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Last Updated on January 20, 2024 by Work In My Pajamas
If you want to know how to make passive income, look no further.
Passive income is something that many people strive for because it allows you to earn money while doing other things. For example, a landlord that rents out a house is earning passive income each month in the form of rent.
A plethora of methods exist that will allow you to start earning passive income, but you need to know which ones are the most effective. It’s best to have some money to jumpstart your progress, but you can start from nothing.
Keep on reading to learn about 4 ways to build passive income like a boss!
In This Post:
1. Index and Mutual Funds
When people want to know how to generate passive income, they often think they have to start a business. While this is an effective method, investing is equally as effective. One of the best ways to invest is to put money into index and mutual funds.
These hedge funds let you invest in the stock market without having to pick individual shares. If you want to invest but don’t know where to start, investing in a hedge fund will put your money into pre-selected stocks that typically gain in value.
For example, the S&P 500 is an index fund that consists of some of the largest companies, including Apple, Amazon, Google, and more. When you invest in the S&P 500, you’ll be acquiring a share from each of the 500 companies within the fund.
The main difference between an index and mutual fund is that an index fund consists of a specific group of stocks. With a mutual fund, you’d be investing in someone to play the market by buying and selling stocks.
There’s no guarantee that you’ll have positive returns, but you can expect to get anywhere between 8-10% in most cases. You’ll just have to choose whether you want to invest in a fund of pre-existing shares or have someone buy and sell for you.
2. Roth IRA
Opening a Roth IRA account is another effective investment if you’d like to earn a passive income. A Roth IRA is essentially a retirement account that guarantees a positive return of 7-10%.
The best part about this type of account is you don’t have to pay taxes on the money you deposit. However, if you decide to withdraw money from the account before you reach the age of 59 and a half years old, you’ll have to pay a fee.
As of 2020, you can deposit up to $6,000 per year. This would give you an extra $420 in the first year if you had a 7% return. As you continue investing each year, you’ll reach a point where you’re earning a liveable income from solely the Roth IRA. You’d just have to withdraw the money before you can use it.
3. Affiliate Marketing
Understanding how to generate passive income isn’t difficult, but many strategies can seem too good to be true. This isn’t the case when it comes to affiliate marketing because you don’t have to do much to start earning after you make the initial steps.
Affiliate marketing is all about sponsoring someone else’s product or service. In return, you’d get a sum of money made from transactions and traffic. For example, if you’re a social media influencer and you post a link to a company’s website, they’d give you money each time your link was clicked on.
The most important thing you have to do to get started with affiliate marketing is network yourself to others. If you use a platform that other people access, such as a blog or social media, you can start affiliate marketing.
It’s best to reach out to people in similar industries because whatever you’re advertising will be relevant to your audience. So if you run a fitness blog, you shouldn’t try to market a toy company. Ensure that your partners are relevant and keep searching for the best deals to maximize profits.
4. Start a Business
A business is one of the best assets that produce income because they’re versatile and can offer a lot more revenue than most investments. When most people start a business, their main goal is to reach a point where they can earn passive income without having to do much.
When it comes to starting a business, you have to come up with a way to solve a problem that people regularly deal with. Keep in mind that you shouldn’t build a business around something that doesn’t have a large market.
While coming up with a niche business will ensure that you start making sales, your profits won’t be as much as they could be. Before starting a business, research the market size of whatever you’re interested in.
You must also ensure that you have the funds to start because the costs are much higher than other investments. If you can’t pay out of pocket to start a business, you can opt for loans, but expect to be paying them off for a while before you start making profits.
Now You Know How to Start Earning Passive Income
Instead of wondering how to make passive income, you can start by using these methods. Whether you invest in the stock market or start a business, getting passive income will require a small investment of both time and money.
At the beginning of your venture, you can expect to make small gains that can be reinvested into whatever you’re pursuing. From there, you can continue building wealth by maximizing your profits.
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