According to a report issued by the Federal Reserve a few months ago, the vast majority of Americans do not even have enough saved to handle a $500 emergency. This is surprising because after the experience of the great recession of 2008 - 2009 one would think Americans would make savings a high priority. If you find yourself in this situation don't panic, all is not lost. Do an inventory of where your hard earning money goes and see what can be squeezed out or eliminated. Another way that may help are these 6 easy ways to earn passive income.
- Open a high yield savings account: High yield savings accounts offer interest rates over 2% versus traditional savings accounts which offers a crappy 10 bps on average. By opening up a high yield savings accounts you can increase your passive interest income by 20 times. Go to NerdWallet to review their 10 best high yield savings accounts. I like ones that offer a bonus such as Discover which offers $150 with $15,000 initial deposit plus a 2.1% APY.
- Invest in dividend stocks: Stocks that pay dividends are great passive way to earn income. Many companies return a portion of their profits to shareholders. One can buy high yield dividend stocks or stocks that are growing their dividends. I prefer companies that are growing their dividends above 7% on average per year. It is a nice feeling when a company raises its dividend by 7% or greater. It is like you getting a raise. Now who gets a 7% raise every year in this economy? Before your buy check out a companies dividend payout ratio which is simply the dividend divided by the earnings per share. Typically a payout ratio of under 35% is what you want to target. Please do you homework before buying a stock because stocks are the riskiest of all 6 method of earning passive income.
- Real Estate Investment Trusts (REITs): REITs are similar to dividend paying stocks except by government regulations a REIT must payout 90% of its earnings in the form of dividends to shareholders. REITs are a great easy way to own real estate without the hassle and costs of owning or buying real estate. Another advantage of REITs, they are more liquid than real estate. In addition, REITs invest in many forms of real estate such as rentals, skyscrapers, malls, cell towers, hospitals, nursing homes, forests, warehouses and much more. The average investor may not be able to buy a warehouse or own a cell tower but through REITs this is possible.
- Bonds: Bonds are another simple way to earn passive income. Companies, governments, agencies and government sponsored enterprises all need to raise money. Many times they borrow money from the public and offer to pay interest at a fixed rate. You simple lend money or buy bonds and get paid a fixed interest rate on a fixed schedule and at maturity get your loan back in full. You can buy bonds directly from the government and pay no commissions. Another easy way to buy bonds is through a bond mutual fund or bond exchange traded fund (ETF). Bond mutual funds and bond ETFs are portfolio of bonds which offers instant diversification but are subject to interest rates changes due to them having no maturity date.
- Rental Property: Owning a property is probably one of the more familiar forms of earning passive income. We can debate how passive one can be when you are the landlord. However, buying property and renting out apartments is a great way to earn income. Unlike a REIT, you get to keep 100% of the income since you are the sole owner of the property. However, unlike REITs, rental property is direct real estate which has less liquidity, more maintenance costs, requires more capital such as a down payment and other bank fees, lawyer fees and associated real estate costs.
- Advertising on your blog: Creating a blog can be a fun way to earn passive income. You can write about a subject or topic you love and earn money. Just place Google Ads on your blog then just create blog entries. However, to make serious money one will need a ton of clicks on the ads per day. My blog has only made $50 this year so please click on the ads a few million times.
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