Wouldn’t it be great if you could make money while you sleep? It might sound too good to be true. But believe it or not you really can make money passively while you sleep. This is possible through the use of various passive income methods. Some passive income types even require no capital to set up. Allowing you to literally earn money while you sleep for free. In this post we’ll cover what passive income is and the different passive income types you could use.
Active & Passive Income
There are two main ways to make money – actively or passively.
An active income source is one that requires a lot of ongoing work to make money. It usually involves a considerable amount of time expenditure.
For example, a traditional bricks and mortar retail business. There is a lot of day-to-day work involved in running a store. This could include ordering, handling, packing and shipping products. Or even managing staff, dealing with customers and handling all the paperwork that come with it. It could be a highly profitable operation but it requires lots of time commitments in return.
Then there is passive income. This is the income source to use if you wish to make money while you sleep. This is because passive income doesn’t require any ongoing active day-to-day involvement to produce a return.
Both active and passive income sources can be further broken down to an income type. For example most active income sources tend to be limited to either ‘earned’ or ‘for profit’ income. Earned income is any income that has been earned such as wages from a job or self-employment, like freelancing work. For profit or business income is profits you earn from operating a business.
Whereas passive income provides a wider range of income types including dividend income, interest income, rental income and more. It includes income gained from investments as well as profits from business among other things.
We’ll explain the different passive income types in more detail further in this article.
Can You Really Make Money While You Sleep?
It should be noted here that although there are many ways to make an income passively, many of these still require time and effort to set up.
You shouldn’t expect to earn lots of money straight away, these are not get rich quick schemes. It can take months or even years to really see returns on some income sources. But the results are worth it.
You usually find a strong correlation between effort and future earnings. The more time and effort you dedicate to creating an income source now, the better the future rewards will often be.
This is sometimes where people’s misconception comes from that it is not possible to make money while you sleep. It truly is possible. You just need to be motivated to work hard in the early stages. And be prepared to ride things out for a while.
It’s only unachievable by those that don’t have the desire and commitment to work for it. Why do you think all those scammy ‘get rich schemes’ are so popular on social media? Many people want something now without actually doing anything for it, and that is just not possible. There are things that can help you work smarter, but you still need to work hard as well.
Passive Income Types To Make Money While You Sleep
There are several passive income types to utilise to make money while you sleep. This includes interest income, dividend income, rental income, royalty income and profit income.
Interest is the income you earn in return for lending money. There are two different types of interest you may receive depending on the investment – simple or compound.
Simple interest earns interest only on the principal amount. Whereas compound interest accumulates on both the principal amount and the interest. As an investor, compound interest is preferable as it provides a snowball effect. The longer you leave it, the more it will really build up returns.
Compound interest income is found on all types of cash savings accounts. This includes high yield savings, money market accounts and certificates of deposit. There are even interest paying checking accounts.
Simple interest is usually paid on many debt instruments such as bonds and loans. Although you can compound returns simply by re-investing interest payments.
Interest income makes for a good source of passive income. After your initial deposit or investment you simply leave it to accumulate. It is applied automatically with no intervention required.
You just need to spend some time searching for the best interest rates and providers. It’s also a good idea to periodically check in with your investments. You may get a better rate by shopping around providers. Save time searching for savings accounts by viewing the best online savings accounts interest rates.
Dividends can provide a rich source of income. They are simply a reward payment made to shareholders of a company. Whilst dividends are mostly a cash distribution, there are several different types of dividend a company can pay.
To create a source of dividend income you will require capital to purchase dividend paying stocks. You will also need to dedicate time to researching potential investments. After you make your investment then you don’t need to do anything else. Dividend distribution is automatic.
If you don’t require the cash distributed from dividends in the immediate term, you should consider re-investing them. As with interest income, dividend income can also benefit from the compounding effect when you re-invest returns.
This is because your dividends will purchase more of the same stock. This then provides a larger dividend payment. This cycle keeps repeating to earn dividends on dividends. It is why investing is a long term strategy to grow wealth and get rich slowly.
Mutual funds can be a good option for inexperienced investors or those with smaller sums to invest. Funds pool investors money together to purchase stocks (or other investment assets). This gives good diversification and opportunities for income. Plus it saves a lot of time researching individual companies.
You can leave dividend income on autopilot to continuously generate returns. It is another great way to make money while you sleep.
Rental income is quite self-explanatory, it is receiving payment for allowing another individual or business to use something you own.
One of the most popular forms of rental income is through property rentals. You allow a tenant to live in or use a property you own in exchange for a rental payment.
Property rental apps like AirBnB are commonly used to rent out rooms and properties. They can be a good option to use if you own your own real estate.
Another accessible option to benefit from rental income is by investing in a REIT. A REIT is a real estate investment trust. It is a company that invests in income producing real estate assets. They are more passive in nature than owning your own physical property directly.
REITs can offer investors access to types of real estate they may normally not be able to invest in. As well as residential property this includes commercial property such as factories, data centres, cell towers etc.
As REITs pool investors money together, they offer good diversification across many properties. They also have strict regulations on how they distribute returns to shareholders. One of the requirements of a REIT is that they must pay out at least 90% of their taxable income to shareholders. So they can offer very high dividend yields.
Additional Ways To Make Rental Income
Most sources of rental income have traditionally been derived from property. But this doesn’t limit you to this – you can rent out almost anything you own.
Thanks to modern technology there are now rental apps available for almost anything. This includes car rentals, bike rentals, tool rentals, storage space and more. You can even rent out your internet connection using free apps like Honeygain.
If you have an idea for a rental service that isn’t currently available, you can always create your own. No, seriously it’s easier than ever thanks to the internet. You can create an app in minutes with no coding skills using app builders like AppyPie.
Royalty income also allows you get paid for letting others use an asset that you own. That may seem similar to rental income but royalties work in a different way.
Assets like patents, trademarks, franchises, mineral rights and other intellectual property are good examples of where to find royalties. They can be a good way for the originator to create future passive revenue.
Examples of this are an inventor that has a patent for a new product. They could license this to a manufacturer. This way the inventor doesn’t need to spend any money on production or marketing. The company that pays to license the asset will handle this. It can create a long term passive income for the inventor without the complexities of manufacturing.
When a royalty agreement is in place, the licensor of the royalty will receive an agreed fee in exchange for the other party using the asset. This is usually a percentage of the revenue from sales but can differ between licences. The company using the asset pays the agreed fee. But gets to keep the rest of the profits generated from the asset.
To create royalty income you don’t need to create your own brand or invention. It is possible to trade royalties through specialist platforms. Take Royalty Exchange, it is the world’s largest royalty marketplace that specialises in music royalties.
Artists in the music industry often license their music catalogues to generate income. Sites like Royalty Exchange allow individuals to purchase royalty rights to these to generate long term passive income.
Profit income is that which is generated from business operations. It includes businesses operated both online and offline.
Many businesses that operate to generate a profit are active income sources as they require a lot of time commitments. However, there are many types of digital businesses that run on autopilot to generate passive income after you’ve set them up.
Some popular forms of these are affiliate marketing and blogging. Take blogging as an example, it will require a time commitment to start. You need to research your topics, spend time writing, optimise for search engines with keywords, promote your blog etc.
There are ways to monetize blogs by displaying advertising, using affiliate marketing links and adding additional services such as memberships.
This means that once your post is published it has potential to create income without you doing any extra work. Your affiliate links and advertisements will continue to remain active to all future visitors that land on that page.
Passive e-Commerce Income
Likewise there are many types of e-commerce businesses that vary between active and passive methods of operation.
Dropshipping for instance is one of the most popular e-commerce options for many entrepreneurs. It cuts out many of the most arduous aspects of retail by using suppliers to ship products directly to customers. This saves both time and money by not storing or shipping the items. See our full guide to dropshipping.
You do however have to source products from suppliers to list in your online store. Then when customers order from your store, you place this order with your supplier.
Most of the dropshipping process can be automated but it can still require quite an initial time commitment. Especially to marketing and customer service.
Print on demand stores operate in a similar way but may be more passive to run. This is because you don’t need to handle the customer service, payment and returns process. That’s in addition to not handling shipping. You literally apply designs to products and market your online store, the company take care of the rest.
True passive income e-commerce stores are those that sell digital only goods and services. This could include software, apps, games, plugins, music, video, eBooks and more.
You only need to list a digital product once in your online store. The customer can automatically download the item once they have completed the transaction. You do not need to source, order or ship products. And as they are digital they will never run out so no need for stock control. This also provides other benefits like greater profitability. See how to profit from selling digital goods.
Make Money While You Sleep Conclusion
There are lots of ways to make money, including methods that are active or passive. If you want to make money while you sleep then you require passive income sources.
Passive income types include dividend income, interest income, rental income, royalty income and profit income.
To create profitable passive income streams you still need to dedicate plenty of time and effort to setting them up. The more effort spent now can reap big rewards in the future.
Income sources that are passive can continue to produce returns with no ongoing effort. This allows you to literally make money while you sleep.
There are such a wide variety of passive income streams available to set up. You should aim to create multiple sources of passive income for the best financial results. Especially as so many methods are free to start. They can help you to achieve financial freedom.
More essential reading can be found on our blog including;
- Why you need multiple sources of income.
- Quit your job for financial freedom.
- 50 ideas to build online income streams.
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