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5 ways to invest for a passive income!

Updated: Feb 27

I get it, you don't think you're creative, you don't feel like you could create any content or upload videos of yourself to create passive income. You want an easy way to start making passive income? You want to be able to invest your money then sit back and see a passive income. In terms of passive income this is not the mindset you really want to have. None the less I have chosen 5 ways where you can put your money forward and receive a passive income.


Dividend Stocks

I have mentioned it before and I will mention it yet again! (I am sure you are sick of seeing this but bare with me it has to be said) Dividend paying stocks! They are as passive as it gets! Put down your money, sit back and get paid! Wow it sounds good! And there's not much of a catch to it.


If you have not already read YoungMoneyInvesting's stocks/dividends post I recommend it highly if the above concept appeals to you. But in short, selected business's (blue chip especially) pay out a dividend (a share of the companies profits) to share holders for being "owners" of the business. However the amount paid out in dividends to owners differs from business to business. This is where some prior research is essential before buying in order to pick a consistent well paying dividend company.

The risk involved with this investment is if the company you invest in goes bankrupt or their profits greatly decrease. This can happen during a recession or a market crash where companies choose to not pay out a dividend in order to keep the capital during the tough times. However some well established companies are built to survive these situations and still pay out a dividend (might be slightly reduced) to their shareholders.


Personally this idea of investing for a passive income through dividend paying stocks is something that I participate in. In no way take this as financial advise! However I encourage you to explore the option. My aim through this process is to be able to slowly build a dividend paying portfolio whilst harnessing the power of compound interest! That being I aim to deposit a set amount 2-3 times a year into my favourite dividend paying companies whilst also reinvesting any cash dividends I earn.


High Yield Savings Account

Now straight away I will warn you, this is not going to make you rich. However it is a source of passive income!


"How many millionaire do you know who have become wealthy by investing in savings accounts? I rest my case."

- Robert G. Allen


And I am sure that there is a large percentage of you that already have cash in a high interest savings account. But for those who don't the idea is putting your money in a savings account with most likely a bank and in return the bank will pay you interest. Now the interest you earn on your savings accounts differ from bank to bank and account to account.


But for example let's say you have a savings account with a balance of $10,000 earning 2% per annum. Now most bank accounts pay you interest monthly. That meaning at the end of the month they take your bank balance, calculate the % of your account balance then divide that by 12. So for our example that means for the first month you earn $16.66 ($200 a year divide by 12). Best part of it is you did not even have to lift a finger! I find it amusing to break down the numbers in your head. For example if you earn $365 of interest a year you can say to yourself I get paid $1 a day for doing nothing! Now I know that it is not much but the concept is pretty cool in my opinion.

Another positive thing about having your money in a savings account is you can utilise the power of compound interest! That being that if you choose to not withdraw money from your account you will start to earn interest on interest. If you don't quite get the concept make sure you go over to our post on compounding!


Bonds

Now I have only recently learnt about bonds and how they are a great easy way to receive a passive income. Basically as an investor you buy a bond of a certain value and then receive regular payments for purchasing that bond. You essentially become the bank for the government or chosen organisation. The value is established at the start of the bond in the form of a percentage. This type of investment is VERY passive as all you have to do is buy your bond and sit back and watch the interest roll in.


For example you purchase a government bond worth $1000 and you receive 5% annually ($50) for the length of the bond (lets say 10 years). This means you lock away your $1000 and will not see it till the end of the 10 years. Like any investment however there is risk associated with who you buy your bond off. A bond purchase from the government has a different risk factor compared to an organisation. That being an organisation has the risk of going bankrupt hence you will lose your money that you invested. That's why the safer option (but less profitable) is to buy bonds through the government.


Rental properties

Now this is one that can spark debate on the level of how passive this income is. Obviously the initial work in financing, buying and seeking a tenant is much more involved than the passive income investments stated above. And in general if you choose to not hire out a property manager to maintain the property your passive investment can well and truely be an active one.

In summary if you are confused how real estate and rental properties can make you a passive income the concept is quite easy, however the process is much harder. It involves buying property then simply finding a tenant who pays you to live or use your property. Where the hard part comes in is finding a property where your monthly ongoing expenses is less than your income you make off the property. That surplus left over after the month becomes your passive income!


Laundromat or vending machine

Now both of these options I personally have never invested in or are interested in investing for passive income. They are a viable investment for passive income but I wouldn't call them a very popular one.

A vending machine can be bought for a few $1000 depending on how brand new it is whereas a laundromat has a much higher upfront investment. Now the amount you can make off each of these investments really can vary depending on the location of the vending machine or laundromat. You can earn $5 a week or $505 a week it really all depends on location.


You will need to however organise someone to maintain the asset ongoing if you want it to truely be a passive income source.




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