5 ways to generate passive income this year

If you’d like to increase your income so you can put more toward retirement, reach your savings goals faster, or get out of debt, consider generating passive income this year. Generally speaking, passive income is money you earn from work or investments that do not require your regular involvement. Generating passive income can help those who want to earn more without having to constantly work for it. To start earning passive income this year, consider the following strategies and choose one that fits your skills, availability, and interests.

For guidance on how passive income can help you work towards your financial goals, meet one financial advisor.

1. Rent out your house

Renting out your house can be an accessible way to generate passive income, especially if you have extra space or another property.

There are several ways in which you can generate passive income by renting out your home, and you can choose the method that suits you best. First, with the rise of platforms like Airbnb and Vrbo, homeowners can easily list their properties as short-term rentals. Short-term rentals can offer higher income potential than traditional rentals, especially in popular tourist destinations. Listing your property as a short-term rental also allows you to rent it out seasonally or as often as you want. .

On the other hand, if you prefer a more stable and predictable income stream, long-term renting of your house to tenants may be the better solution. In addition to the consistent income, you don’t have to worry about constantly filling bookings and selling the property. With this approach, you can either rent out your entire property or a room in your house. Consulting with a financial advisor can provide valuable insight into market trends and help you decide which rental strategy best fits your financial goals.

2. Start an online business

Starting an online business can be an effective way to earn passive income and the possibilities for your business are endless. Not only that, but online businesses typically require small upfront costs.

One option is to build an online business that sells digital products, such as e-books, courses or software. These products allow you to earn money from sales without being directly involved in the transaction process. Plus, once set up, you can sell products repeatedly with minimal extra effort.

Another way to earn passive income through online business is to use a retail model called drop shipping. This model involves selling products through an online store without handling inventory or shipping. When a customer makes a purchase, the product is shipped directly from the supplier to the customer. Platforms like Shopify or WooCommerce let you set up a drop shipping store relatively quickly and access the global e-commerce market.

3. Dividend investment

Dividend investing is a way to generate passive income with very little work. Instead, you need upfront capital to invest to make money with this strategy. Dividend investing involves buying shares in companies that pay regular dividends or portions of profits to their shareholders. This approach not only provides a constant stream of income, but also has the potential for capital appreciation as the underlying stock can increase in value over time.

Investors can potentially earn even more by reinvesting dividends through dividend reinvestment plans (DRIPs). This process automatically uses dividend payments to buy additional shares of the stock, potentially compounding returns over time. Consulting a financial advisor can help you identify dividend-paying stocks that align with your investment goals and risk tolerance. With careful selection and a long-term perspective, dividend investing can be a key component of a diversified portfolio.

4. Buy a certificate of deposit (CD)

Buying a certificate of deposit (CD) is a straightforward way to earn passive income with minimal risk. CDs are time deposit accounts offered by banks and credit unions that pay a fixed rate of interest in exchange for depositing your money for a predetermined period of time, which can range from a few months to several years. The primary advantage of CDs is their predictability; you can calculate how much your CD will earn at the end of the term. CDs are also insured, either by the FDIC or NCUA, up to $250,000, making them a very low-risk passive income strategy.

To maximize passive income, consider creating a CD ladder, which involves buying multiple CDs with different expiration dates. This strategy allows you to access a portion of your money on a regular basis, providing liquidity while taking advantage of potentially higher interest rates associated with longer-term CDs.

5. Peer-to-Peer Lending

Peer-to-peer (P2P) lending allows you to earn passive income by directly lending money to individuals or small businesses through online platforms. This method allows you to act as an ATM, offering loans in exchange for interest payments. Remember that although higher returns are possible, P2P lending involves risk as borrowers may default on their loans.

P2P lending platforms like Prosper and LendingClub connect investors with borrowers so you can choose loans that match your risk tolerance and financial goals. Before you get started, research and choose the right P2P lending platforms. Each platform offers different levels of borrower control, loan types and interest rates, and thorough research can affect your returns.

Talk to a professional

While earning passive income can help you achieve your financial goals, it is only one piece of the larger financial puzzle. Talking to a financial advisor can help you align your passive income strategy with your overall financial strategy. A financial advisor can offer personalized advice taking into account your unique situation, risk tolerance and long-term plans.

Whether you’re new to investing or have an established portfolio, an advisor can guide you in choosing the right mix of income-generating assets such as dividend stocks, bonds, real estate and other investments that match your financial goals. They can also advise you on managing any income earned from investments and other passive income strategies. They will consider tax implications and help you adjust your approach as your life circumstances change. Finally, they can advise on risk management techniques to protect your wealth.

Bottom line

Creating passive income is a powerful strategy for building financial stability and achieving long-term wealth. By exploring different methods, such as dividend investing, peer-to-peer lending, and starting an online business, you can create multiple streams of income that require minimal ongoing effort. Each method has unique benefits and risks, so consider your goals and risk tolerance when deciding which options to pursue. If you get stuck, consulting with a financial advisor can help you decide which investments to pursue and create a plan for managing your growing income.

Tips for financial planning

Whether you’re trying to save for retirement or find ways to earn more passive income, a financial advisor can have the expertise to help you achieve your goals. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors serving your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you’re trying to make sure you have enough money saved for your golden years, consider using a retirement calculator.

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