Passive Income Ideas to Help you be Financially Free
Whilst it is important to work hard to help build your income, it is just as important to think about how you can make your money work hard for you. If you look at many of the wealthy people in the world today, the vast majority earn money without them having to work a 9 to 5 job. Whilst we can’t all risk it all to start out our own venture, we have put together some ways you can start earning passive income while you work.
Many of these ideas will require effort to do the right upfront research and have varying degrees of risk. Our suggestion is that if earning passive income is a goal of yours, then to try a couple of ideas that sound interesting to you based on your risk appetite. Try to generate small amounts of income coming in from a few different sources that over time you can build on. If you keep at it, you may find yourself being able to fund your lifestyle without having to work. Now isn’t that the dream…
- High interest savings account– putting money into the high paying interest account is a quick and low risk way of earning some extra cash. Whilst in this low interest environment it definitely won’t be life changing, it’s a good place to start. Sprive recommends that you have at least 6 months of emergency cash that is easily accessible in a high interest savings account.
- Investing– this is the most accessible form of passive income and there are many different forms with varying risk and potential for return. If this is something you would consider, then it’s important you know your risk appetite, as while more risk means greater upside it can also mean that you could lose more money too. If you don’t understand a financial product, then do get independent financial advice before you buy. There are also robo advisors now available like Wealthify, Nutmeg and Plum that may be an option for you.
Here are some options which have different levels of associated risks.
- Tracker funds, exchange traded funds (ETFs), unit trusts, investment trusts, real estate investment trusts (REITs) – investments that are made of a number of different investments and therefore passive in nature as return is based on the performance of the overall portfolio. With this option you do not have to concern yourself with knowing when to buy and sell individual companies. These can be held in a tax friendly ISA and with the UK allowance being £20,000, that can be plenty if you can afford to do this each year.
- Dividends– investing in high dividend stocks or via a fund / trust, you can earn a sizeable amount of passive income over time. Whilst it requires some research you can select assets that have a proven track record of paying dividends (distribution of a company’s profits). You can also build a portfolio that pays dividends at different times in the year. Depending on the investment, you can reinvest the dividend to buy more shares to build up the portfolio.
- Bonds –you’re essentially lending your money to governments or corporates in return for interest. With bond investing, you earn passive income in the form of a coupon at a predetermined rate.
- Venture Capital Investments (VCTs)– this is high risk investing that could earn you supernormal returns. These alternative investment funds are investing in small businesses which are not listed that have high growth potential but also an increased likelihood of becoming insolvent. VCTs offer a 30% tax rebate for investing and your money is locked away for at least five years to benefit from income tax relief. An additional benefit is that you pay no capital gains tax on profits.
- Purchase property– earning rental income is another option to how you can earn passive income. There is effort involved in making sure you find the right property, you choose reliable tenants and keep the property well maintained. There have been changes to the tax relief you can receive on mortgage interest, so it may make sense for you to setup a limited company. It is important that the rent covers the mortgage and maintenance costs on the rental property. If unsure on whether this makes sense for you, we suggest you get financial advice.
- Peer to peer lending– banks lend money so they profit from charging interest. You can do the same through companies like Ratesetter, Funding Circle and Zopa. The money you lend will be matched against a number of people who want to borrow, who may not qualify for traditional loans at banks. There is a risk of default, so it’s important you understand the risks but you can earn up to 6.5% return. Money Saving Expert have a good article on this, if you would like to learn more.
- Pay off your debt– start off paying off the debts that are charging you the highest interest rate first. This will avoid interest building on those debts, which will allow you to have more cash, thus reducing your expenses and is the equivalent of creating passive income. If you just have your mortgage outstanding, please read our article on the benefits of paying off your mortgage early here.
- Cash back on credit cards– these credit cards pay you every time you spend on them and can save you £100s a year. Some of the top paying cashback cards can pay up to 5% as part of their introduction offer. Just try and make sure you don’t overspend and that you are able to pay off the balance at the end of the month.
- Buy a business / silent partner– purchasing an existing business already making money is one way of generating passive income without having to put the effort or risk by building it from scratch. It is important that you have an accountant to look over the financials before you purchase and that you are confident that you have the skills to keep it going. Purchasing an online business is even easier to acquire and could be a more cost effective option. If you know a successful business looking to raise capital, then you could offer cash for equity so that you don’t run the day to day, but can share in its profits.
- Buy a blog– if you do your research you can purchase a blog that is already making money. You can then take over the blog yourself or hire someone to write the content outside the UK. For example in India you can hire content writers for just 2 rupees a word. Just make sure the blog you purchase has at least 10,000 visits a month, with half of those coming from search engines. The blog should at least be a year old and there should be scope for you to improve it. You can sites like Flippa to purchase an online blog.
- Be a referral source– this is where the power of your network comes in. Make a list of all the small businesses you use that you recommend and reach out to the owners to see if you can agree a cash referral offer. Then be ready to suggest them to friends, family, colleagues, friends of friends, so that you can earn a referral fee just from being helpful. This works well with accountants, electricians, plumbers, architect, builders, mortgage advisors and the list goes on.
- Rent out your driveway– if you happen to live in an urban area that is walking distance from a train station or an airport, then this might just be the option for you. You can earn up to £200 a month by letting out your unused parking space with online sites like JustPark and Your Parking Space.