Keeping Up With The Bulls

A personal finance blog focused on making more money, saving money and smart spending.

Passive investing generates income that requires little or no effort to earn, maintain and grow that income. Passive investing examples include dividends from dividend stocks, 401(k), Roth IRA, interest from high yield savings account and dividends from REITs. Learn more about what are passive investments, different types of passive investments and how to get started.

10 Passive Income Ideas in 2020

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COVID-19 2020 has changed many of our income plans. While some people are able to work from home they may have reduced pay or uncertainty about their pay / hours. Others find themselves laid off or furloughed. With all this uncertainty, it’s important to have several income streams. This helps reduce the risk of no income should you get laid off or furloughed from your day job. Even though there is uncertainty of when businesses can return to normal there are plenty of ways to earn more money from the comfort of your home. Learn how to generate passive income and then get started with these passive income ideas below. These passive income ideas range from very easy – all you need to do is swipe the right credit card – to passive income investing – such as dividend stocks – which should be researched before the investment is purchased.

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. This approach won’t put actual cash in your pocket. Instead, it’ll either help reduce your spending because you can now use points to buy things or it’ll help reduce your credit card bill with cash back. 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. Most of the online only banks tend to have higher interest rates (such as Marcus by Goldman Sachs and Ally Bank). Right now the highest interest rates are around 1.3% APY (annual percent yield). This means if you put $100 in the account in 12 months you will have made $1.30 in interest. Not sure where to put your money? Nerd Wallet shares the top 10 best high yield savings accounts.

Rates are falling with the Fed lowering rates. But, you’ll always need an emergency fund at minimum so you might as well get 1-2% APY.

Open Up A New Bank Account And Get A Signup Bonus

Sometimes banks run promotions where you can make $100 by signing up for a checking account or savings account! 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. 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.

See Also: Why You Should Participate In Your Employee Stock Purchase Plan

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 you’ve found to generate passive income streams?

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How to Generate Passive Income

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Generating passive income isn’t always the easiest to start, but it’s a great way to help you build wealth. It’s important to note that most income isn’t passive income. This is because most income requires someone giving their time and effort to generate the income. So, what exactly is passive income and how can you generate passive income?

What Is Passive Income?

Before we get started on how to build a passive income stream, what is passive income? Passive income is income that requires little or no effort to earn, maintain and grow that income. Passive income examples include dividends from dividend stocks, interest from high yield savings account and dividends from REITs.

There are additional activities that sometimes are considered passive income but do require more time and effort. The amount you make driving for Uber depends on how many hours or how many trips you drive for Uber. Flipping items on eBay require some time to find the items, post and price the items and then ship the items once sold. Becoming a landlord takes time to identify the right property, get the right contacts, find a renter and then both maintain the house and the relationship with the renter.

There are other activities which require upfront work but can turn into passive income. A good example is blogging or creating your own e-book. It takes quite a bit of work up front but eventually you can turn it into passive income. What are ways you’ve found to generate passive income streams?

See Also: How to Start Investing

How to Create Passive Income With No Money

Many passive income streams require money to get started. You put your money in a high yield savings account for example and every month you’ll automatically earn interest. In order to invest, you need to have money. What if you want to create a passive income with no money today? Passive income ideas with little money include selling stuff you own that you don’t use or get a cash back or rewards credit card. If these aren’t options for you, you can still start a passive income stream. However, you’ll need to put in a bit more effort to get a little extra money to get started. Starting a side hustle is the best option here.

Sell Stuff You Own That You Don’t Use

Do you have household items, clothing or other stuff you don’t use lying around? Make additional cash by selling it on Poshmark, eBay, OfferUp or another site online. Will you make as much as you originally paid for it? Likely not if you paid full price. But, if you have no use for it anymore you might as well get some cash for it and use that cash to start a passive income stream.

Get 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. Putting every purchase on a credit card will also help track your expenses. Sometimes with cash it’s harder to remember where exactly you spent the money. This approach won’t put actual cash in your pocket. Instead, it’ll either help reduce your spending because you can now use points to buy things or it’ll help reduce your credit card bill with cash back. Instead of spending more money, save the money you would have spent.

Make More Money Than You Spend

It takes money to make money passively. The more money you have, the more money you can make through passive income streams. Luckily you don’t need a lot of money to start building a passive income stream. Whether you increase your income or cut your spending it doesn’t matter, but you need to start saving money to build a passive income stream. Even if you only have enough money to generate $1 of passive income, it’s something. It’ll slowly grow over time, and grow quicker as you save more money to put toward your passive investments.

There are two ways to get the money to start a passive income stream. You can start making more money or start spending less money. You can make more money through advancing your career or a side hustle and eventually through your passive investments.

The other way to get enough money to generate a passive income stream is to spend less money and be smart with your spending. Ultimately you need to do a combination of both but your top focus should be earning more money. Eventually you’ll reach a point where you can’t save any more money whereas with making money the sky is the limit. It is much easier to save money to invest when you have a higher salary.

Put Your Savings in a High Yield Savings Account

The easiest way to start building a passive income stream is to put your cash 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. Most of the online only banks tend to have higher interest rates (such as Marcus by Goldman Sachs and Ally Bank). Right now the highest interest rates are around 1.7% APY (annual percent yield). This means if you put $100 in the account in 12 months you will have made $1.70 in interest. Not sure where to put your money? Nerd Wallet shares the top 10 best high yield savings accounts.

Look for Sign Up Bonuses at Banks

Sometimes banks run promotions where you can make $100 by signing up for a checking account or savings account! 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. Money Crasher’s has a list of 31 bonuses banks are running now, with bonuses up to $300!

Invest in Passive Investments

Once you have some money to invest, you can start investing in different types of passive investments. The least amount of effort required for building a passive income stream is to select an investment with a guaranteed return. However, those options with the lowest risk and lowest effort also tend to be the lowest yielding.

There are many different types of passive investments. Passive investment examples include Certificates of Deposit, Stocks, Dividend Stocks, Mutual Funds, ETFs, Crowdfunded REITs, Private Companies and more. Stay tuned for part 2 where I go into detail about the different types of passive investments!

If you’re ready to start generating passive income, check out the ultimate list of passive income ideas to get started.

Roth IRA Rules in 2020

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A Roth IRA is a great retirement savings vehicle in the United States. There are many benefits to having a Roth IRA including no minimum distribution and no taxes on any gains. However, there are income requirements which limit who can contribute to a Roth IRA and how much they can contribute. By understanding these Roth IRA rules, you will know if you are eligible to contribute to a Roth IRA in 2019.

What Is A Roth IRA

A Roth IRA is a retirement account that offers you a tax benefit when you retire. Unlike traditional IRAs and 401(k) plans Roth IRA contributions are not tax deductible but you also do not pay taxes when you withdraw money at age 59 ½ +.

Roth IRA Contribution Limits 2020

In 2020, you can contribute up to $6,000 a year to a Roth IRA or a Traditional IRA. If you’re 50 or older you can contribute up to $7,000 a year. These contribution limits remain the same as in 2019. So, if you haven’t contributed to your Roth IRA in 2019 yet, you can still contribute up to $6,000 or $7,000 if you’re 50 or older before April 15th. The amount you contribute also cannot exceed what the IRA defines as “earned income” or taxable compensation. This includes wages, salaries, tips, commissions, professional fees and self-employment income. Charles Schwab shares more details here on what’s considered earned income for a Roth IRA.

The amount you contribute to a 401(k) plan does not impact the amount you can contribute to a Roth IRA but the amount you contribute to a Traditional IRA will affect the amount you can contribute to a Roth IRA. If you contribute to both a IRA and Roth IRA in the same year, the total contributions to both of these accounts cannot exceed $6,000 if you’re under 50, or $7,000 if you’re 50 or older.

Setting Up A Roth IRA For A Child

You can also set up a custodial Roth IRA for your child, subject to the same contribution limits outlined above. This means that contributions for your child’s Roth IRA you control cannot exceed what your child earned in 2019.

Roth IRA Income Limits 2020

There are income limits on Roth IRA eligibility which is why it’s important to start your contributions to a Roth IRA the first year you get a W-2. If you are single, and your modified AGI is $124,000 the amount you can contribute to a Roth IRA begins to phase out. If you are married filing jointly and your AGI is $199,000 or above the amount you’re eligible to contribute begins phasing out. These thresholds did change from 2019. In 2019 the amounts you could contribute started phasing out at $122,000 for single filers and $193,000 for married filing jointly filers.

If you are married filing jointly you cannot contribute to a Roth IRA if you make more than $206,000 in 2020. You cannot contribute to a Roth IRA in 2020 as a single filer if you make more than $139,000. Once you exceed this income you will need to explore options to setup a backdoor Roth IRA if you’re interested in having a Roth IRA. To take full advantage of a Roth IRA, set up a Roth IRA when you first start collecting a paycheck. You never know when you may get to the point where your income makes you ineligible to contribute to a Roth IRA.

Here are the contribution limits by income and filing status for a Roth IRA in 2020:

Roth IRA Contribution Limits 2020 table for married filing status, and single filing status
Source: IRS

When Can You Contribute to a Roth IRA

Contributions to a Roth IRA can occur at anytime during the year. You may contribute the full amount all at once or contribute multiple times during the year up to the maximum. Once a new calendar year starts, you can still make contributions for the previous calendar year up until April 15th (when taxes are due). For example, you can make a contribution for 2019 to your Roth IRA until April 15, 2020.

Roth IRA Withdrawals

Since you’ve already paid taxes on your contributions, you can withdraw your contributions at any time with no restrictions. If you withdraw earnings on those contributions though, you may be taxed or penalized on withdrawing this money.

Roth IRA rules dictate that once you’re age 59 ½, as long as you’ve held the account for at least five years, you can take distributions on all money within the account and do not have to pay taxes on that money.

Roth IRA Minimum Required Distribution

With a Roth IRA there is no required minimum distribution. This means that you don’t ever have to withdraw from this account if you don’t need to, and can pass this money onto your heirs.