You’ll often hear that it takes money to make money. And there’s some truth in that.
Say you want to build a portfolio of income properties so you can retire on your rental earnings alone. Well, to do that, you’ll need to shell out the money to buy those properties in the first place. And, well, we’re probably not talking about a small sum of money in this scenario, either.
But you definitely shouldn’t let the fact that you aren’t wealthy yet discourage you from pursuing a variety of passive income streams. The reality is that passive income is not just for people who have money already. Even if you only have limited funds to work with, you can use the following strategies to earn more money without having to break a sweat.
1. Opening CDs while rates are high
It won’t always make as much sense to put money into certificates of deposit (CDs) as it does today. Thanks to today’s CD rates, it’s possible to snag a 5% APY on your cash without taking on the risk that might come with investing. And the good news is that many banks don’t have a minimum deposit requirement for opening a CD at a great rate. Plus, those that do often impose a pretty low minimum, like $500 or $1,000.
So let’s say you have $1,000 you don’t need on hand for emergency expenses or other costs. If you open a 12-month CD at a 5% APY, in a year’s time, you’ll have an extra $50. That may not be a life-changing sum, but it’s a nice amount of extra cash given that there’s really no work involved other than spending a little time researching the best CD rates and signing up for an account (which you can often do online in minutes).
2. Investing in an IRA or brokerage account
CDs are a great way to generate passive income on a shorter-term basis. But when you’re looking to earn passive income in the course of your lifetime, investing your money is a better bet. You can do so in an individual retirement account (IRA) for retirement savings purposes, or choose a taxable brokerage account for the most flexibility with your money.
Unlike CDs, investing doesn’t guarantee you a certain return on your money. You may even lose money. But you should know that over the past 50 years, the stock market has generated an average annual return of 10%. And that 10% accounts for years when the market did well as well as years when it utterly tanked.
So let’s say you have $1,000 to your name. If you put it into a stock portfolio and leave it alone over the next 30 years, you could end up with about $17,500, assuming you’re able to score a 10% return on your money during that time.
3. Snagging credit card rewards
It’s not a good idea to rack up charges on a credit card for the express purpose of earning rewards. But if you use a credit card with a great rewards program to buy the things you need for your everyday life, like groceries and gas, then you might earn a nice amount of cash back in the process.
Say you sign up for a credit card that gives you 3% back at supermarkets and the pump. If your monthly spending in these two categories combined comes to $600 (which isn’t such a huge number, given today’s prices), that means you’ll have scored $216 in cash back after a year. That’s not a bad payday for doing nothing.
You can also earn extra cash back from your credit cards by opening new accounts strategically. That’s because many cards offer generous sign-up bonuses you can score by meeting a spending threshold.
So say you get an offer for $300 cash back if you spend $4,000 within three months of opening a given card. If you have a major household appliance you need to replace that will cost $2,000 and you typically charge $700 worth of essentials on a credit card each month anyway, you should be able to meet that spending requirement with ease. The result? A free $300.
You don’t need to be wealthy to enjoy your fair share of passive income. If you use credit cards strategically and put the money you have to work, you can benefit financially in a very big way.
