3 Steps to Generate Passive Income – Extra Ideas to Diversify Your Income

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Passive income is associated with wealth, no doubt. Finding ways to generate passive income is a top priority for every investor out there, seasoned or new. A bit of time and decent capital will ensure a solid passive income stream without too much hassle. It makes no difference if you already have a job or you’re just a retired individual trying to make some extra cash.

Unlike most expectations, passive income doesn’t mean making money without any work at all. Instead, it’s about making money with less work. According to T. Harv Eker, “you can only be financially free when your passive income exceeds your expenses.” Common sense, right? With these ideas in mind, here are a few thoughts on how to generate passive income.

Steps to generate passive income

Before digging into various strategies, it’s worth exploring the three steps to generate passive income.

  1. First, you’ll need to find a passive income stream. You may run a side gig or perhaps freelance. Maybe you want to invest. There are lots of streams out there, from small business opportunities to large projects.
  2. Second, you need a platform to match this stream. It could be anything, a bank, a mobile application or perhaps a financial brokerage company. If you sell something online, it could be a website or a selling platform. There’s plenty of effort required in the beginning at this stage.
  3. Finally, set some goals and expectations. You won’t be a millionaire overnight, but you can get a decent income after a few months of hard work.

Now that you have the structure for a plan, what are some of the best rated passive income investments out there?

Dividend stocks make a good choice

Investing in dividend stocks is basically a way to purchase a small part of a company, a publicly traded one. Such stocks often repay their owners in terms of profits, making regular dividend payments based on their success.

Most commonly, dividends are paid three or four times a year. Investors usually have two options here. One of them is reinvesting the cash and purchasing more shares of stock. The other one is simply taking the cash to spend it.

The concept behind this strategy is fairly simple to understand. It takes time, but you can build a portfolio of stocks that pay dividends. In the long run, this is one of the most efficient ways to earn passive income. It takes time, but it’s totally worth it. The best part about it? It’s not just a money making idea, but also an opportunity for capital growth.

How about dividend exchange traded funds?

A dividend exchange traded fund (also known as ETF) works on similar principles. It’s an investment portfolio that owns a series of dividend paying stocks, simple as that. You make one investment, and you gain access to multiple companies. Of course, to be successful, it pays off investing in companies with a history of growing dividends.

Just like classic dividend stocks, this opportunity brings in cash on a regular basis, as well as the possibility to expand your portfolio. It has a snowball effect overtime. The more you reinvest, the more money you’ll make. When it comes to dividend ETFs, pay special attention to management fees, as they can often be quite high for the money you make.

Is real estate crowdfunding an option?

Real estate may seem like a source of passive income, but this isn’t always the case. What can you do with more properties? Rent them out, of course, whether on a night basis or for long term stability, but less money. In theory, it sounds like a good option. 

Andrew Carnegie once said that “the wise young man or wage earner of today invests his money in real estate.” But what type of real estate? Owning and managing real estate is a good idea, but think about potential issues. A pipe breaks. There’s a leak. Damaged furniture. Tile replacement. 

Tenants who don’t pay their rent, just to name a few problems. At this point, passive income is no longer passive, as there is lots of work involved. Besides, you’ll need a good chunk of money to start. Real estate crowdfunding, on the other hand, is like investing in real estate investment trusts, which are more passive.

Purchase the securities, let someone else do the work and wait for the cash flow, simple as that. Bottom line, these are only a few good methods to start building your passive income portfolio. It’s not a thing you’ll do overnight, but something that will pay off in the long run.