I have become obsessed with the idea that I never have to work for another person again. I’m in my mid-30s and wish I had the brains to think about this stuff sooner. The other day I went on the hunt to find the world’s cheapest places to live. I actively day and swing trade stocks (and occasionally options) as my main source of income and there’s no reason for me to stay in an area where housing prices are high. In my search, I kept finding Portugal on various lists of affordable places for expats to retire to. It took a while for me to seriously look into Portugal because, well, it’s Europe and Europe is expensive. I have actually been to Portugal and don’t remember thinking it was cheap, but I was much younger, quite broke, and stayed in hotels. It is the loveliest place I’ve ever been though. Anyway, I started looking into how to move to Portugal without getting a job there. The only way I’ve ever been able to move overseas before was through an employment opportunity or as a dependent of someone who was employed in that country. The problem with trading stocks is that it isn’t really a job. But, it doesn’t really matter if Portugal is where I want to go. I discovered that a person can move to Portugal on what’s called a D7 visa that will grant you a residence permit upon arrival. To qualify for the D7 visa, you must be able to prove that you have access to about $1220 USD (1000 Euros) of passive income on a monthly basis. This is an easy number to hit if you’re already retired, but I’ve got a ways to go before I can access any retirement income. The idea of moving to southern Portugal has lit a fire under my butt to pursue building passive income.
What is Passive Income?
Simply put, passive income is money you are paid for not actively working. If you go to a job each day, your paycheck from that job was actively earned by working some number of hours. Most people who are not yet retired earn almost all of their money from actively working. Passive income can be dividend payments from stocks or Real Estate Investment Trusts (REITs), dividends from savings accounts or CDs, royalties, ad revenue from various sources, or just anything that pays you while you’re not working! It’s the best type of income, but so many (young) people don’t give it a second thought. This is why I wish I had started trying to accumulate passive income sources earlier- it’s easier the sooner you start. Passive income takes either monetary investments or a lot of upfront work. That’s why waiting isn’t a good plan, but better late than never! And if there’s one thing the recent economic disaster caused by the pandemic should have pounded into everyone’s brain, it’s that you can’t always rely on one income source.
Passive Income in the Form of Interest or Dividends
Most of us earn some sort interest on savings accounts, but interest rates are laughably low and no one is retiring early on the interest they’re earning from a regular savings account. CDs (Certificates of Deposit) usually have higher rates, but these still aren’t great at the moment and you have to lock away big chunks of money for longer periods of time. It’s a very safe way to earn interest, but with that safety comes low returns. It’s always a good idea to diversify your holdings, and CDs can certainly be a meaningful part of the savings game.
The kind of interest I’m interested in is compounding interest. Basically, I want to earn interest on my interest. There are some non-traditional options out there for compounding interest accounts with high rates. I’ve settled on using cryptocurrency wallets that offer very high rates on Stablecoins. Stablecoins are simply types of cryptos that are pegged to the US dollar. They don’t have the volatile price swings that we are used to seeing with Bitcoin, Dogecoin, or other popular cryptos. You can find wallets that will pay up to about 13% interest on Stablecoin balances. Each wallet has different deals and you need to do your research to determine which one you’d want to use. Check fees for making deposits and withdrawals, hold terms, and read reviews to see what other people say. Money held as any cryptocurrency in one of these wallets is not FDIC insured so should any of these companies get into financial trouble, your money may not be safe. With higher returns does come higher risk. Some wallets to explore are Celsius, BlockFi, Gemini, Abra, Crypto.com, and plenty others. Many of these wallets are competing for business since the realm of cryptocurrency is currently gaining traction with the larger public. There rates are very competitive and some offer bonus to sign up and make deposits. This is a great way to put some savings to work for you. I am currently using this method to build my passive income and I love seeing weekly interest deposits to my accounts.
I particularly like dividend income because you earn it by purchasing an asset. Collecting assets that pay money should be something taught to high schoolers. I am guilty of being a high school teacher who never breached the subject of wealth building with my students, but I am actually working on some lesson plans that will integrate nicely into the English classroom while covering the idea of acquiring assets. Anyway, back to passive income.
Some stocks, usually well-known and successful companies, pay their shareholders dividends. Dividends from stocks are paid quarterly and vary in amount depending on the company’s revenue. For example, Coca-Cola (KO) pays its shareholders about $0.40 per share owned. So, in a year, you would get about $1.20 for each share of KO you own. The price of one share of KO is currently about $55 a share (on June 8, 2021). Doing the math will quickly reveal that you have to put up A LOT of money to earn any meaningful amount of interest this way. A $5,500 investment in KO (just 100 shares) would yield quarterly dividend payments of only $30. Looking at it this way makes it seem like a terrible way to earn an income. But, the stock price itself won’t remain at $55. Good companies with solid earnings will have stock prices that grow over time. So, in addition to the quarterly dividends, you could have an appreciating asset on your hands. You have to be mindful of market fluctuations and understand that if buy KO today at $55, it might be worth $53 tomorrow. The idea here is to acquire solid companies that pat decent dividends and hang onto those for years rather than worry about the day-to-day movement of the share price. Additionally, you can set your dividend payments to reinvest automatically in more shares of the stock thus increasing the amount of dividends you’ll be paid in the next quarter. This is a way to achieve compounding wealth because you will be earning dividends from your previous dividends!
Since stocks can be risky, there are ways to gain dividend income that are slightly less risky. By investing in shares of an ETF (Exchange-Traded Fund), you can diversify your dividend portfolio without buying tens of thousands of dollars worth of different stocks. There mare many ETFs available that carry high-yield dividend stocks. These are a great way to build your dividend income in a slightly more stable manner.
You can also invest in REITs (Real Estate Investment Trusts) for dividend payouts. This is a way to invest in real estate without having to actually buy property. REITs are traded the same way stocks and ETFs are. You need a brokerage account to buy and sell all three of these dividend-yielding assets. I like investing in REITs because I want some exposure to real estate without being landlord. While I think owning rental properties is a great way to generate income, I’m not willing to deal with tenants and I don’t want to have physical properties to maintain Stateside if I’m going to be living overseas. Between the mortgage payment for rental property, maintenance and repair, risk of tenants who don’t pay, and hiring a management company to oversee the whole thing on my behalf, I don’t see enough profit potential for it to be worth it. This is why REITs appeal to me. There is zero maintenance. And that is the goal of passive income. One REIT that I am fond of is Realty Income (O). I like this one because they pay their dividends monthly instead of quarterly. There are tons of REITs to choose from that manage different property types and, just as with stocks, diversifying is a good idea.
If you want to get started with dividend stocks, you’ll need a brokerage account. Pubic.com offers a free account with a very easy-to-use, beginner oriented platform. If you open an account through this link here, you will receive a bonus stock of your choice worth up to $70. That’s a great way to begin your dividend journey!
Dividend income takes a lot of capital and time to get going in a meaningful way, but I’m a firm believer in just plugging away at acquiring assets. You’re money is better spent on one dividend-producing share of something than a dinner at a crappy chain restaurant. Instead of $50 plus tip bill, a stomach ache, and ton of regret, you’ll be building income for future self.
Passive Income from Products, Services, and Ad Revenue
Realistically, you’re not going to get far relying solely on interest and dividends (unless you already have millions to invest, in which case, why are you reading this blog?) so you have to get creative to build other streams of passive income. This is where instead of putting up capital, you have to put up your time. Selling digital products is an excellent way to build passive income. I don’t try to sell any kind of physical products online because shipping is expensive and the process of sending products to people is inherently not passive.
There are a few options for selling digital products. A lot of stock photo websites will let you upload photographs you’ve taken to be sold. What’s great about this is once you’ve got your photos uploaded to one of these sites, you’re done with the work but can keep getting paid long after you’ve done the initial work. I don’t try and sell photos only because I’m not a great photographer and it’s tough to do with two little kids. Some sites to check out if you’re interested in this are iStockPhoto, Shutterstock, Getty Images, Dreamstime, and plenty others you’ll find with a quick Google search.
Think about what type of digital good you might enjoy creating and see if there’s an easy way to get them sold online. I personally have building my passive income through Teachers Pay Teachers, a site that allows teachers to upload lessons for sale. While I was actively teaching, I would occasionally throw up a quiz or an essay assignment. For about two years I was earning $1-$3 a month with just three products in my store. And those were products I had created for my classroom so the work was already done. Once I decided I could no longer stand being in a school (another post for another day), I started combing through lessons from my husband to polish up and sell on TPT. I spent about month getting another ten items loaded and started making $10-$20 a month during the school year. I did nothing for an entire year but would still get monthly deposits to my PayPal account. That’s the beauty of creating and selling digital products. I’ve taken a much more dedicated approach to TPT and have been working on creating more expensive, high-quality teaching materials.
One really easy option that almost anyone can do is starting an online T-shirt store through one of several print-on-demand sites. Teepublic is one you can check out here, but there are a bunch to chose from. It’s costs nothing to open a “store” with them and you can have a store up and running in just a few minutes. You simply create designs that get printed on shirts, hoodies, mugs, phone cases, and other products. You don’t worry about maintaining or building your own website and you aren’t involved in producing, shipping, or collecting payments. Once you create and upload a design, Teepublic takes care of the rest. You earn a few dollars every time someone buys a product with your design. The best part is, you don’t actually need to be an artist to do this. You can just come up with funny or catchy phrases. People are always looking for gifts that say just the right thing! This sort of business picks up around the holiday season.
This is something I see a lot of bloggers talking about constantly. Ad revenue comes from having a lot of traffic to whatever platform you’re using that can show ads. I will be honest- it isn’t as easy as some make it out to be. You are paid very little for clicks and impressions so it takes a lot of traffic to get meaningful ad revenue. The same goes for affiliate marketing where you promote products on your blog and get a commission if anyone buys them through your link. With that being said, if you love blogging (like I do!), then go ahead and start a blog and get AdSense going. A long time ago I started a blog on HubPages and every couple years I reach the $50 threshold and get a surprise deposit to my PayPal. I don’t blog on HubPages anymore, but I do sign in every once in a while and just make sure my account is current. I’d rather have that $50 every two years than not!
I also have a podcast (check it out here!) that is monetized for ad revenue. It doesn’t generate a lot of income when I’m not actively recording new episodes, so I consider this to be partially passive. I do this more because I love talking about stocks than for the income although the little bit of income it generates is nice. I’m only one season in, so I’m curious to see how it grows.
If you can create YouTube videos, blog posts, or podcasts that do generate traffic, you’ve got yourself an income stream. Plenty of people are able to make this work wonderfully, but it does require a lot of work and isn’t always 100% passive. I consider these to be good supplements or vehicles to promote the sale of the digital products mentioned above.
Other Forms of Passive Income
If you can write e-books, this works as a great form of passive income. I haven’t written any for about 5 years now but I still get payments occasionally for the sale of my e-books. Amazon has made it really easy for anyone to self-publish but you want to make sure your potential e-book will have wide appeal before putting in the effort to write, edit, format, and publish it. If you don’t want to write a book yourself, you can hire ghost writers on sites like Fiverr to write one for you. You can get a short book written for $50-$80 and then edit and publish it yourself. It takes some time to make back the initial money spent on hiring a ghost writer, but it can work. I would say the effort level is very high for this one.
One thing I really enjoy is earning money with credit cards. For the longest time I carried balances and paid interest but after eliminating all my debt, I now put EVERYTHING on a cash rewards card and then immediately pay it off. I get paid about $50 a month to use my credit card now. It’s a good feeling.
That brings me to another important point about creating passive income. If you’re earning 10% interest on your savings but paying 18% on your credit card debt, you’re not getting anywhere. It’s so important to be aggressive about paying off debts and not taking on any debt that is unnecessary. I feel differently about a mortgage because that’s an asset that will most likely appreciate in value. Student loans, new car loans, and credit card debt are not investments. Of course you likely need a car, but you most likely do not need huge student loans and your everyday spending should be coming from your bank account- not a line of credit.
I bought a foreclosed house in 2015 when there were still lots of foreclosures and vacant properties on the market. It needed at lot of work but the house’s guts were good. New floors, paint, fixtures, and appliances nearly doubled the home’s value when I sold just four years later. That is how I erased my debt and was able to start thinking about how to make my money work for me instead of barely scraping by because of high-interest debt.
The Key to Enjoying Life
I personally hate the phrase “money can’t buy you happiness” because we literally need money to survive. I just think the phrase makes it sound like anyone trying to earn money is a greedy pig. I do want a lot of money to do fun things and give my kids a life where their parents are present and they get to have wonderful experiences. I hate being a slave to someone else’s business where I feel like I never have enough free time or enough money. This is where passive income becomes something really important to pursue as early as possible. Like I said earlier, I wish I thought about this stuff when I was a teenager, but I was busy thinking I needed to buy stuff to be happy.
This plan of mine to retire in Portugal before I’m 40 is completely doable and I have two small kids. It’s time to assess what you are doing with your money and make a concrete plan to enjoy life and have free time all while still earning money. All you have to do to get started is start thinking about collecting assets. That’s it.