Ever wonder how to create a passive income?

Growing up, my parents always taught me that money doesn't magically grow on trees. It takes a lot of effort and mental stamina to start creating and building one's wealth, as they say.

But now that I am a young adult, I still wonder how one becomes wealthy and stay that way. Aside from those inherently wealthy like in Crazy Rich Asians, What makes the rich wealthy, and how do they acquire their wealth? I have always been fascinated by the thought of making money while you sleep. Sounds absurd, right?

Not really.  When financial gurus and experts carry out research that offers insight into how the rich get richer, there always seems to be one shared mindset among the rich. That is, creating passive income.

One such study by the Tax Policy Center found that the wealthy's real money comes from investments and business income (passive income)—not compensation (paychecks).

Clearly, when compared to the total population, the top 1% and top 0.1% have passive income at 29% – 35% of their total income.

So, let’s dive right into what passive income is and how to start creating some.

What is Passive Income?

Basically, there is what we call Active and Passive Income.

Active Income is one where you exchange your time for money. Your main source of income may come from here. It is limited and linear. This could come from your main job or self-employment income.

While Passive Income is an income that doesn’t completely depend on your active participation, your time is not directly related to how much you earn, and there’s no limit to how much you can make with this source of income. This can be income from your various investments, rental income, royalty income, among others.

Passive income can be a great source of extra income for you to make and create money with some effort on your part.

Read more: 36 Best Ideas to Earn Extra Money Now and in the Future.

Apart from cutting down costs, saving, and investing, to be truly financially independent is to learn how to create multiple streams of income too and diversify – that is to put your eggs in many different baskets.

So here are 18 ideas and proven ways for you to generate a passive income.

1. Invest in Dividend Stocks

Dividend Stocks are one tried and true way of creating passive income. You only have to invest time, talent, and treasure (money you can afford to lose or will not use in the next 5-10 years or more). Buying stocks, a.k.a equities, will either gain you capital shares or stock dividends in the form of cash.

On choosing which stocks to invest, consider capital appreciation as well as its consistent dividend payout.

Some are dubious about investing in the stock market, but with enough knowledge and experience, you can sip your mojito right at the beach and let your stocks work for you.

For additional reference, learn more here: How to Start Investing Your Money Like a Pro – The beginner’s guide.

By the way, there are two types of investing that you can follow.

Direct Investing – this is where you do all the work (buying and selling stocks, finding reliable online platforms to trade and invest, etc.)

Indirect Investing – this is a way of investing where you are managed or helped by a professional fund manager. Examples are investing in Mutual Funds and UITF (Unit Investment Trust Fund). More on this later.

2. Buy Rental Properties

Investing in property assets has always been a fantastic form of generating a passive income. Basically, you buy or invest in a property, have someone to rent or lease it, and get monthly rental payments.

Or better yet, you can buy farmland or partner with a larger corporation, among other things.

You just have to sustain the maintenance of the property and, of course, keep a long-term tenant to reduce vacancy costs.

3. Get a High-Yield Savings Account

If you're more on the savings side, you can also simply put your cash in a high-yield savings account or a time deposit. Then let the money grow over time. However, this is ideal for someone who is really on a longer-term of saving. Nowadays, there are a lot of banks that offer such services and products.

4. Start an Online Retail Business

Another great way to start driving that passive income is by setting up your own online business. You can create a Facebook page, post your products on some buy and sell groups, or even use the Facebook marketplace.

You can also look to Amazon, eBay, Etsy, and the like to drive sales to your business.

Even though you will be required to put in some effort, think of the cash returns it will pay back once you succeed.

5. Create an Online Course

If you are an expert or have extensive knowledge and experience about a certain skill or subject area, why not launch your very own Online Course? With the current demand for specialized skills in the job market, you will be able to share your expertise and help other people, but it can also give you cash returns.

Design your syllabus content, invest in good technical equipment or software, and take advantage of some free online learning platforms such as Udemy and Skillshare.

6. Launch a Youtube Vlog

If you're an aspiring youtube vlogger or influencer, you can start accumulating passive income through Youtube's Adsense or Google Ads. This is where many YouTubers out there make their money. This is another one of the many ways to earn easy passive money.

If you have something to share with the world, document a special event, or just want to have some fun, then launch your own youtube channel now. Grow your youtube followers community, create quality content, and start earning those bucks!

7. Affiliate Marketing

Affiliate Marketing is a way or practice of partnering with a company (becoming their affiliates) in exchange for a commission on a product that’s bought through your platform. This is a great way for bloggers and those who own websites to generate a potential passive income.

Wealthy affiliates has a great training program, offers a community of experts and beginners, and works with clients every step of the way to establish an affiliate marketing business.

8. Sell Stock Photos

For photography lovers and the like, you can make money out of your hobby by selling pictures to various sites online, and then from there, you can get a commission for every photo purchased.

9. List your place on Airbnb

If you have some extra space at your apartment, you can list it on Airbnb and help travelers find a place to stay while they’re out of town. That way, they will save a few dollars on expensive hotels, and then you earn from it. This way is a very passive and great income source since you earn from a space you already own.

10. Peer-to-Peer Lending

P2P lending is the practice of loaning money to borrowers who typically don’t qualify for traditional loans.

As a lender, you then have the ability to choose the borrowers, spread your investment, and mitigate any risks.

Just make sure that any unsecured loans or collateral may put you at risk when the borrower fails to fulfill the loan terms. There are online sites that offer this service; one of these is The Lending Club.

You simply lend your money, and then you get paid back with full principal and interest on that loan.

11. Royalties

Want to write a book? Or have an idea about something? Put your idea into life and find publishers who might be interested in your work and profit from the royalty it will gain after some time. However, this one requires a huge amount of effort at play.

For about 6 months, you will need to plan and conceptualize your ideas. After all is said and done, you can start earning royalties on it for the rest of your life. You just have to work to make sure that your book will become highly rated.

12. Invest in REIT (Real Estate Investment Trust)

These are investment vehicles that hold properties within them – and you as the owner get to benefit from the gains, refinances, sale, income (or loss) on the property.

Investors use REITs to minimize their exposure to individual real estate properties or avoid the huge capital investment required to buy a single property.

13. Invest in VUL (Variable Unit Linked) Insurance

Unit Value Investments, or most commonly known as Variable Unit Linked (VUL), is also a trending way to earn passive money. Typically, it is life insurance with investment offered by insurance companies and regulated by the insurance commission.

In a way, you benefit from your money's growth while being kept safe and protected by the insurance policy covered.

14. Rent out your Car

Much like listing your space for rent, you can also opt to list your car for rent. This way, your car, which is mostly a liability, brings you some money.

15. Create an Ebook

Another passive income idea is to create an ebook and have it release it right away. Most people nowadays are into self-publishing, and it is pretty simple actually.

You create a book, edit it, make a book cover, and then sell it online. You can use Amazon's Kindle Direct Publishing. However, you need a lot of promotion and marketing to succeed here.

16. Invest in Index or Mutual Funds

If you are not familiar with Index or Mutual Funds, basically it is a basket of investments – a pool fund -managed by a professional fund manager. Through this, you practice the risk management strategy of diversification. We all know that every asset has a risk.

17. Find Resellers for your Product

If you have a booming potential product or services, you may also want to find resellers for your products and/or services. You just have to give your resellers a discounted price for their wholesale or retail price, and then both parties will benefit from the profit made. This way, you also widen your reach and network.

Final Thoughts

If you ever wonder how the rich and the financially independent make the most of their money, creating passive income is part of it.

They have the mindset of making their money work for them.

And now, you can do that too.

Many of these things were never taught in school. Thankfully, the internet has given everyone access to thought leaders and financial gurus that share knowledge on everything finance related. Now, we can learn about what to do with our money. You can be your own financial advisor, after all.

Passive income does not necessarily mean there will be no work required from you and would sometimes require some upfront capital to get started. Nonetheless, it’s a great way to make money and grow your money even in your sleep.

I hope this article has helped you in one way or another. If you have any ideas to create a passive income, please share your thoughts in the comments below.