Passive income is an important pillar of financial freedom What’s better than working for your money? Making money without continuous effort! Passive income refers to money you receive without having to actively perform a job to get it. The idea is to do something once, or make an initial investment and continue to receive money for it long after the effort is done. One of the most familiar types of passive income are royalties from a photo, buy-to-let properties and financial investments.
However, there’s plenty more where that came from. Generating passive income in the UK is a key part of achieving financial freedom, so let’s dive into the basics.
What is passive income?
At its simplest, passive income is a revenue stream that continues to payout after the work is done. Usually, you will need some effort or money to ‘grease the wheel’ at the beginning, but the idea is that it continues to pay out over the long-term without needing you to work all the time.
While you may well have a talent you can capitalise on, many other passive income streams will also need a little up-front investment. And there’s always some risk attached, as there is with anything rewarding. All the same, they can be a gamechanger in your financial strategy and wealth growth when done right.
Active employment has a ceiling. There’s only so much you can do day-to-day to generate income, no matter what your talents. At most, you can carry a regular 9 to 5 and a side hustle. This is the key benefit of passive income- it’s working even when you’re sleeping or busy at work. Some people even manage to leverage enough passive income that they don’t have to work actively again! While that may seem like a pipe dream for now, there’s plenty you can do to actively begin to open passive income streams and grow them over time.
Passive Income Ideas
Best Passive Income Stream You Can Create: Long-term Investing
Traditional savings accounts pay you interest to leave your savings in the bank. While this was once a valid way to generate some income on your money, inflation and the slow erosion of your buying power over time means what little interest banks offer you get eaten up.
You can leverage larger sums for better interest through fixed-term accounts. These savings vehicles will lock your money away for a set period of time, however, rates increase with the length of time you commit to. You cannot get this money back until the end of the period.
Looking to the stock and bond markets, however, is the real way to get an inflation-busting rate of return on your investment. For those who want a truly passive- but not necessarily optimised- investment strategy, there are robo-investor accounts. Here you can set aside the money to invest, and allow algorithms to pick stock and index choices based on your investment profile. This is truly passive investing.
For those who would like to more proactively grow their money over time, there are online brokerage accounts. Here you can select your own ETF, index tracker, mutual fund, and stock picks, allocate your funds as you desire, and rebalance your portfolio for growth as you choose. Over time, you can add more funds to the account. While this is a more active investment approach, it can also be more satisfying and open up more growth potential. Through wise investment in financial products that appreciate with time, you can grow your capital at inflation-beating return rates and work towards long-term financial freedom.
You can also choose to seek out established dividend-paying company shares and ETFs. While they may have smaller growth potential than growth-focused non-dividend paying companies, they will pay out a set portion of the company’s profit at regular intervals. Based on how many shares you hold, the capital will appreciate over time too.
You need to do your due diligence when investing in the stock market based on your risk appetite.
Of course, investing is not the only passive income you can generate, although it’s the simplest and most time-tested. Let’s take a look at the other passive income streams to consider.
E-books
If you have a talent you can leverage that will generate royalties or long-term repeat sales, you can create a passive income stream from it. Can you create a helpful e-book?
Writing and publishing a book is definitely an ambitious project, but it can pay off in spades when it comes to generating passive income. You can explore many different publishing platforms. You can then use your book to promote yourself as an expert in your field and earn passive income from your e-book sales.
Stock Photos
Do you have a passion for photography? With websites like Shutterstock and iStockPhoto, you can make money off of your photos. You can license your images to be used by a wide array of different companies, or individuals. Obviously, the only catch is that you need to take the photos yourself.
Stock Videos
If you have a talent for making impressive videos, you may be able to turn that skill into some extra cash. There are many websites out there that will pay you for useful or interesting videos. Websites like Adobe Stock and Istock will pay you for creating stock videos that can be licensed out for other websites or advertisements.
Create an Online Course
There are so many people who have knowledge, skills, or expertise that other people would love to learn from. By creating a useful online course, you’ll be able to teach other people and make money at the same time. You can use websites like Udemy or Teachable to get your course online or put it on your own website if you want more control over how it looks and how you’re promoting it.
Real Estate Investment
Real estate is one of the oldest forms of passive income. Rental income remains a cornerstone of the passive income market. Buy-to-let properties are purchased to let out in order to produce a rental return. It can also grow in value, producing a capital gain when you sell.
No-code Apps
The process of hiring a programmer or learning how to code and build an app is time-consuming and expensive for most solo entrepreneurs. No-code app builders are the easiest way to build a mobile app. If you have a great idea for an app, you can utilize no-code app builders as a way to make money passively.
They require no coding experience and allow you to create an app with just a few clicks. These tools make use of visual builders that allow you to drag and drop elements to create your app.
Blogging
Blogging is the act of regularly creating new articles for your own website where you share your knowledge and experiences with a specific audience. It’s the perfect opportunity for you to write just about anything, from your passions to your area of expertise. If you have something valuable to share, other people will want to read it.
You can monetize your blog by displaying advertisements or sharing affiliate links. Blogging is a great way to create a passive income because the money is earned passively as you provide your target audience with valuable information.
Conclusion
Everyone who is trying to achieve the goal of financial freedom knows that the answer is to work smarter, not harder. There will always be a ceiling on how much income you can generate through active, engaged work. Generating passive income that will work for you even when you can’t is one of the smartest strategies at all.
Are you keen to get started on your passive income journey? Diversifying the income streams and building a strong online investment portfolio are great steps towards ongoing financial freedom. So why not take your first steps today?