We’ll go through nine different ways to generate proven passive income in this post. And for each of those, I’ll discuss how difficult it is to get started, how tough it is to make $100 a month from it, and how difficult it is to keep it going once you start.
These nine separate sources/ideas earn roughly $27,000 per week for me in my business these days, with various degrees of passiveness. And, obviously, it’s taken me eight years to get to this point.
So don’t expect to hit those kinds of figures right now. However, this is the article I wish I had when I first began my quest for financial freedom many years ago.
Because there is no such thing as passive income, I constantly quote it.
What is passive income?
There is no way to make money without doing anything at all. But when I say “passive income,” what I mean is that it is money that is not directly tied to our time.
Imagine that you were to write a book and publish it. That book is now on bookshelves. The work to write and publish the book has already been done, sort of. As a result, you now make money from royalties on every sale of your book. We call this passive income.
The other thing about passive income is that it always takes a very long time to get to work. It’s a scam if you come across an advertisement or video that says you can get rich quick through some scheme. Such schemes do not work. There is no fast way to wealth. There is no such thing.
My philosophy is that, ultimately, money is just a medium for exchanging value. In order to make money, one must provide value to others. If you want to make passive income, or passive money, then you must provide value in a way that’s not directly tied to your time.
Let’s talk about nine different ways you can earn passive income by providing value in exchange for money.
Right, let’s get started with an investment in stocks and shares as our first passive income idea. Our money is the means by which we offer value in this context. In a way, giving money or investing in a service is similar to giving value. Therefore, it makes sense that when we give our money to a company in the form of buying their stock, we would get a return on that investment.
We’re starting with investing in stocks because it’s the easiest way to get passive income. When you have savings deposited in a savings account and earn 0.01% interest, they’re not making you very much money. If you had invested them in stocks, you would have earned passive income from money that would otherwise just sit there.
I recommend this to most beginners as a non-financial advisor, and this is not financial advice, but purely for entertainment purposes only. What I do is that basically all my money that’s in stocks and shares is invested in index funds. Index funds are similar to the S&P 500. When you invest, let’s say $1,000 in the S&P 500, your money is basically distributed among the top 500 companies in the United States. Each company is weighted by its size.
Apple, Facebook, Google, and Microsoft each have 2% of it. And then you probably haven’t heard of the 500th company on that list, but basically, all the big US companies you are aware of, you invest in them slowly over time.
Whatever country you’re in, you just need to search for “best stock broker platform,” plus your country’s name to find something that works for you. Then you can invest in an index fund, which is very easy to do. In terms of our side hustle assessment matrix, we’re giving the difficulty of starting a one-star rating.
It sort of depends, since the performance of the stock market as a whole determines it. The S&P 500 has actually increased by about 50% in the last 12 months, from 2020 to 2021. I find that very impressive. Despite COVID and everything that’s going on, it’s risen by about 50%.
In other words, if you had invested $2,400 in the S&P 500 in April 2020, the fact that it has gone up by 50% means that you would have made $100 per month. But this is not the way to think about things because they can go up and down, and stock market performance is different depending on what period you are looking at.
On average, the S&P 500 has had a roughly 10 percent return over the past 30 to 50 years. It means that, on average, over the long-term, the price goes up by around 10% every year.
Using the back of the envelope calculation, if we want to earn $100 a month passively by investing in stocks and shares, we would need to invest around $12,000 in the S&P 500, to make that 10%, or $1,200 a year, which is $100 a month. But as I mentioned in that article about stocks, we have compounding, so if you put $7,500 into the S&P 500 five years ago, you would be making roughly $100 a month today if we go by that very average 10% annual rate.
If you invested $5,000 in the S&P 500, you’d be making $100 every month in passive income after 10 years. That’s assuming a 10% average return. In general, how difficult is it to earn $100 a month in passive income from stocks and shares? Well, it kind of depends on how difficult it is for you to make $5,000, $7,500, or $12,000 in savings and invest them in an index fund. In addition, you shouldn’t have to touch this money for five to 10 years, at least.
So how easy is it for you to earn that amount of money? It obviously depends on where you live, what your circumstances are, as well as what you do for a living. However, if you’re in the UK or the US, where the median annual salary is $50,000, then, depending on your circumstances, it’s not that hard to save $10,000. Naturally, if you support a family of 15 people on $50,000, the situation is different. For single people, the situation is slightly different, but I’d rate this roughly a three out of five for the difficulty of getting $100 a month.
For someone living in a country like India, where the average salary is $3,600 a year, it is not easy to save $10,000 overall.
Our third category in our side hustle assessment matrix is how hard is it to maintain the income once you’ve started it?
We are going to give this one star out of five because it’s not hard to maintain once you’ve invested the money. Other sources of passive income require higher levels of maintenance over time, but stocks and shares are very, very easy to make. As an example, my stocks and shares portfolio, which I have been investing in since 2015, is now worth approximately $350,000.
And the vast majority of that is in the S&P 500 index fund. Now, I can’t be bothered to work out the actual inflation-adjusted returns for that. But again, if we assume a very very rough average of 10% a year, then that averages out to around $682 per week in purely passive income.
2. Starting a YouTube channel
Let’s move onto passive income idea number two: starting a YouTube channel.
How difficult is it to start a YouTube channel? Well, I’m going to give this one five stars because it’s really easy to start your own YouTube channel. Basically, you just go to YouTube and create your own channel.
Creating a channel is simple and you can upload videos by simply shooting from your phone and uploading them. Realistically, making good videos is more difficult, but if you make good videos, you will grow on YouTube.
However, getting started on YouTube is very straightforward. The question really is, can you actually make money off of YouTube? Once again, let’s say we’d like to earn $100 per month passively.
Well, first of all, you need 1,000 subscribers and 4,000 hours of watch time to be able to monetize on YouTube.
In order to get my first 1,000 subscribers, I had to make 52 videos in six months. Taking a look at the averages, it actually takes 90 videos or so to gain 1,000 subscribers. That’s a significant amount of work. It is not realistic to think that you can start a YouTube channel and start making money from day one.
Let’s say you’ve reached a thousand subscribers and 4,000 hours of video watch time. How hard is it to make $100 a month? YouTube’s average revenue per thousand views is around $2. It varies a lot, but lets say on average it is about $2 per thousand views.
Therefore, to earn $100 a month you need to get 50,000 views on YouTube. Assume you upload one video per week, and assume your older videos aren’t generating traffic. That means every video you make needs to get about 12,500 views. On average, a YouTube channel can expect about 20% of its subscribers to equal the average view count for each video. If you had 62,000 subscribers, you would expect 20% of them to watch each video, i.e., 12,500 views per video, on YouTube.
Assuming you don’t have any evergreen content in the long run, you would need about 60,000 subscribers to make $100 a month. As a result, you make $100 a month, a lot before you reach 60,000 subscribers. When I had like 10,000 subscribers, I was making $100 a month. This was fairly early on.
I would rate this four out of five stars when it comes to determining how difficult it is to do. The truth is that making compelling YouTube videos is extremely difficult, and while it’s easy to begin, it’s hard to succeed. There are a lot of benefits to learning this skill set, and it’s really fun. It lets you meet people from around the world. You’ll learn how to film and edit videos as well as how to speak on camera.
While YouTube is great, it’s very difficult to actually make money from it. As for the effort required to maintain it, like, getting that first thousand subscribers is a lot harder than keeping it growing, because once you’ve got a thousand subscribers and your channel is growing, it means you’ve found a formula that works. And so, maintaining it then becomes easier than starting from scratch.
Accordingly, we’re going to give the maintenance of a YouTube channel a rating of two out of five stars in our side hustle assessment matrix. In my example, I made 70 videos before I started making any money from YouTube AdSense. Currently, my YouTube channel generates passive income of about $12,000 per month. In part, this is not entirely passive because I continue to upload videos, but the majority of our ad revenue is generated by older videos instead of the ones that have just been uploaded this month.
YouTube can also be monetized by brand deals, selling merch, and all kinds of other ways. This doesn’t count as passive income through YouTube, so I didn’t include it in this side hustle assessment matrix.
3. Starting a podcast
The third way to make passive income is to start a podcast. Starting a podcast is generally easier than starting a YouTube channel. Growing a podcast takes a lot more time than growing a YouTube channel, since podcasts do not have an algorithm to grow.
It’s interesting to note that a lot of podcasts grow through YouTube channels. So, how hard is it to start a podcast? I’m going to give it one star because it’s very easy to start a podcast.
Go on anchor.fm and you can literally use your phone. Pass your phone back and forth between you and your friends.
You can use the website riverside.fm, in which I recently invested as an angel investor. Riverside makes recording remote podcast interviews very simple. A podcast is very, very easy to start, but how hard is it to earn $100 a month in passive income through a podcast? Again, this is not quite passive income, since podcasters make money by securing brand deals.
To make any money from your podcast, you generally need a sponsorship or brand deal, since YouTube AdSense does not apply to podcasts. For a 30-second podcast ad, you can expect to get about $18, and for a 60-second podcast ad, you can expect to get about $25 per thousand views or listens. Assuming you have a stream of sponsors who are willing to give you that level of sponsorship, you need around 1,000 downloads per episode if your podcast is weekly and you want to make $100 a month.
If you’re placing a 60-second ad in there for $25 per thousand views, you’ll make about $100 a month if you have a thousand downloads per episode and four episodes per month.
It raises the question: how difficult is it to get a thousand downloads a month? It’s much harder to get a thousand podcast downloads per month than it is to get a thousand YouTube views per month because YouTube has so much distribution built in that podcasts don’t.
The number of YouTube users also far exceeds the number of podcast listeners. The stats show, however, that on average, the top 20% of podcasts get more than a thousand downloads per episode.
And finally maintenance.
Well, it’s not really passive income because you do have to keep on making podcast episodes because the brand deals are associated with that. But again, once you’ve stumbled on a formula that works, once you know how to be a podcaster it’s easier to continue going once you’ve already gotten started, as is the case with most things. And so in terms of maintenance of the podcast I’m gonna give that two stars. To use me as an example, so me and my brother have a podcast called Not Overthinking, link in the article description if you wanna check it out, but we make around about $625 per week from the podcast overall from brand deals and from our membership.
4. Becoming an affiliate marketer
Affiliate marketing means that you are selling other people’s products but you get a percentage of the sales from those products.
Now, apparently 48% of affiliate marketers globally earn $20,000 a year, which is $1,660 a month. Which is actually not bad at all. It seems like people are doing very well with affiliate marketing overall. So how hard is it to get started with affiliate marketing?
Well, I’m going to give this two stars out of five. Basically, you can just sign up for an affiliate program like Amazon Associates. So Amazon has their own affiliate program, which I think is probably the biggest in the world. And then, once you have your little special links, you can post those on your website or on Twitter or on social media or whatever. And if people buy the product through your link, or in fact, buy any product on Amazon through your link, you’ll get something like a tiny percentage of the sales.
It’s pretty easy to get started with affiliate marketing, but how hard is it to make $100 a month? Well, this is actually kind of hard.
So let’s say you had a product that was $50 that you were trying to sell and you were getting a 5% commission on it. That’d be pretty good. Amazon doesn’t offer nearly as much as 5%. It offers like two or 3%, something like that.
And let’s say your average conversion rate is 1%, i.e., people visiting the thing versus people actually buying the product after visiting it. Let’s say that’s pretty reasonable for a conversion rate.
You would need 8,000 visits to your website or whatever to make $100 a month. It’s actually quite hard to get 8,000 visits per month to your website, to a specific product page.
And generally, doing well in affiliate marketing requires lots of upfront effort in terms of either building an audience or building domain authority in whatever space you’re in, so that you’re sort of organically getting traffic.
I’m going to give this a 3.5-star rating, because, again, you need an audience.
And as we always talk about on this blog, the way you build an audience is by creating useful content, putting it online for free once a week, and doing this for at least two years. If you just follow those three steps, I guarantee you’ll have an audience and you’ll be able to make some kind of money through this passive income stuff.
So we’ll give it a 3.5-star rating. But the good news is, once you’ve created it and started making money from affiliates, it’s actually quite easy to maintain because, especially if you have evergreen content, the sort that isn’t dependent on, like current affairs or the latest news, the sort that people might search for over a long period of time, this becomes a relatively reasonable passive income.
5. Selling a digital product
All right, passive income idea number five of making passive income is by selling digital products. Now these are products that you create once, like an eBook or a download, or an app, or something like that. So you create it once and then you can sell it multiple times because selling digital products doesn’t usually have any associated costs. One really good example is this guy called Traf, who I follow on Twitter, who made an iOS 14 icon set and sold it for like $30 a pop, a few months ago and ended up making, I think, $300,000 in the course of just a few weeks, just because loads of people around the world wanted to buy his icon pack.
So he put the work into creating the pack, and now he’s selling it for lots of money. Another example is my YouTuber friend Oliur, who has made, as he says, $700,000 from selling his website Tumblr themes since 2014. So he made the website themes for Tumblr, he sells them, and he makes $700,000 on average. Well, overall, since 2014, that’s pretty cool. So how hard is it to get started making digital products?
I mean, anyone can write an eBook, and an eBook counts as a digital product. So I’m going to give this a two-star rating, two out of five stars, but obviously, like again, money is an exchange of value. So the thing that you’re selling has to provide enough value to compensate for the price that you’re selling it for. And that’s often quite hard, especially if you don’t have any experience in this sort of field. How hard is it to make $100 a month? Well, you know, it’s very easy to create an ebook, but it’s a whole different ballgame trying to get people to actually buy your ebook, buy your icon set, buy your app, buy your website themes, etc.
And because the market around this stuff is so competitive, you have to be genuinely really good to get people to buy your stuff. And the way you get people to pay you money for something is that you identify a problem that they have, solve that problem, and then charge money for it. And if you can do those three things, then it’s, you know, I wouldn’t say it’s easy to make $100 a month, but it’s very doable to make $100 a month. You just genuinely have to have something that solves a pain point that other people are willing to pay for. So we’re going to give this three stars out of five for making $100 a month from selling digital products.
And finally, in terms of maintenance, we’re going to give this two stars out of five, because usually, you do have to maintain your product a little bit, but it’s often easier to do, like it’s much easier to maintain a product than create a product in the first place.
6. Selling a course
Idea number six for passive income generation is to create an online course. Online courses are sort of like digital products, but generally, online courses are in video format. In fact, this whole video is so long, it could basically have been an entire online course. Maybe I’ll do one about this very topic.
And in terms of getting started, we’re going to give the starting difficulty a two out of five stars because it’s not that hard to make an online course, but generally, you do need to know how to make a video.
So, you know, you could actually film an online course on your iPhone or phone, whatever phone you’re using, if you’re one of those Android heathens. Stick your phone on the side, talk to the phone, teach something. So it’s not hard to create one, but in terms of making $100 a month, again, at that point, your course needs to actually be good. And the only reason people will pay for it is if the course is actually good.
So how hard is it to get one person a month to buy your course? Well, again, if it’s good, you know, the world of online education is exploding so much every year that more and more money is being spent on online education, especially with the whole pandemic stuff. So if you have a valuable skill that you can teach I think courses are one of the best and easiest, or one of the best ways of making passive income because it’s fun to create a course, you can teach stuff, you don’t need that many technical skills, like making a website or anything like that.
And like, you know, it’s just cool overall. And the nice thing is that once you’ve made the course, and once you’re making $100 a month from it, maintaining that level is actually quite easy. We’re going to give that a two out of five stars because, generally, you don’t need to update the course that often. And you can do that once in a while, you just need to make sure you’re getting a reasonable amount of traffic to it. And hopefully, that traffic will grow over time.
7. Building a membership community
My passive income Idea number seven for passive income is by creating some kind of paid membership or community model.
Now, again, this is generally a bad idea unless you have an existing audience, which we keep coming back to. Everything becomes easier when you have an existing audience by creating content that has been valuable over a long period of time, very consistently. That audience knows, likes, and trusts you, so when you say, “Hey guys, sign up to my Patreon,” then some people are likely to do that thing.
The other way of creating a membership is by creating a value proposition that is so compelling that people would be willing to pay for a community-like service for this. If we use Patreon as an example my friend Hannah Witton, who’s a YouTuber, she’s got roundabout 600,000 subscribers on YouTube. And I think she has around 600 Patreons, 626 last time I checked, which means if we look at our Patreon stats, which are public, she’s making somewhere between 2,000 and 5,000 pounds or like 3,000 and $7,000 per month in passive income from this audience.
But it’s like 600 people out of an audience of 600,000. So one in a thousand of her subscribers have signed up to her Patreon.
So clearly, you know, if those stats are true across the board, and they kind of are if you look at Matt D’Avella’s Patreon as well, you need a big audience to make a significant amount of money for Patreon. Again, this sort of depends on how much you’re charging for them and exactly what value you’re providing.
Another example of a paid membership community is my friend Anne-Laure, who runs a website called Ness Labs, and they have a paid membership community which is $5 a month. And she started this in the summer of 2019. She had zero audience at the time, and she just wrote a hundred blog posts over a hundred working days and built up an audience such that in March 2020, when she launched a membership, she had some paying members for it initially.
And I think last month she’d just passed $100,000 a year in annual recurring revenue, which is pretty awesome for something that started less than two years ago. So how easy is it to start a membership program? Well, it’s actually very easy. We can give this a one-star because it’s very easy to start one. You just make an account on some kind of membership platform like Patreon. But to make $100 a month, you need to provide $100 a month’s worth of value.
And that’s actually quite hard to do. We’re going to give that a four out of five stars, but the nice thing is, again, once you’ve got that formula, once you’re making $100 a month, it’s actually a lot easier to maintain because of the way the economics of membership communities work, provided you keep showing up and providing value in some capacity, you know, people have already signed up for the thing.
So it’s not too hard to maintain that level of support that you’re offering them. For this business, we have a membership community for our Part-Timer YouTuber Academy for the alumni, which is called the Part-Timer YouTuber Inner Circle. And we make roughly $2,800 a week from this membership community. It’s not very passive.
We run like three or four events per week along with, like twice a day, coworking events on Zoom, and we have lots of stuff going on. So it takes a lot of work, but at $2,800 a week, it’s pretty good for a membership community. All right, nearly there.
8. Automating a business
So passive income idea number eight for generating passive income is to create a business that sells goods or services and then automate or delegate aspects of that business so that the income that you generate from it is reasonably passive. This is the stuff that Tim Ferris talks a lot about in “The 4-Hour Workweek,” where there are a lot of businesses that you could have where you’re selling a good or selling a service, and then you can delegate, outsource, automate, and find intelligent ways to make the income passive.
So again, using my friend Oliur as an example, on his YouTube channel, he talks about his $1 million Shopify store. He designs, manufactures, and sells these really cool vegan leather desk accessories, bags, mousepads, and that kind of stuff. And this was loads of work to set up, but now he’s got a team of three other people that manage the business. So he spends proportionally less of his time running that business.
And so it’s sort of a passive income for him.
Even though, these days, he still spends around 10 hours a week maintaining things. Equally, if you’re going down the service route, I’ve got a friend who runs an Instagram and Facebook ad marketing agency, where he has clients who pay him some, I think a few hundred dollars per month to manage their Facebook and Instagram ads. And for him, it’s like a small amount of work initially to set up the Facebook and Instagram ads, but then it’s sort of automated and he’s got a team around it. And he’s used things like Zapier to automate aspects of that business, so that each month he has to do a very small amount of actual work to keep it ticking along.
So these are different ways of generating passive income from a kind of goods or service-based business.
But it’s quite hard to get started with this stuff. To get started, we’re going to give this a four to five-star rating because, again, you need to create a business and it’s quite hard to make a business that genuinely provides value. Equally, we’re going to give it a four-star rating for making $100 a month in revenue. Because again, you have to be able to provide value, and providing value is hard. It’s not as easy as making an account on a stock platform and just putting some money in.
You actually have to give value to people, which is kind of hard. But the nice thing is once you get started, like with anything, maintenance is a little bit easier. So we’re going to give that a three-star rating out of five stars.
9. Building an app or website
Finally, my passive income idea number nine for generating passive income is to build an app or a website or some kind of software product that you can offer either as a one-off or, more likely these days, as a subscription service. And there’s a whole category of this called SAS (software as a service).
Now, if you look at the website, indiehackers.com, there are literally hundreds of examples of people who have built software businesses that are making passive income, and they share their revenue numbers, they tell you how they got started, and they give you their tips.
In fact, I was recently interviewed on an episode of the Indie Hackers podcast, which is really cool because I’ve been listening to it for years, and it’s like following the website for years. And I was interviewed about the concept of starting an online course like the Part-Timer YouTuber Academy.
Now I’ve had a bit of personal experience with this. So when I was at university, I made websites called BMAT Ninja and UCAT Ninja.
So is software as a service. It was a question bank for medical applicants applying to medical school to help them do well on the admissions tests. And this was something that me and my brother coded completely from scratch. He and I both know how to code; we learned when we were young.
And so we worked over the summer of 2015 to make these things happen. I think in year one, we made about $10,000 and in year five, last year, it was around $25,000 from BMAT Ninja. So, you know, it’s pretty good money, but it’s a lot of work to set these things up. And so in terms of starting out, I’m going to give this a five out of five-star rating because making an app is actually quite hard. You have to know how to code, for the most part. You have to be able to offer something compelling, and you have to actually build it, which takes a lot of work and is very hard, but it’s a lot of fun.
And then once you’ve made it, I’m going to give $100 a month difficulty a four-star rating.
Because again, it’s easy. Well, it’s easy enough. You can make an app, but then getting people to pay for the app is an entirely different kettle of fish. So we’re going to give it four stars. But the nice thing is, like with everything, maintenance is a little bit easier, so we’re going to give that a three-star rating.
I hope this article helps you start your passive income journey. Good luck out there.