What is Passive income? It is money that comes in without you having to put much effort in, so you are passively making money. This is in sharp contrast to your daily job, which is active income, and where in most cases you have to put in a lot of hours working hard to earn your salary.
There are a lot of misconceptions on how to make passive income. Many people think that it means that you get something for nothing or that you can start earning money very quickly and become enormously rich from it in no time. But this is not correct. In many cases you have to put in some initial work, create something and it can also take a while before you really see the fruits of it. But over time it requires little to no effort to maintain and is a great way to build additional wealth and create more financial security for yourself and your family. In this article we are going deeper into how to start making passive income, also giving you some of best ideas for passive income.
The 5 best ideas for generating passive income:
- Sell what you are good at
- Investing in real estate and investment properties (with little or no initial capital)
- Start a blog or write a book
- Investing in dividend stocks, bonds or crypto staking
- Rent out your stuff
What is passive income not?
- A second job: this gives you an extra income, but you have to show up for it all the time and work many hours to get paid.
- None income generating Investments: Investing is a great way to build your wealth, but not all investments give you passive income. For example, stocks that don't pay dividends or cryptocurrencies that fluctuate in value, but they don't give you a consistent distribution of cash and so no passive income you can count on. If you want to get profit out of them you will have to sell them and don’t forget: they may also decrease in value.
Advantages of passive income
Who doesn't want to make more money? The problem, however, is that switching to a better paid (and often busier) job or starting a second job often doesn't benefit your family life or free time. We are all limited in the time we have and we don't want more stress or increase the chance of burnout either. So preferably you should build something that can eventually stand on its own and where over time you have to put in very little to no effort.
There are a lot of reasons how a passive income can improve your life:
Meet your financial goals more easily
You have probably often thought "If I made more money, I would do this or that…". This extra income will allow you to turn your dreams into reality and reach (or even surpass) your financial goals much faster.
Weathering the difficult times
Certainly the last few months have not been easy with high inflation and rising prices, or we have all had hard times at some points in life: losing your job, a long-term illness,.... Passive income allows you to get through these times without having to compromise on your lifestyle or what you like to do.
Less dependent on your job
Once the money from your activity or side gig starts flowing in and hopefully even growing over time, you become less and less dependent on your job. The less dependent you become the more freedom this brings.
More financial freedom
More income brings more freedom, especially if you don't have to go to work 7 hours every day to get that income. This simply means that you have more time to pursue your passions. For example, you can take some more unpaid leave because you want to go learn how to surf in Costa Rica or you can quit your job to go back to college and bet on your dream career.
You can escape the daily grind and take time for yourself. All without having to worry about how you're going to make ends meet each month. In other words, your life suddenly provides more possibilities, you can take the reins back into your own hands and become master of yourself, your time and what you do.
Less stress
One of the biggest causes of stress is anxiety around money. Since passive income increases your financial stability, your ability to save, your monthly budget, your freedom and much more, it is also obvious that it can help reduce your stress levels.
Retiring earlier
The holy grail is being able to retire earlier. Something that for most people can only be achieved later in life. But, if you build up some extra income, retirement may not be as far away as you think.
Even if you start saving more, you won't see your retirement age drop anytime soon, and this is because you won't end up having any replacement income when you retire. This is why a passive income is so essential if you want to retire at a young age. Once your passive income starts to become as large as your salary and sufficient to fund your lifestyle then you can start to consider retirement, because your salary is gone but it will be replaced with your passive income. Don’t forget: it is wise to think about the future trajectory of your passive income and also consider diversifying with several other passive incomes.
The best ways to generate passive income:
Here we discuss the most common ways to earn an extra income in the Netherlands.
Sell what you are good at
Turn your talent or your knowledge into passive income. Everyone has something that he or she is very good at or knows a lot about. And that knowledge can be very valuable to others and there are lots of ways to make money from it. Some practical examples:
- Create video lessons
One of the most popular strategies for a passive income is to create video lessons, distribute and sell them through websites like Coursera and Udemy. You can also start with a freemium model where you offer the first lesson for free and then start charging money for the more advanced lessons.
Now it is important that your lessons are of very good quality and that you are not only an expert in the field, but can also explain it very well. FYI. An expert is a relative term, there are many successful video lessons from people who have not formally studied the topic, but just have enormous experience in it.
- Youtube
You can also spread your knowledge for free through a youtube channel. Make good videos about a popular topic or target a specific niche. When you start attracting more and more audience with your episodes, you will start receiving a pay-out as Youtube shares the income from sponsors and ads with the video creators. It is best that you really have a passion for the topic, because that will give you the motivation to persevere and make better videos.
Some ideas that have already proven to attract a lot of audience:
- Product reviews: as example, you have youtube channels that specialise in testing the latest baby strollers, bicycles, internet routers or sous vide appliances.
- Illustrated summaries of bestseller books (targeting those that don’t have the time to read)
- Instructions on how to do chores around the house (e.g., How to unclog a drain or hang up curtains)
- Entertaining videos, some even testing how an iphone holds up being thrown from different heights or put in a blender ;)
- Social Media
Do you have a lot of followers on TikTok or Instagram? Then you can partner with companies and consumer brands who will pay you to dedicate a post to their product. Now you do need a serious audience to make this really interesting for partners to put money on the table. So if you don't have a big following yet then you need to spend a lot of time building this up by making popular posts and growing your audience over time. The same applies as with the other options, it's best to think carefully about where your passions lie, what you have interesting things to say (or photograph) about and who would be interested in them.
- Ecommerce
This is certainly not an easy way but can be very profitable once you get going with it. The most important thing is of course the product you want to sell and so you will have to design something. There are of course endless products out there on the internet, so your product needs to stand out somehow or appeal to a specific target group. Maybe a beekeeper starter kit, keto breakfast cereal, hiking backpack made from sustainable materials, premium swim shorts, organic kids snacks, lactose-free ice cream made with local ingredients,....
Once you have a product, of course you have to find a manufacturer who can make it for you, design the packaging, create your own webshop on Shopify or sell through amazon and set up all the logistics. As already said not easy but if you are successful then it can really go fast. There are plenty of examples of solo entrepreneurs who make hundreds of thousands of euros per year in profit and in some cases have sold their brand for millions of euros.
Investing in real estate (with little initial capital)
Investing in investment properties is one of the oldest and most effective ways to earn passive income because you receive a steady monthly cash flow from rent. On top of that, you can also see the value of your property increase over the longer term.
Now, buying a house to rent out is not very accessible to most people: you often need a lot of capital to start (at least a few tens of thousands of euros), it requires a lot of work and headaches (maintenance, renovations, finding tenants,...) and you have to think about all the risks that it entails. Especially if you invest a large part of your savings in the same property.
Therefore, it can be interesting for many people to invest in real estate through new innovative platforms like BRXS, where you can start with smaller amounts and also spread your investments over different properties. With BRXS you can invest directly in investment properties from €100, so you can enjoy monthly rental income and also the possible increase in value over the long term. You can read more about it here.
Other interesting articles if you are interested in getting started with real estate:
Start a blog or newsletter
Same principle as before: write what you are passionate about or know a lot about. Your interesting blog posts can attract a large audience and this in turn can earn you money in various ways such as:
- Affiliate marketing: where you discuss or review certain products on your blog and then you add a link to the website of that product. These then pay you a fee for each click to their website from a potential customer.
- Display marketing: where you place ads on your website and then you get paid for impressions or clicks.
A newsletter (email about an interesting topic) that you send out to your audience every week can also be monitored with affiliate or display marketing, but you can also ask your audience to pay a small monthly fee to receive the email. You then need to be able to put together very interesting content on a weekly basis and this is going to take a lot of work, even if you have gathered a large audience. With a blog you can focus on evergreen content and posts that remain relevant for a very long time and continue to attract an audience. For example, a blog about "the most efficient way to organize your Gmail box" will still be in high demand within a year.
Investing in dividend stocks, bonds or crypto staking
If you invest in stocks, there are two ways to get returns: 1) Dividend payment from companies that distribute their profits or part of it to shareholders 2) Possible appreciation of the stock. The second is not passive income because there is no security and no stable distribution, you will have to sell your investment to get the profit out of it, but the dividends can be seen as passive income because you get money deposited without having to sell your investment.
You should of course look for stocks that have paid good dividends in the past. You will certainly find them, but the past is not always a good indication and in bad times the company may well have no room to pay a dividend. There are also ETFs today that focus specifically on dividend stocks so you can better diversify your investment.
For more security, you can also invest in bonds which are basically loans to companies or the government, and then you get a periodic payment of interest. Those are pretty secure, but there is always the risk that the company might get into trouble and not be able to pay back their debts. So good to look at the rating that the company has. The best rating is AAA.
Other options are Peer-to-peer lending or strike with Crypto, but these are of course also more risky.
If you want more information about all the different forms of investing:
Rent out something
Think carefully about all your possessions because you may have something that you can easily rent out:
- the empty room you can put on airbnb
- the car you're not going to need next month and can rent it out on Snappcar.
- the camper that you don't use eleven months out of the year and can rent out on Goboony for that time.
Nowadays very even websites like Homecamper where you can offer garden, field or forest to people to place their tent or camper and stay overnight. Maybe you have a garage box or parking space in a district where there is a huge demand. Or lots of other small things like lawn mower, projector, trailer or pressure washer on Peerby.
Conclusion
We're not going to beat around the bush: building a good passive income is not easy and it's certainly not a 'get rich quick' fad. It will take some effort (especially in the beginning) and it may take some time until your income starts to grow into a nice monthly contribution, but it's definitely worth it. Once your passive income is there, it can have a huge positive impact on your financial future, your freedom and open a lot of new doors for you.
