7 Ways to Earn Passive Income (and Why It's So Important)

If you're looking to build wealth, if you're looking to save up a nest egg for retirement, or if you're merely looking for a way to alleviate financial stress in your life, passive income is one of the best ways to do it. The phrase naturally sounds like a buzzword, or something you'd hear on a late-night infomercial, but passive income really exists and operates exactly how it sounds--earning you revenue without demanding much effort or attention.

Of course, this isn't a get-rich-quick scheme, and you won't be able to earn millions in passive income, but even a small stream of extra revenue can make a major difference in your life.

Why Passive Income Matters

Passive income is especially powerful because it doesn't eat up your time. The old adage "time is money" applies here; if you think about most conventional forms of earning revenue, money is simply an exchange of your time. You're paid an hourly rate or a salary for straightforward work, and the time you spend getting an education or more experience can yield higher pay rates. The best economic decision, then, is the one that earns you the most money for the least possible time--and passive income costs basically no time on an ongoing basis.

The tradeoff is that most passive income sources require an upfront investment of time or money to begin paying off. Take these methods as examples.

Dividend-paying stocks. Your first option is to invest in stocks of companies with a long history of paying dividends. Dividends are basically a way for companies to share profits with shareholders, usually for a fixed dollar amount per share of ownership. These companies tend to be in excellent financial health, making them good long-term investments in general, but it's the recurring dividends that will serve as your main source of incoming revenue. Choose your companies carefully and try to diversify your holdings here; you can even let someone else do this work and simply choose a dividend-based mutual fund.

Rented real estate. Real estate has been a staple investment for decades, and for good reason--demand is always going to exist. Buying a rental property will allow you to pay for the mortgage with the rent your tenants pay you, hopefully leaving you enough left over to earn a reasonable profit. You'll also probably turn a profit on the property itself if you hold it long enough--just be sure you do your research and understand the true cost of property ownership.

E-books. You can also go the content marketing route and publish e-books on a subject you consider yourself an expert in. There are no strict rules to follow here, but you will need to do some research on your target market and competition before following through. Once posted, even charging a few dollars per download can be highly profitable for you in the long run.

Advertising. If you already have a blog in place, or some other means of attracting traffic to your website, you can use advertising to generate a solid stream of income. As long as you get a few thousand visitors a month, even a single display ad could help you earn a few hundred to a few thousand dollars in extra revenue.

Affiliate links. Similarly, if you're already getting traffic to your blog, you can use affiliate links provided by Amazon or similar retailers to forward traffic to specific products they're trying to promote. In these cases, you'll earn a percentage of any revenue you generate, so choose your method of promotion accordingly.

Apps. If you aren't already skilled in programming, this one may be hard to achieve, but creating a useful app could earn you thousands of dollars in extra revenue. Of course, if you aren't familiar with coding, there are plenty of programs online that can teach you for free--like Codecademy. This is another type of upfront investment.

Existing businesses. Though this will require significant upfront research and (probably) some significant cash, you can also consider buying up some existing profitable businesses. There are millions of online businesses and blogs currently making money, ranging from small to gigantic, and some of their owners are ready to exit. If you can find a good deal here, you can buy up a business, keep everything the same, and collect your profits as the company (hopefully) continues to grow. You'd be the primary decision maker at that point, so make sure you have a baseline knowledge of solid business practices before going this route.

Once you start opening up streams of passive revenue, you won't be able to stop. With the profits you make from these income streams, you can reinvest in even bigger, more diversified streams, and slowly build an empire of self-perpetuating revenue--at least, that's the dream. Even though these are "passive" forms of making money, remember they do demand your initial attention, research, and hard work. Only with that initial effort will these begin to pay off for you.