Whether you’re trying to pay off debt, top off your emergency fund or invest more, a little extra monthly income can get you there faster.
But there are only so many hours in a day and maybe adding another side hustle to your busy schedule just isn’t possible. Wouldn’t it be great if you could somehow earn more without working additional hours or hitting up your boss for another raise? That’s what happens when you create passive income streams. You can make money while you sleep.
“Passive income’s great because it increases your cash flow and allows you to save [more],” says financial adviser Craig J. Ferrantino, president of Craig James Financial Services, LLC in New York. “The initial effort in some cases is minimal, and you have the ability to collect money on those efforts over a period of time.”
Of course, investing in the stock market can provide earnings over time through market returns and the magic of compounding. But there are also ways to create steady streams of passive income that pay out at regular intervals.
These efforts don’t come without risk. But with careful planning and consideration, you can lower the risks and initial costs, and increase the potential benefits.
Here are six paths to make money while you sleep that may be worth pursuing.
6 Ways To Make Money While You Sleep
#1. High-Dividend Stocks
When you purchase stock in a company that pays dividends to its shareholders, you’ll start earning a percentage of the company’s profits automatically. For example, if a company pays an annualized dividend of 50 cents per share and you own 500 shares, you’ll get an extra $250 in your pocket for doing nothing more than being a shareholder. (Most companies pay dividends on a quarterly basis, so you’d earn about 13 cents per share each quarter.)
Certain industries, like public utilities, financial services and oil, tend to pay higher dividends than others, so do your homework with resources like Yahoo! Finance’s stocks screener or by talking to an adviser.
“If you’re going after dividend income, the sweet spot is not the company that’s currently paying the highest yield, but the companies that are likely to generate growth in dividends in the coming months and years,” says Rob Brown, a Certified Financial Analyst and chief investment officer at United Capital. “Pay attention to what companies and industries are thriving now. They are most likely to raise the dividends they’re paying now in the future.”
You may also choose to reinvest your dividends, which allows you to buy more shares even without spending more money, so you can benefit more when the price rises.
One caveat: Remember that there are risks involved with investing in individual stocks even ones with high-dividend yield, as the price of the stock can go up or down. You can lower your risk by investing in an index or other low-cost funds, which contains shares of many companies. One option is to look for dividend-paying ETFs, or exchange-traded funds, which are funds that trade like stocks.
Purchasing bonds can be another good way to earn consistent passive income, though the amount you’ll receive depends on the fluctuating bond market. “Bondholders [usually] receive a check every six months for the interest earned in loaning the entity money, and, in turn, get their principal back at maturity,” Ferrantino explains.