Passive income is a great way to earn money without having to actively work for it. Whether you’re looking to supplement your current income or achieve financial freedom, there are many opportunities to earn passive income in 2023. From earning interest through high yield savings accounts to participating in Employee Stock Purchase Plans (ESPP), the options are endless. Below are the best passive income ideas for 2023, each with the potential to help you boost your earnings.
Use A Cash Back or Rewards Credit Card
One very easy way to start a passive income stream is to get a cash back or rewards credit card. This doesn’t mean spending additional money. What it does mean is to generate dollars, or rewards points, from the money you are spending anyways. If you need extra cash in your pocket, choose a rewards credit card that allows you to redeem points for cash. If you don’t need the cash, the credit card can help reduce your spending because you can now use points to buy things. Instead of spending more money, save the money you would have spent.
Put Your Emergency Fund and Savings In A High Yield Savings Account
Every dollar you save, whether for investing or for an emergency fund, should be generating additional income for you. Any money you have saved for an emergency fund or for investing later should be held in a high yield savings account. While the high yield interest rates don’t yet match inflation rates, most interest rates are now at or above 3.30% APY. Not sure where to put your money? Nerd Wallet shares the top 10 best high yield savings accounts.
Buy Short Term Treasury Bills
A Treasury bill, also known as a T-bill, is a short-term debt obligation issued by the U.S. government. Treasury bills have different maturity time frames including 3 month, 6 months, 9 months, a year and longer fixed timeframes. Treasury bills are considered some of the safest investments because they are backed by the U.S. government. Short term treasury bills are easy to buy are now above 4.30% APY.
Open Up A New Bank Account And Get A Signup Bonus
Bank bonuses have finally started returning. Usually there are conditions like a minimum deposit amount, setting up direct deposit or holding the money in the account for a set amount of time. Make sure you understand the terms and conditions when deciding what new accounts to open. Money Crasher’s has a list of 31 bonuses banks are running now, with bonuses up to $300!
Open Up A Certificate of Deposit
A CD (certificate of deposit) locks up your money for a set period of time but guarantees a return. If you’re just starting out and have fully funded your emergency fund a 12 or 18 month CD is a good place to start (assuming the rates are higher than a high yield savings account). It’s good investment to start with as you get to learn about illiquid investments but you know when you’ll be able to take the money out and it won’t be held for long. Don’t have a preferred bank? Here are the best rates for CDs right now.
Invest in the Stock Market
Stocks are a way to build wealth passively. Stocks are a type of investment that represents ownership in a company. Investors buy stocks that they think will go up in value over time. Investors don’t make (or lose) money until they sell the stocks they buy. There is no guarantee that the stocks investors buy will go up in value. This is true in any market, although it is more often talked about when there is a lot of market volatility. Don’t worry if you only have a little amount of money to invest. You can open up a trading account on Robinhood with $0 and can buy fractional shares of a company. Starting June 9th you can buy fractional shares of top companies on Charles Schwab with as little as $5. If you’ve never invested in the stock market before learn how to start investing.
Invest in Dividend Stocks
Dividend stocks are stocks that offer a discretionary distribution of profits. When researching stocks you’ll know if a stock is a dividend stock if you see a yield greater than 0. Dividends are paid out on a monthly, quarterly or yearly basis. Investors need to own the stock on the ex-dividend date in order to receive the dividend payment. Stocks that pay dividends typically provide stability to a stock portfolio but do not outperform high quality growth stocks according to Investopedia.
Invest in Real Estate Investment Trusts (REITS)
Think of a REIT like a mutual fund for real estate. REITs is a type of company that allows investors to pool their money to invest in real estate. In order to be considered a REIT, the company is required to pay out at least 90% of their taxable income back to their investors. That is what usually makes REITs a great investment to generate passive income. It’s important to be aware that in these tough times tenants may not be able to pay rent so before you invest in a REIT know who their top tenants are and what risks they may have in their portfolio. Already several retailers have announced bankruptcies such as J.Crew and Neiman Marcus. Investors should understand if the REIT they are investing in has exposure to these businesses or other retailers that may be at the brink of bankruptcy. Learn more about investing in REITs here.
Participate In An Employee Stock Purchase Plan (ESPP)
ESPP is a benefit offered by some publicly traded companies to their employees. ESPP is the ability to purchase company stock through payroll deductions at a discounted rate.
The effort required is minimal and requires enrolling in ESPP and selling the shares to realize gains (or losses). You have a guaranteed return if you sell the day you receive the shares. If you decide to hold the shares for longer, and the shares increase in value, it will help you accumulate wealth. Companies can offer a maximum discount of 15% on company shares. With current savings accounts interest rates at best at 1.3% APY, and average stock returns at 5-7% a year, but not guaranteed, this is a great deal.
Participate In A 401(k) Company Match
A 401(k) company match isn’t money you’ll be able to touch until you retire, but it’s another way to generate income without extra effort. 401(k) plans are retirement savings plans sponsored by employers that allows employees to contribute to their retirement savings pre-tax. Many employers also offer to match or partially match employee contributions. Learn more about 401(k) plans including tax benefits, employee company match and accelerating funding your retirement.
Invest in Startups
According to Fortune, while the number of U.S companies continues to grow, the number of U.S. companies that are traded on stock exchanges has plunged 45% since peaking 20 years ago. Additionally, new companies have been completely disrupting traditional business models but many of these companies aren’t yet public. If you only invest in public companies, you are limiting your investment options more so than previous generations.
See Also: How to Start Investing in Startups
Additional Ways to Increase Your Income
Often you’ll see blogging, investing in real estate and flipping items on eBay referred to passive income streams. Yes, these are all ways to make more money. However, all of these options require a lot more time and effort to see the payoff. Becoming a landlord isn’t just buying the real estate, getting a tenant and collecting a check. A passive income stream is truly a set it and forget it. If you’re willing to put in more effort, learn about how to make money fast with a side hustle.
What are ways passive income ideas you’ve used in 2023?