. Of course at Citro, we know that what's too good to be true usually is. But Carolyn Tate came up with these ideas to get you thinking (and earning).

By Carolyn Tate

6 ways to generate passive income in your spare time

Who wouldn’t want to make more money while doing not very much?

It’s the dream that might sound unrealistic or the stuff of pyramid schemes, but in reality, it’s doable.

Making passive income just takes some research and planning, a then bit of time to set up and maintain. But, if done correctly, passive income earners should allow you to ‘set and forget'. And the advantage we have with a few years under our belts is that we have the knowledge, time and usually some capital to make it work.

It's important to note that extra income may affect any benefits you’re entitled to, or the amount of tax you pay.

Talk to your accountant so you can come up with a plan that works for you. You may also need to register a business before you get started, and your accountant can help you with that too.

Whether you're a creative soul, a business brain, or an investment enthusiast, we’ve pulled together 6 passive income stream ideas that could suit you.

1. Write an e-book

If you have a talent for storytelling or expertise in a particular field, you might consider writing and self-publishing an e-book.

Once it’s published and available for sale, your e-book can earn royalties for years to come. Market your book on platforms like Amazon Kindle or Apple Books, and enjoy ongoing revenue as readers discover your work.

E-books offer a lucrative opportunity to earn money from your writing. Begin by selecting a niche or genre you're passionate about and create a compelling manuscript. Once published on platforms like Amazon Kindle or Apple Books, you can earn royalties ranging from 35% to 70% on each sale.

With effective marketing and ongoing sales, your e-book can generate passive income for years.

Pros: You can tap into knowledge you already have, and do it all yourself. It’s also a one-time effort and then you can leave it up for sale for as long as you like.
Cons: E-books are a competitive market, and there are a lot out there. It can be tough to stand out, but those who do, can have sales ticking over continually – and even increasing over time. You'll also need to stay on alert for publishing scammers who promise to help you but deliver nothing.

2. Invest in dividend stocks

Investing in dividend-paying stocks allows you to earn a share of a company's profits, which are paid on a regular basis.

As you accumulate shares, the dividend income can become a reliable source of passive income.

It can be a smart choice to diversify your portfolio so you mitigate any risks, and enjoy regular payouts (usually twice a year, but some pay out monthly or annually).

Investing in dividend stocks involves purchasing shares of companies that regularly distribute a portion of their profits to shareholders. These dividend payments can provide a consistent stream of passive income, but it’s important to note they may also go down in value and not pay out anything – otherwise everyone would buy them!

Research dividend-paying companies or talk to a broker to help you decide where to invest, build a diversified portfolio, and watch your investments grow over time.

Pros: There is little to set up, and you don’t have to do anything to have income start to roll in.
Cons: Any investment comes with risk, and you may need to be prepared to ride out the lean times and wait for the market to improve – or make the decision to cut your losses and sell.

3. Buy an existing business

If you have the capital to invest, you might consider buying an established business with a track record of profitability. You can hire a manager to oversee daily operations, allowing you to take a hands-off approach while still benefiting from the business's earnings.

Pros: You will be able to inspect the books of an established business and you should have a clear picture of the sort of income it will generate.
Cons: A thriving business can be costly, so you’ll need to be willing to invest a fair amount. You will also need to work with your manager to ensure the business runs smoothly.

4. License your photography

If you have an eye for photography, you can license your images to stock photography websites like Shutterstock or Adobe Stock. Each time someone purchases one of your photos, you'll receive a royalty payment. If you have a lot of photographs, and if you’ve got images people want to buy, you can achieve a consistent flow of passive income as your photos sell over time.

Pros: Get paid for something you love to do, and that you may have a large existing catalogue of. Once you’ve uploaded the images, there’s nothing for you to do.
Cons: Royalty payments can be small so you’ll need to sell quite a few images to make a decent amount. Many business users search for images using keywords, so it may not be the most artistic images that are used, but rather, the most commercially useful (for example, someone inspecting a used car in a car yard might sell better than a beautiful beach sunset). It’s also important to mention that in this age of artificial intelligence, images can now be automatically generated to fit a brief, but at this stage, there is still a healthy market for genuine images.

5. Invest in rental property

If you’ve been watching real estate prices (or even seen the news) over the past few years, you’ll know housing is in demand – both to buy and rent. Even with prices as high as they are now, investing in residential or commercial properties can be an excellent source of passive income. Although there can be work involved in maintaining the property, a property management company can handle the day-to-day responsibilities, making it mostly hands-off. You might also want to rent out a home as a holiday destination, such as on Airbnb or Stayz. This will require more attention with cleaning and upkeep, but there are agencies that can manage this for you as well.

Pros: Owning residential or commercial properties allows you to earn rental income while potentially also benefitting from the property continuing to appreciate in value.
Cons: You will need a large amount of capital to invest, although you may be able to draw on equity in your own home. Vacancy rates in some commercial property sectors (such as office buildings) have been higher since the Covid pandemic caused many to reconsider their work-life balance and work from home. If you’re considering a holiday rental property, check the local tax implications, with some states raising the taxes on these homes to try to address the current housing shortage.

6. Create online courses

Do you have skills or experience you’ve acquired over the course of your life or career that others might want to learn from? Leverage your expertise by creating and selling online courses. Platforms like Kajabi or Podia allow you to easily build and market a course, all from your computer keyboard. You can write lessons, record videos, and create quizzes all on the platform. Once your course is developed and published, it can generate income as learners enrol and access your content.
Pros: You can make good use of what you already know, and help others in the process.
Cons: You’ll need to find a way to have your course stand out, and ensure people can see the value, in order to stand out among other course creators.

Take some time to think about what sort of passive income stream could work for you and try something out.  Incorporating one or more into your life can provide financial security that can make a real difference. Remember that building passive income takes time, patience, and persistence. By investing money, time and/or effort upfront, you can set the stage for financial success down the road, all while enjoying the flexibility of making money in your spare time.

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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