This guest post of courtesy of my blogging friend Michael, who blogs over at Stretch a Dime. Enjoy!
Some years back, I bought a young lime plant, and planted it in my backyard. I spent a good amount of time taking care of it when the plant was young. In a few years it grew to become a decent sized lime tree and started producing lime.
My daughter and I would go and harvest the lime. We would make fresh limeade and my family would enjoy it. Every summer, we would harvest literally hundreds of lime. We would give away some of the produce to our friends.
When the lime plant had grown into a tree, I didn’t really have much to do in terms of taking care of it. We spent more time harvesting lime and enjoying the limeade.
Passive income is very similar in nature. Initially, you may need to put in some work. Once the initial work is done, there is a point at which it will start paying off like the lime tree. Month after month, year after year, the passive income stream you have created will provide you income. Let us look at some ways you may be able to work to increase your passive income.
Passive Income from Dividend Stocks or Dividend Stock ETFs
By far, the easiest way to earn passive income is through investing in divided stocks. Basically, you buy a stock that has been paying dividends and has also been consistently increasing the dividend payout on an annual basis.
Let’s just say that you purchase 100 shares of ABC Corporation at $10 that pays 2% dividend. Your total investment is $1000. You set up for stock dividends to be reinvested automatically into ABC Corporation. ABC Corporation’s stock price increases 5% every year and they increase their dividends by 5% every year.
Over a ten year period, your original investment of $1000 would have grown to a total of $1986. Bottom line, your original investment of $1000 has nearly doubled over the ten year period.
You literally had to do nothing after you invested the money. Stock value appreciation, dividend, and dividend reinvestment did the magic for you.
Your money almost doubled in the ten year period, without no effort on your part. How cool is that?
Honestly, I know of no other passive income opportunity that is as easy as dividend stocks to earn passive income.
Buying individual stocks is risky and maintaining a portfolio of dividend stocks is a mammoth effort. If you are starting out, the easiest thing to do is to invest in a market index tracking dividend ETF like Charles Schwab’s SCHD (seeks to track the Dow Jones US 100 Dividend Index) that has an expense ratio of 0.07% or Vanguard’s VIG (seeks to track the NASDAQ US Dividend Achievers Select Index) that has an expense ratio of 0.09%. Both are excellent dividend ETFs.
Top recommended books on dividend investing:
The Dividend Mantra Way: Achieving Financial Independence By Living Below Your Means And Investing In Dividend Growth Stocks
Dividend Growth Machine: How to Supercharge Your Investment Returns with Dividend Stocks
*ETFs referred here are strictly meant for educational purposes only. Please consult a finance professional before making any investment decisions.
I go to a dentist who provides excellent care. The entire staff is very polite and they are very upfront and honest with their billing and it is just an extremely comfortable environment to be in. The dentist provides $25 for any new client referrals.
When I was with my friends, I casually mentioned that I know a good dentist. Immediately, a few of my friends gave him a try and became clients. I started receiving $25 gift cards for each client I had referred. It was fun receiving gift cards in the mail to our favorite restaurant.
The simple truth is you know people in business who are really good at what they do. Businesses rely on referrals. Here is a simple thing you could do. Make a list of businesses or services that you really like and check if they offer any incentive for referrals.
Whenever a friend or acquaintance mentions a need, share your experience and recommendation. Your friend is happy because he or she does not need to go searching for the service, the service provider is happy because of the business coming their way, and you are happy because of the dough coming your way.
I have referred a day care, apartment complex, dentist, gym, personal trainer, and the list goes on. Easy money with literally little effort on my part. Of course, this is a side gig for me. How far you take it is totally in your hands.
Top recommended book on passive income sources: The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich
Rent Out Your Spare Room
Do you have a spare room available in your home? Have you considered having a tenant? Several years back, my wife and I lived in a home where we had a spare room that we seldom used. My wife had a coworker who was looking for a place to stay and she was in our town on a short term assignment for six months. We offered her the fully furnished spare room.
My wife’s coworker was happy because she was getting a free ride to work and back and a fully furnished room and safe place to stay at. We were happy with the $600 we were receiving per month as rent. It was a win-win situation.
We didn’t have kids then and we were okay with having a tenant at that point in time.
What I will say is that you will lose some level of privacy. If you can cope with that, and you find a decent guy or gal willing to rent your spare room, that’s easy money.
There are so many ways to earn passive income and I just pointed you to three simple ways in which I have personally earned and continue to passive income.
A Note from Laurie
Another somewhat form of passive income is through blogging. Like with other forms of passive income, blogging takes a lot of work in the initial months as you focus on growth of readership. It also takes work to continue producing valuable content, unless you use some of your income to hire staff writers and a blog manager. The thing about blogging is it’s easy and inexpensive to start a blog. The initial monetary outlay is minimal and if you find it’s not for you, no big loss.
Right now I’m making over $15,000 a year working part time from home via blogging. The many ways I make money blogging ways I make money blogging include several forms of passive income. If you love to write and have a message about life you want to share for others, then blogging might be a great form of eventually-passive income for you.
What steps are you taking to earn or increase your passive income today? What is your favorite source of passive income? If you are not currently earning any passive income, what is the one way in which you plan to start earning passive income in 2017?
Author Bio: Michael is the author of Stretch A Dime personal finance blog where he writes on Personal Finance, Investing, and Frugal Living. He is the author of the book “High School Money Hacks”.
Dividend paying stocks and interest bearing bonds are fabulous ways to increase income. There are really great stocks that pay 4-5% dividend like AT&T, Lockheed, Altria. As the stock price increases the yield does go down, however, if you buy at a price off the high, you lock in a dandy yield and many of those stocks are blue chip with a very high safety rating. We don’t buy any stock that doesn’t pay a dividend, and years back when the market took a big tumble, we sat tight on our holdings and those dividends just kept rolling in. We currently receive a dividend nearly every week of the year. And dividends also have a lower tax rate than the interest on bonds…..at least for the time being.
That’s great Kathy! If you can manage a portfolio of individual dividend paying stocks, re-balance your portfolio to adjust for drifts and maintain your asset allocation at desired levels within your dividend paying portfolio, that’s awesome.
If at some point you prefer an easier alternative, you could look at low expense ratio dividend ETFs that seek to track a benchmark.
It’s such a good idea to have some type of plan B with income. I blog and speak to help earn passive income, but am still looking for the best way to add additional sources. I believe the key is to find something you enjoy, so it doesn’t become a chore/task and it balances with all the other things you have going on.
Hi Brian, The lazy couch potato approach to earn passive income with as minimal effort as possible is through dividend income from stocks. Honestly, I know of no other way that is easier.
I see your point with regards to something you enjoy. The beauty of earning dividend income is that you don’t even have to like this approach. The time required is so minimal if you do it the right way. I think everyone should have dividend income from stocks as a stream of passive income.
I’m totally in agreement about the dividend income. It’s provided us with the cushion we need to retire without worry. Having several streams of passive income is the best approach because if one of the wells goes dry you have others to rely on.
I couldn’t agree more, Mrs. Groovy. The more streams of passive income, the better.
Man, I had completely forgotten about referral bonuses. I do that for my Google Fi account to decrease my cell bill–I didn’t think about trying it for other services I use. Thanks for the tip!
I like to bring in extra income through freelancing. The downside is that it’s not passive income at all, but it’s a good way to use time I would have otherwise spent watching TV or playing video games.
You are welcome, Mrs. Picky Pincher! I would suggest you make a list of every good business you know and just ask them if they provide any incentives for referrals. It would be a fun project and an easy source of passive income.
Freelance writing is great if you enjoy writing. It is not passive. If you like writing, then you could consider it as getting paid to entertain your hobby, which is really neat. Another thing is you get to learn a lot when you research and write for others. Somebody is paying you to research and learn, that’s simply awesome, isn’t it?
I’m renting out 2 rooms in my house 🙂
Now I’m working on building a brand, blog, and business. These should bring in a few hundred dollars a month and increase from there.
Thanks for sharing 🙂
That’s awesome, Erik! Renting out spare rooms is great, isn’t it? 🙂 Nice to see that you are building your blog / brand.
I’m a big fan of passive income. Referral bonuses are pretty good and when I like a service or product, I’ll tell my friends and family anyway so why not get a referral bonus too!
Laurie: awesome that blogging is a great source of passive income. I’m still learning more about that and need to figure that out!
Thanks Andrew! Referral is good way to earn and if that’s a side gig, you don’t have any cost overhead to get started.
Blogging is an excellent source of passive income but initially takes a lot of work and patience.
I think the problem most people run into with passive income is they aren’t patient. It’s going to take some time to build passive income, so you shouldn’t just give up right away. The dividend calculator I have on my website shows clearly you need a lot of $ invested in stocks to make a material amount of income off it, so the best way to increase passive (specifically dividend) income is to focus on making more money and in turn throwing that into the stock market.
That’s a great point DC. It takes quite a bit of money to start earning a decent dividend income. For any passive income stream, patience is required.
So true. Thanks, Michael!
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