Throughout my 20s, I battled debt and attempted to build savings on entry-level pay. I looked forward to my 30s when I’d have things all figured out. Turns out, “figuring it out” has a lot more to do with practice than age. (Surprise!) My husband and I are working to reach our goals faster so we can finally feel like we’re on the right track. We’re hoping passive income will be the key to getting there.
What is passive income – and why I’m focusing on it
Passive income is income you earn without much effort. Here’s why I’m focusing on passive income in my 30s:
1. My time is limited
When I was in my 20s, I sought to achieve my financial goals faster through side hustles. That’s no longer possible now that I’m older and advancing in my career; the amount of time I have to earn extra income is limited. My husband and I work a lot and already struggle to fit in other things we need to do, like cooking and working out. And we don’t even have kids yet!
2. It can help me achieve my goals
Just like in my 20s, my financial goals are driven by my feeling behind. In my 20s I was battling expensive credit card debt, now I’m battling a nearly non-existent retirement account. Not that I ever want to retire but things happen.
I’m also dealing with the fact that I only have two years left to save if my husband and I want to have kids before I turn 35. We don’t have a decade to get our savings in order; we need to make it happen now.
3. Passive income gives me some control
Money doesn’t buy happiness, but it can buy freedom of choice. If my husband and I manage to set up reliable passive income streams now, we can feel at least a little bit in control when life throws us curveballs.
A few smart passive income ideas
Now, the fun part! Below are a few ideas for creating passive income streams.
Real estate presents a variety of income-earning potential, from active to passive. An active real estate option would be to flip houses. A passive real estate option would be to rent out your real estate.
This option is my favorite for two reasons. First, if you know someone you can trust to manage the property, you can pay them to help and earn truly passive income. Second, since my husband and I live in New York (a city of expensive rentals), it provides a sort of insurance against rising rental prices. We could always move into the property if we needed to.
If you live in an expensive city (or a city with high taxes), this option might be out of reach. However, there is still the option to rent out a vacation home in a budget- and tax-friendly locale.
Peer-to-peer lending is a way to invest by lending to those trying to pay off debt. You can use sites like Lending Club and Prosper to do so.
The beauty of this option is that you can invest at your own comfort level: both in the amount you invest and in choosing who you lend to. There is some risk in this (just as there is with all of these passive income ideas). If you want to try this out, start small and diversify your lending to mitigate against it.
Create a monetized website
This is one my husband tried to convince me to do, but it didn’t seem passive enough for me. The idea is to create a website you can make money off of, whether it be content-focused with ads or product-focused (such as a tech tool, an ebook, or courses). Passive income expert Pat Flynn has a ton of information to help with this.
This option starts off active but can become passive if you’re successful and can outsource most of the work. In the beginning, you’ll have to invest time into setting up a website and driving traffic to it.
A lot of people invest in the stock market to grow their retirement, but you could also invest in the stock market to earn passive income if you invest in dividend stocks. These are stocks that regularly pay out a portion of a company’s profit to its investors.
There are a few things to consider before you invest. Dylan Ross, CFP®, AFC®, Director of Communications and Financial Planning at Garrett Planning Network, offers this advice:
Dividend stocks sound really appealing because of the income, but the income comes at the cost of share growth. Corporate profits can be distributed to shareholders as dividends or retained by the company, increasing its value. Many companies do a little of both, splitting the profits between dividend payments and growing the company. Investors generally want a diversified mix of companies that provide income and ones that offer growth. This is called, ‘total return’.
By investing in a broadly-diversified portfolio, like a total market index fund, investors can sell stocks or mutual funds to create income, benefiting from both dividends and growth. Doing this should provide the same amount of income but with lower risk and lower costs.
A smart passive income strategy
So how do you choose the best passive income ideas for you? Go with your gut.
As you look into ways to earn extra income, you’ll find a million ideas that sound great but don’t sync up with your lifestyle. Don’t try to fit yourself into a box of what you think you “should” do. Focus on what you think you can sustainably manage; a smart passive income strategy is to simply choose carefully.
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