You may be shocked to hear about the variety of sources of money available. Some revenue sources, such as your paycheck, might be readily apparent to you. You might not have considered alternative sources of income, though. Having a broad understanding of the situation could aid in money management.

In general, income is money you receive from working, providing a good or service, or investing. In other words, it’s any money you gain that you can put in the plus or revenue column of your budget. It’s also commonly measured in cash. 

Your paycheck may be the first source of income that comes to mind. But other types of income include:

• Tips and commissions
• Profits from selling goods or providing services
• Interest, dividends or capital gains on investments
• Gifts, allowances or inheritances 
• Government benefits and tax refunds
• Withdrawals from retirement or pension funds

What are the Different Types of Income?

There are different types of income. But three of the most common are: 

Active income

Earned income is money you earn by working—either for yourself, someone else or a business you own. It’s also called “active income” because you actively perform a service for it. If you work for a company—including a small business or a large corporation—your employer may pay you an hourly wage. Or your employer might pay you a salary. 

Earned income could also include bonuses and extra pay. For example, taxi drivers and restaurant servers can earn tips. And people who work in sales can earn commissions.

Gigs can be another option for earning income. People who want to be independent, self-employed or work a part-time job may want to consider gig work. These side hustles are often temporary or short-term jobs performing a single task on demand. Musicians, babysitters, freelance writers and delivery drivers are all examples of gig workers.

Passive Income

Passive income is money earned without active involvement by the investor or owner of that money. Common sources of passive income include interest from savings accounts or bonds, dividends from stocks and rental income from real estate. Passive income can also come from royalties paid to an author, tuition fees charged to people who take an online course and interest in an I.O.U.

Passive income is highly valued by investors and retirement savers because it allows someone to increase their wealth without having to devote time, energy or funds to the effort. If passive investments produce enough money, an investor may be able to retire early. Passive income can also reduce the risk of hardship due to interruptions to sources of earned income, such as wages and salary from a job.

Residual Income

Residual income can have different definitions in different areas of business but in personal finance, it refers to the amount of money an individual has remaining after paying for living expenses. For instance, if someone receives $5,000 in monthly income from all sources and pays a total of $4,000 for all expenses including rent or mortgage, auto or other loans, food, utilities, etc., their residual income is $5,000 minus $4,000 or $1,0.00.

Having a healthy level of residual income is important when seeking credit since lenders want reassurance that a borrower has enough disposable income to make the loan payment. Residual income can also let someone pay down high-interest debts, build emergency savings or start investing. If nothing else, having money left over at the end of the month supplies peace of mind.

Unlike passive income, the source of residual income doesn’t matter. It can come from wages and salary from working at a job, passive income from dividends or savings or any other source.

Reducing expenses, raising overall revenue, or doing both are all necessary to increase residual income. A wage earner can ask their employer for a raise, take on a second job, or sell unnecessary items like extra furniture to boost their income. Moreover, passive income generation—such as dividend-paying stock investments—can boost residual income.

Cutting costs can help you make more money after all, even if your total income stays the same or slightly drops. Reducing entertainment subscriptions like cable television, paying off a high-interest credit card, looking for better insurance or rates, or relocating to a less expensive home—possibly in a new neighborhood—are some ways that people might reduce expenses and increase residual income.

There are numerous ways to generate passive income. Investing in residential real estate, opening interest-bearing accounts, and purchasing dividend-paying equities are a few of the most well-liked options. Certain passive income pursuits, like real estate management, demand attention and work. By converting existing investments into new ones that produce higher returns or using residual money to invest in new income-generating ventures, you can increase your passive income stream.

Passive Income Ideas

If you’re considering developing a passive income stream, take a look at these tactics and discover what it takes to succeed with them while also being aware of the hazards involved with each concept.

1. Create a course

Making an audio or video course and then sitting back while money comes in from sales is a well-liked method for generating passive income. Sites like Udemy, SkillShare, and Coursera are platforms for the distribution and sale of courses.

Read Also: 10 Benefits of Having Multiple Income Streams

An alternative is to think about a “freemium model,” which involves providing free content to attract readers and charging for more in-depth information or for those who are interested in learning more. This approach can be used, for instance, by language instructors and investment selection advisors. The complimentary material showcases your proficiency and can draw in individuals who want to advance.

2. Write an e-book

Writing an e-book can be a good opportunity to take advantage of the low cost of publishing and even leverage the worldwide distribution of Amazon to get your book seen by potentially millions of would-be buyers. E-books can be relatively short, perhaps 30-50 pages, and can be relatively cheap to create, since they rely on your own expertise.

You’ll need to be an expert on a specific topic, but the topic could be niche and use some special skills or abilities that very few offer but that many readers need. You can quickly design the book on an online platform and then even test-market different titles and price points.

But just like with designing a course, a lot of the value comes when you add more e-books to the mix, drawing in more customers to your content.

3. Rental income

Investing in rental properties is an effective way to earn passive income. But it often requires more work than people expect.

If you don’t take the time to learn how to make it a profitable venture, you could lose your investment and then some, says John H. Graves, an Accredited Investment Fiduciary (AIF) in the Los Angeles area and author of “The 7% Solution: You Can Afford a Comfortable Retirement.”

To earn passive income from rental properties, Graves says you must determine three things:

• How much return you want on the investment
• The property’s total costs and expenses
• The financial risks of owning the property

For example, if your goal is to earn $10,000 a year in rental cash flow and the property has a monthly mortgage of $2,000 and costs another $300 a month for taxes and other expenses, you’d have to charge $3,133 in monthly rent to reach your goal.

And economic downturns can pose challenges, too. You may suddenly have tenants who can no longer pay their rent, while you may still have a mortgage of your own to pay. Or you may not be able to rent the home out for as much as you could before, as incomes decline. And home prices rose quickly due in part to relatively low mortgage rates, so your rents may not be able to cover your expenses. You’ll want to weigh these risks and have contingency plans in place to protect yourself.

4. Affiliate marketing

With affiliate marketing, website owners, social media influencers or bloggers promote a third party’s product by including a link to the product on their site or social media account. Amazon might be the best-known affiliate partner, but eBay, Awin and ShareASale are among the larger names, too. And Instagram and TikTok have become huge platforms for those looking to grow a following and promote products.

You could also consider growing an email list to draw attention to your blog or otherwise direct people to products and services that they might want.

When a visitor clicks on the link and makes a purchase from the third-party affiliate, the site owner earns a commission. The commission might range from 3 to 7 percent, so it will likely take significant traffic to your site to generate serious income. But if you can grow your following or have a more lucrative niche (such as software, financial services or fitness), you may be able to make some serious coin.

Affiliate marketing is considered passive because, in theory, you can earn money just by adding a link to your site or social media account. In reality, you won’t earn anything if you can’t attract readers to your site to click on the link and buy something.

5. Flip retail products

Take advantage of online sales platforms such as eBay or Amazon, and sell products that you find at cut-rate prices elsewhere. You’ll arbitrage the difference in your purchase and sale prices, and may be able to build a following of individuals who track your deals.

You’ll be able to take advantage of price differences between what you can find and what the average consumer may be able to find. This could work especially well if you have a contact who can help you access discounted merchandise that few other people can find. Or you may be able to find valuable merchandise that others have simply overlooked.

While sales can happen at any time online, helping make this strategy passive, you’ll definitely have to hustle to find a reliable source of products. Plus, you’ll have to invest money in all of your products until they do sell, so you need a robust source of cash. You’ll have to really know the market so that you’re not buying at a price that’s too high. Otherwise, you may end up with products that no one wants or whose price you have to drastically cut in order to sell.

6. Sell photography online

Selling photography online might not be the most obvious place to set up a passive business, but it could allow you to scale your efforts, especially if you can sell the same photos over and over again. To do that, you might work with an organization such as Getty Images, Shutterstock or Alamy.

To get started, you’ll have to be approved by the platform, and then you license your photos to be used by whoever downloads them. The platform then pays you every time someone uses your photo.

You’ll need photos that appeal to a specific audience or that represent a certain scene, and you’ll need to tease out where the demand is. Photos could be shots with models, landscapes, creative scenarios and more, or they could capture real events that might make the news.

Part of the value of selling or licensing your photos through a platform is that you have the potential to scale your efforts, especially if you can provide pictures that will be in demand. That means you could potentially sell the same image hundreds or thousands of times or more.

You could add hundreds of photos to a platform such as Getty Images and not have any of them really generate meaningful sales. Only a few photos may drive all of your revenue, so you have to keep adding photos as you search for that needle in the haystack.

It may require substantial effort to go out and shoot photos, then process them and keep up with the events that may ultimately drive your revenue. And motivation could be hard to maintain: Every next photo might be your lottery ticket, though it almost certainly won’t be.

7. Buy crowdfunded real estate

If you’re interested in investing in real estate but don’t want to do a lot of the heavy lifting (management, repairs, handling tenants and more), then another option is using a crowdfunding platform to invest in property. An experienced investing team picks out the real estate, and then you can decide to invest in it and how much you’re comfortable with.

You’ll pay an annual management fee to the real estate platform and have minimum investment amounts that could range from ten dollars to tens of thousands of dollars.

You can get access to private real estate deals that may be attractive, and they’ve been preselected by knowledgeable investors. You can check out the returns on the platforms, so you’ll have some idea of what level of returns you can expect and over what time frame. Real estate investments can also help diversify your portfolio, helping to smooth your returns.

Some platforms invest in equity (stock), while others invest in debt. Generally, stock offers high returns in exchange for more risk, while debt offers lower returns in exchange for less risk. Some platforms require you to be an accredited investor, with a certain minimum income or assets. Popular platforms include Fundrise, Yieldstreet and DiversyFund.

Conclusion

Money can provide you with more passive investment opportunities. If you have money to invest in a passive opportunity, you have not only the opportunity set above but a new range, too. Money is a prerequisite for taking advantage of the following passive income areas:

• Investing in dividend stocks, preferred stocks or REITs. Investing in stocks means you need money upfront, but you’ll receive some of the most passive forms of income around.
• Save with bonds or CDs. Other purely passive activities include buying bonds or CDs.

Here you can use your money to make money with little or no effort on your part, if that’s what you’d like to do. Of course, you could pair your money with a lot of time investment to move into an even more lucrative niche, too.