Passive income is a smart way to fill your wallet without actively working. Sounds too good to be true? Believe it or not, there are many ways to earn income this way, from renting out real estate to financing loans for profit. If you want to make money with little effort, passive income could be the solution. For starters, here are the best passive income ideas for 2023.
The best ideas for passive income in 2023 What is passive income?
Passive income is money you earn without actively working for it. It’s passive because it requires little effort to maintain. For example, it may just consist of you collecting rent or receiving profits from an investment. In comparison, traditionally earned income requires active participation, meaning you work and receive a salary, wage, or tip. If you don’t work, you don’t get paid.
Because there are only so many hours in a workday, passive income offers ways to increase your earning potential without investing a lot of time, talent, or physical labor. Building a passive income stream can take some effort at first. But once it gets going, passive income automatically pays off.
What passive income is not
Passive income is not the money you make when you work for an employer or contract out your services. These income streams require effort and are traditional income. Passive income is also not money you earn by working a second job or earning extra money. Working more by taking a second or even a third job is an excellent way to build an income, but it is certainly not passive.
By comparison, passive income works for you so you can spend less time working and more time doing the things you enjoy. However, many people take on a second job or a side hustle to earn the initial investment needed to build a passive income stream.
Passive income ideas Invest in crowdfunding real estate
Real estate is a fantastic way to earn extra money. But few of us have the capital to buy, sell, or rent real estate. That's where crowdsourcing comes in. Arrived Homes, for example, is a real estate crowdfunding platform that allows you to invest in a rental property for as little as $100 per share. This way, you get to enjoy the benefits of making money from real estate without having to worry about startup, maintenance, or large financial commitments.
CrowdStreet and Fund That Flip offer similar opportunities for those looking for passive real estate income, but with a higher initial investment. For example, Crowdstreet's minimum investment is $25,000 and FundthatFlip’s is $1,000.
Sell advertising space on your car
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Carvertise and Wrapify offer you a unique opportunity, at no upfront cost, to earn hundreds of dollars in passive income per month by driving around town in your own car. With Carvertise, for example, you can earn between $450 and $1,500 per campaign by promoting brands like Netflix, Coca-Cola, Planet Fitness, and Nascar.
Explore Creator Marketing
If you’re popular on social media and know your way around Tik Tok or Instagram, you can use your influence (and social media profile) to market products. Companies pay big bucks for celebrities to mention their products in one of their posts. You can do the same. Sometimes brands even sponsor a video you post and offer your audience a discount. Every time someone takes you up on the offer, you get paid too.
Collective Voice is a good place to start. With commissionable links and sponsored campaigns, you can stay online, engage with your audience, and make passive money in the process. And since members of your audience will be using your content offers throughout their lifetime, the money keeps flowing even when you’re not online.
Invest in peer-to-peer lending
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If you have capital to fund high-interest loans — also known as peer-to-peer or P2P lending — you can earn passive income. P2P lending matches borrowers with private investors and has less stringent borrower eligibility requirements.
With low entry costs (investments start at $25), a broad spread of loans, and above-average returns, a portfolio of peer-to-peer loans can generate a steady stream of passive income. Typically, investors are paid monthly when borrowers make a payment on an existing loan.
Sites such as Avant, Upstart, and, Prosper are firmly established in the market, but engaging in peer-to-peer lending is not without risk. If a borrower defaults, lenders often lose their money. And if a platform goes bankrupt — which has happened — your money may not be protected and you may not get reimbursed for your loss by the Federal Deposit Insurance Corporation (FDIC).
If you want to learn more about P2P lending and the best lending platforms, read our guide to the best peer-to-peer lending.
Can you have more than one source of income?
Since passive income requires little time and effort, is it possible to build multiple income streams? Yes! No one can stop you from becoming a passive income guru. However, the key is to find a few complementary opportunities.
Building multiple income streams is not only smart, but it's also a smart way to increase your income without spending more time doing it. Imagine making money from two, three, or even four passive income sources while working your regular full-time job. That's the definition of working smarter, not harder.
Do I need money to make passive income?
While you don’t always need money to make money, the best passive income streams often require an initial investment. However, as we’ve outlined here, there are still plenty of passive income opportunities that you can take advantage of with a small initial investment. With some initial investments as low as $100, there are options for every budget.
Best of all, once you earn a few dollars, you can invest them in a second or third passive income strategy to double or even triple your profits.
Passive income and taxes
What about passive income and taxes? Does the money you earn passively still have to be reported? Unfortunately, yes. The IRS defines “trade or business activities in which you are not substantially engaged” as passive and is clear that passive income is taxed.
Whether you sticker your car with a fancy advertising slogan or sell your influence online, you must report all money you earn passively, and it will be taxed at the same rate as active income, with no exceptions. However, as a taxpayer, you can claim a loss against passive income at IRS. To report gains or losses from passive income, you must complete Form 8582, Loss Limitations on Passive Activities, when you file your taxes.
Tips for building wealth with passive income
Passive income is more accessible than you think. If you build it well, this unique source of income can help you develop a strategy for financial independence.
The best way to build wealth with passive income is often to understand how to best leverage your strengths by augmenting traditional income streams with passive strategies. For example, if you run an online blog with a decent number of subscribers, consider affiliate marketing to make some extra money. The more subscribers you have, the more opportunities you have to run affiliate ads, which increases your passive income.
Here are some more tips on building wealth with passive income:
To maximize success, put the most effort into activities you enjoy.
Look for ways to expand traditional active income streams with passive opportunities.
Research and mimic the passive income activities that have achieved the most success.
Consider the time commitment and initial investment, and set realistic expectations.
Consult a financial advisor if you are unsure about a passive income strategy. To find the best financial advisor for you, read our guide to choosing a financial advisor.
The bottom line
The adage “work smarter, not harder” certainly applied to passive income. Building assets that make money on their own is the key to financial independence and a smart way to build lasting wealth.
Whether you are investing in real estate, building a YouTube channel, or renting out ad space on your car, finding the right passive income strategy requires knowing your strengths and interests, and how much time and energy you’re willing to invest.
Frequently Asked Questions (FAQs)
What is the easiest form of passive income to earn?
The easiest way to build passive income is to maximize your existing passive income streams. In other words, build on existing strategies. For example:
Maximize your investment income with more high-yield investments.
Increase your website sales with an e-book.
Increase your social media influence with affiliate marketing.
Expand your investment portfolio with multiple loans through peer-to-peer lending.
If you don’t have a passive income stream yet and want to get started right away, you can:
Sell or rent property or assets you do not use, such as a room in your house or parking spaces.
Monetize your skills or hobbies by starting a blog or YouTube channel, for example.
Make your money work harder for you by investing in high-interest savings accounts or CDs.
Can I make enough money to live on a passive income?
Yes, you can make enough money with passive income to live. However, you need to decide what that looks like for you. Are you okay with living in an apartment where you rent out an extra bedroom? Do you want to go through the trouble of maintaining an online store or posting daily on social media to keep your online profile active?
While some passive income sources do not require any investment from you, most require you to have at least some money to get started. You can earn a nice income from high-yield investments, but you still need the capital to invest in the first place. Earning rental income is effortless, but you need to buy and maintain the property. And you need to build an online store before you can sell your art.
The point is that while you can certainly make a decent passive income, it won’t happen overnight and it will take some effort, both financial and otherwise, to make a passive income.
How can I make passive income as a beginner?
The path to a self-sustaining passive income stream starts with small steps. Set realistic expectations and small goals. Then, as you begin to see a positive impact, expand your goals accordingly. Here are some steps to get you started:
Choose the model you are interested in, be it real estate, investing, or selling. Remember that you can build on what you already have to become successful faster. For example, leverage a social media following you already have or rent out a room in a home you already own.
Take stock of your resources, including the amount of cash, assets, and time you need to get started. If you find that you need more money for an upfront investment, use our savings calculator to determine an appropriate savings plan.
Create an action plan with a clearly defined beginning, middle, and end. You can rely on experienced professionals to help you build a solid foundation for success. Consider contacting a financial advisor to help you create this plan.
Execute your plan, revise and change it as needed. Learn the strategies that work and drop the ones that don’t.
