Passive income that fills your own account every month in addition to your salary – a common dream. Ongoing income without having to invest time and work in the long term. Make money while doing nothing. Is this notion really true? In reality it is not that simple. Just watching the account balance increase doesn’t work. But there are ways to earn passively. We show you 12 ideas and examples of how to build passive income and give 5 tips for implementation…
What is passive income?
Passive income is a form of earning where you don’t give anything direct in return to make money. It doesn’t matter whether you ‘re travelling , doing your main job, doing sports or just doing nothing : the income flows without you actively working on it.
Passive income is earned even when you’re not working on it. You don’t have to continuously invest time and work to generate the cash flow.
Generate passive income
When you generate passive income, you create a regular cash flow without having to work permanently for it. The amount of income can vary, but you still create additional financial income without ongoing work.
Difference to active income
Active income is the payment you receive for your job. Your salary is the direct consideration for your work. You make your contribution – in the form of time, mental and physical abilities – available and are rewarded with the negotiated salary . Exact agreements are recorded in the employment contract. The self -employed typically receive a fee from the client for their work.
Build passive income: ideas and examples
The good news: You can build up passive income in a number of ways. We present 12 ways and ideas that you can use to make money in the long term without having to keep investing new work. But please remember: The options have been tried and tested, but they are no guarantee that you will soon be able to make a living solely from passive income.
With a large or many small websites on different topics, you can build passive income. The better your Google rankings for relevant search terms, the more money you make from advertising. The initial effort is high because the content has to be built up. In the long term, updates and SEO optimizations are particularly important. It is also important that there is a corresponding search volume in order to get readers to your own pages at all.
Affiliate marketing is a type of sales where you can generate passive income through commissions. A practical example: You operate a website with tests on technology and modern devices. To win the test, place an affiliate link on the manufacturer’s shop. If your readers use the link to buy the device in the shop, you get part of the sales back as a commission and thus earn money. So, the greater your reach and credibility, the better your chances of earning passive income from affiliate marketing.
3. Amazon FBA
The abbreviation stands for “Fulfillment by Amazon”. If you want to sell a product, you can do so via Amazon FBA – outsourcing the entire logistics process to the online trade. In plain language this means: You list your product on Amazon, send the goods to a logistics center and the online giant takes care of the rest. You no longer have to worry about shipping or returns. Once you have manufactured a product in large quantities, you can look forward to the corresponding passive income.
Digital work and products are almost endlessly scalable. You can offer the best advice or tuition in an area or skill – as long as you do this yourself, your income is always active and limited to the time you can invest. If you offer advice, lessons or courses digitally in the form of videos or e-learning, you can serve hundreds of customers at the same time and only have to take care of marketing and video shooting yourself.
It’s no easy task to write a good book that covers an interesting topic and will make readers want to buy it, but once completed it can generate passive income. With every copy sold, you earn more money and the possibilities are almost unlimited, not only in terms of themes, but also in terms of design and marketing.
In the digital age, e-books can be a very good alternative to classic paper books. Whether it’s advice and tips on a topic or specific information about an area in which you are an expert – high-quality e-books that you offer for download at comparatively low prices generate passive income.
If you develop a successful app, not only can you benefit from passive income, but you can make a lot of money. But it doesn’t have to be the next Instagram or Pokemon Go, even smaller apps without millions of users can build passive income. If you can’t program apps yourself, you need a partner who takes care of the technical side.
8. Advertising space
With advertising you can build passive income on a blog or your website, but you can also make money with advertising offline. For example, you can offer your car as advertising space. There are portals on the Internet where you can indicate the price you want to advertise for a company on your car and can be contacted directly by interested parties.
Whether on t-shirts, coffee mugs or as a framed picture for the wall: there are many platforms on the Internet where you can use your own designs to generate passive income. With the necessary creativity and a bit of talent, you can meet the tastes of as many customers as possible and make even more money.
The stars of the scene show that it can be a million-dollar business, but you can also build passive income on YouTube with fewer followers. Whether it’s informative videos, funny content or something completely different: As long as the number of clicks on your videos is sufficient, you will continue to make money with the advertisements placed, even if you have long since turned to something else.
11. Rental Income
A classic form of passive income is rental income. By renting out a property, you earn a fixed amount every month without having to work for it. However, sometimes there are administrative tasks that you need to take care of. Prerequisite: You need a property. This variant for a passive income is therefore not feasible for everyone.
The same applies to shares and the resulting capital gains: By investing in shares, you create passive income that you can look forward to on a regular basis. The disadvantage here, too, is that seed capital is required in order to be able to invest it. However, it is better to start early and invest in the long term through savings plans.
Passive income: imagination versus reality
Passive income is the dream of many people – no stress, no annoying colleagues, no work and still enough money in the account at the end of the month. The seemingly perfect life with lots of free time and financial carelessness. Sounds too good to be true and it is in this extreme form. The above examples also show that it is difficult, if not impossible, to earn a living solely through passive earnings.
In addition, you always have to build something that will later generate regular income. The road to get there is long, exhausting and involves a lot of work. You will not generate passive income by sitting back and waiting. It takes motivation and the necessary initiative .
The more realistic approach is to think of passive income as a source of income that initially requires at least as much work as a regular active-income job. After that, the amount of work can be reduced, but if you just lie around lazily, you’re giving in to an illusion.
Pros and cons of passive income
- Financial plusIf passive income becomes a regular flow of money, you can use it to improve your financial situation every month. Whether 50, 100 or 500 euros – you can improve your standard of living, save money or build up long-term assets with the additional money.
- Greater IndependencePassive income is not linked to fixed working hours or a specific location. Regardless of what you’re doing, you’re still generating cash flow.
- More timeThis is an advantage, but above all a long-term goal for many: If the passive income is large enough, you can eventually replace part of your normal salary – or in the best case all your earnings – with it. So you can work less, have more free time and less stress .
- Poor planningA fixed, regular salary from the employer, ideally with a permanent employment contract , promises great security. In the case of passive earnings, on the other hand, there can be strong fluctuations. One month goes very well, another very badly – and it’s difficult to estimate how things will go in half a year. This makes long-term planning difficult.
- Labor RequiredIn reality, passive is not completely passive. Especially at the beginning you have to invest a lot of time and work in order to be able to generate any income at all. In addition, there are ongoing checks, adjustments, improvements and administrative tasks.
- Risk that is difficult to calculateWith many sources of passive income, it is difficult to say in advance how successful the business will be. Is your product really selling well? Do you find enough interested parties for digital products? Will your website be a long-term success?
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Passive income tips
Now you know many different ways that you can create passive income. In addition, we have put together some tips to help you with the implementation:
- Finding a business idea
There is no silver bullet to passive income. Everyone has to find out for themselves what works for them and suits their individual situation. Do not rush into a project thoughtlessly, but think about which idea you can use to create the best possible passive income for yourself.
- Focus instead of mass
Passive income is not always a fortune, but often an additional income. In order to maximize the profit, some people think of combining as many variants of passive income as possible. This is rarely crowned with success. It is better if you concentrate on a few forms of passive income, but optimize them.
- Easy Duplication
Products that can be easily duplicated and distributed are suitable for passive income. After all, they want to put in as little work as possible and still have income. This applies in particular to digital products, which is why they are preferably used for passive income.
- Sustained demand
Short-term passive income is nice, but it’s really worth it over months or even years. Sustained demand will ensure you passive income over a long period of time, which you can continue to build on.
- Controlling Passive Income
In order to successfully build passive income, you must constantly monitor whether the income is growing or at least staying constant – and if necessary intervene to achieve this. It just doesn’t work without your help.
Anyone who wants to create passive income should heed the last tip in particular: As nice as it would be to earn money by doing nothing, the reality is usually different. If you don’t get involved, you will hardly generate passive income – unless you already have the wherewithal to make financial investments and benefit from them.
Dos & Don’ts for Passive Income
You should definitely do this for passive income!
- Acquire the necessary specialist knowledge/skills.
- Calculate the initial workload.
- Think long-term as much as possible.
- Only invest money that you don’t urgently need.
- Keep earning money in a permanent job.
- Keep your projects up to date.
- Think about the taxes.
You should avoid these don’ts:
- Don’t expect miracles.
- Don’t quit your main job.
- Don’t get impatient.
- Don’t get into debt.
- Don’t be ripped off by dubious providers.
Passive income without seed capital: is it possible?
“Without the necessary start-up capital, I can’t build up a passive income…” This criticism and concern is widespread and so many do not even pursue the desire for a passive source of income. But does it really need a larger start-up capital in order to be able to generate passive income?
The clear answer is: No, it doesn’t have to be! There are opportunities and ways to earn passively without requiring any upfront investment or seed capital. Exceptions are financial investments, for example in the form of shares, real estate or personal loans, which you can grant for passive income.
How much money do you need for passive income?
Financial investments – stocks or real estate – are considered to be one of the purest forms of passive income. With a stock portfolio with a passive investment strategy, almost no further effort is required. However, the following applies here: You need a certain amount of start-up capital so that income of a significant amount can be generated. A start is made with an investment of 100 euros, but a large financial plus is not to be expected in the foreseeable future.
How much money you need depends on your goals and your expectations. A simplified example: With a dividend yield of 5 percent, you will receive a total of 50 euros in dividends on an investment of 1,000 euros in the first year. If you want to have an additional 50 euros every month, you would have to invest 12,000 euros in the example.
Beware of black sheep with passive income
Unfortunately, many black sheep who are up to mischief on the Internet also know how popular passive income is. Whether on Facebook, in pop-up advertising windows or right away on your own homepage: there are countless offers, almost all of which make the same promise: never work again, earn a fortune passively and all this is super easy and guaranteed foolproof, because absolutely nothing will go wrong can. The views are garnished with pictures of expensive cars, huge villas or dreamlike landscapes.
The message is clear: “Join in and you’ll soon be living in luxury” – only through passive income. The big secret of how this is supposed to work is then sold for a fee or offered as a subscription. A scam that unfortunately far too many people who hope to earn income without effort fall for.
Always remember: With these offers, only one person makes money in the end – the provider himself, who collects thousands of gullible people. Cheer yourself up. If it were that easy, everyone would be doing it and nobody would have to have a job anymore. And if it sounds way too good to be true, it usually isn’t.
Taxes: How is passive income taxed?
You have to pay part of the income that you earn passively to the state. Because you also have to pay tax on passive income. From a tax point of view, these are treated like other income and profits. For you, if you tax passive income, this means: As a self-employed person or freelancer , you pay income tax on your passive income. Income from capital transactions must also be taxed.
Ignorance does not protect against punishment . You must state and pay tax on your income, whether active or passive. Anyone who does not do this is committing tax fraud and must expect serious consequences.