How to Make Passive Income

Q: How much can you make with passive income?

There is no straightforward answer to this as it depends on how much time and money you put into your passive income streams before you reap the benefits. Some people who do well on the stock market end up living off the passive income they earn from dividend payments. However, realistically, your passive income won&#x2019;t replace your main income from your job. Instead, it&#x2019;s a great way to save extra money on the side.

Q: How can I make money while I sleep?

Most of these passive income ideas within this guide will make you money while you sleep. However, you will need to invest time and money before these ideas start to generate income.

Q: How passive income is taxed?

Just like regular income, you are taxed on passive income. You&#x2019;ll need to fill in a <a href="https://www.latestdeals.co.uk/guides/income-budgeting/how-to-complete-a-self-assessment-tax-return">self-assessment tax return</a> each year if you&#x2019;re earning extra passive income on the side of your job.

Q: How can a beginner make passive income?

The best way for a beginner to earn passive income is to set up a savings account with decent interest rates or a Lifetime ISA. This is a great way to not only save money but earn interest on that money you&#x2019;ve saved. It&#x2019;s the easiest and most risk-free way to earn passive income.

Q: Does passive income require no work?

No. It&#x2019;s a myth that passive income requires no work. As with most things, you&#x2019;ll need to put time, effort and money into it before you start to reap the benefits.&#xA0; For example, you might spend a year writing a book. However, once it&#x2019;s published, you can earn passive income forever without having to continue working for it.

Fiona Leake

| Edited by Tom Church

Updated 13th May 2021

If you’re looking for passive income ideas then you’ve come to the right place! Our guide helps explain what passive income is and how to create passive income for yourself. Passive income is a great way to increase your money and the key is that you can do it without actively working!

In this guide

What is passive income?

Passive income is the best kind of income as you don’t have to actively work for it! The idea is that you put in the effort upfront and continue earning income for the rest of your life.

For example, buying property and renting it out. The initial upfront work is the cost of buying a house. However, you’ll earn money each month from the tenants paying you rent.

The golden rule of passive income is to protect your time!

You should be able to work a full-time job whilst earning passive income on the side. Passive income should eventually require very little effort to maintain.

For example, you might open an investing account which requires you to put in some upfront effort. However, over time, your investments will grow and give you regular income, requiring little to no effort.

Passive income vs. Active income

Sometimes it can be difficult to determine what is and isn’t passive income. So, here are some examples:

Active income	Passive income
Consulting by the hour.	A course that you sell online.
Freelance computer programming.	Building a programme you sell.
Freelance writing for clients.	Writing and selling a book.
Working in construction.	Investing in buying properties and renting them.
Driving for Uber.	Renting out your car.
Freelance photography for clients.	Taking photographs and earning royalties from them online

10 Ways to earn passive income

Now we’ve established what passive income is, we can get into the fun stuff - how to create your own passive income! Here are some of the best ways to earn passive income…

1. Earn interest on your savings

One way to earn passive income is on your savings. Some current accounts offer high-interest rates on your savings. You won’t make thousands of pounds off your savings but if you regularly add to the account each month, the interest will eventually add up. It’s passive income as you don’t have to work for it!

The best returns you’ll see from savings is from a Lifetime ISA (Individual Savings Account). Lifetime ISAs are for buying your first home or saving for retirement. You must be over 18 but under 40 to open a Lifetime ISA.

You can put in a maximum of £4,000 each year into your ISA until you’re 50. You must make your first payment into your ISA before you’re 40.

The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. Find out more about Lifetime ISAs on the government website.

2. Get a cashback or rewards credit card

If you’re already thinking about getting a credit card, pick one that gives you passive income or rewards! You can find this with either cashback or rewards credit cards.

Cashback credit cards work by giving you a percentage of cashback on your purchases. For example, if you have 1% cashback and spend £100, then you’ll get £1 back. Find out more about cashback credit cards here.

Rewards credit cards work by giving you a certain number of points for every £1 you spend. You can build up these points to then redeem them for rewards such as air miles, flight upgrades, hotel vouchers, shopping vouchers and more. Find out more about rewards credit cards here.

Remember, money you spend on a credit card is debt. If you don’t repay what you spend on your credit card each month, the added interest will outweigh any passive income you earn from cashback or rewards. So, only get a credit card if you can spend and repay responsibly!

3. Rent out what you’re not using!

Got a spare room in your house? Consider renting it out to a lodger! This is a great way to earn some extra passive income if you’re comfortable with someone else living in your home.

Don’t use your car regularly? You can rent it out on Turo. You can list your car on Turo for a couple of days and charge what you like for people to rent it out. Another great way to earn easy passive income.

Have some spare storage space? If you aren’t using your loft or garage, you can sign up to Storemates and rent out your space.

Got a spare parking space? If you live near a city centre, airport or train station, then your spare parking space could fetch you a lot of money! If your driveway isn’t being used, consider renting it out for extra passive income.

4. Invest in high-dividend stocks

A dividend is money paid out to shareholders from a company’s profits. If you invest in dividend stocks, you’ll receive regular dividend payments from the company.

If you pick high-dividend stocks, it means that the company’s dividend payments are high. Once you invest, you’ll receive dividends, making it one of the most passive forms of income.

However, when you invest in stocks, you’re taking a risk as the stock could perform badly and go down in value. So, make sure you do your research on dividend stocks and understand the market first.

5. Host an Airbnb

You can use Airbnb to rent a room in your house, as mentioned above. However, if you have a holiday home then listing it on Airbnb is a fantastic way to earn passive income. Most people immediately turn to Airbnb when looking for a place to stay on holiday. If you’ve got a spare home, it’s the perfect place to list it!

6. Use affiliate marketing

Affiliate marketing is one of the best ways to earn passive income. Affiliate marketing allows you to earn commission by promoting a product using an affiliate link.

When customers click on the link you provide and make a purchase, you’ll earn a percentage of the total purchase as you directed them there with your affiliate link.

You’ll need a decent online presence to make money off affiliate marketing. Usually, you need a popular blog, Instagram account or YouTube. Thankfully, it’s easy to build an online presence these days so this is a viable form of passive income for many.

Did you know: Affiliate marketing is how Latest Deals funds the community? Read more

7. Build an online course

If you’ve built an online presence, selling a course on a website like Udemy is another brilliant form of passive income. If you have insider knowledge of how to build an online presence or how to edit photos etc. then you can make a course and sell it online.

You’ll have to put effort into making the course initially but the passive income will come from selling it again and again online.

You can create multiple course packages at different price points for different skill levels. It’s a great way to diversify your income.

8. Use cashback websites

Cashback websites can be a safer way of earning cashback than cashback credit cards as you won’t be borrowing any money. Essentially, you use cashback websites as a portal to click through to something you actually want to buy. Using the link on the cashback website earns them money and they pass some of that money back onto you.

For example:

You want to buy something from Amazon, so you head to a cashback website.
You find the item you want on Amazon on the cashback website.
You click on the link and buy the item from Amazon.
The cashback website might earn £5 and will pass £1 of that back to you.

The key is to only use cashback websites when you actually need to buy something. Don’t just use them for the sake of it as that will be counterproductive!

The best cashback sites at the moment are TopCashback and Quidco.

9. Ask for company stocks

Yes, your regular 9 to 5 job can earn you some passive income! When you start a new job you can ask for company stocks. You may need to invest some of your own money but some companies will also give you some stocks for free once you’ve been working with them for a while.

As the company grows, so will the stock price! Making this a brilliant form of passive income. However, note that there may be conditions on selling the company stock, and it may be difficult to do so if the company is not publicly traded i.e. listed on a stock exchange.

10. Start dropshipping

Dropshipping is when a seller accepts customer orders but doesn’t keep the goods in stock. Instead, the goods are shipped directly from the manufacturer or retailer.

To make money from dropshipping, you work directly with a wholesaler and buy goods at a discounted rate. You then sell those goods on Amazon, for example, and make money in the price difference.

For example, you might bulk buy an item at £3 each from a wholesaler. You can then sell those items for £6 on Amazon. When someone makes a purchase from your shop on Amazon, the order goes directly to the wholesaler who will then ship it off.