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How to Grow Passive Income with Little Cash

Investing, starting your own side hustle and diving into real estate are three ways to increase your earnings in the short term and over the long haul.

Written by Elaine King CFP® / August 30, 2022

  • Passive income can protect your finances and help you grow in uncertain economic times.
  • Consider turning your excess savings into stable, dividend-yielding investments.
  • Leverage your skills or passions into a new side hustle or small business.
  • Find the right way to get involved in real estate, whether you invest directly or indirectly, to reap longer-term gains.

What is financial independence to you? To me, it’s not having to go to work one day if you don’t feel like it—and not worrying about the financial consequences. That, in a nutshell, is why the idea of passive income is so appealing to so many.

The IRS’s definition of passive income is earnings from a source other than an employer or contractor, and in this day and age, it is essential for your own financial well-being. Why? It’s a safety valve in the context of factors like inflation, economic volatility and increased life expectancy.

To protect yourself—and grow your earnings without big upfront costs—consider these ways to generate short, medium and long-term passive income.

Inside this article

  1. Short-term passive income
  2. Medium-term passive income
  3. Long-term passive income

Short-term passive income that keeps growing

This one is a quick fix: Basically, turn your savings account into an investment account. Assuming your investments will be small, get started with a target, balanced or general index portfolio. Investing in large companies will offer you some dividends, and this is a good way to start generating passive income.

For illustration purposes (and not a recommendation), AT&T’s dividend yield is 4.65%, which is attractive given the average S&P 500 stocks are a little bit over 1%.

In addition, I strongly recommend that you have a 401(k) or an IRA and contribute the yearly maximum amount because buying investments inside these accounts will give you a tax advantage.

What are the 401(k) Contribution Limits for 2022?

What are the 401(k) Contribution Limits for 2022?

The contribution limit is higher for 2022. Here’s what to know about growing your retirement savings in a 401(k).

Find out more

IRA Contribution Limits for 2022

IRA Contribution Limits for 2022

IRAs can come with considerable tax savings for your retirement funds. But there are limits on how much you can contribute each year.

Find out more

When turning your savings account into an investment account for growth and income, make sure your choices match your risk tolerance. For example, if you are getting started you should consider a mix of bonds and stocks. Also, before moving savings to investments, have at least a three-month emergency fund that bears little to no risk.

Medium-term passive income to complement your existing income

This one should be fun: It basically boils down to doing what you’re passionate about and getting paid for what you enjoy doing anyway.

In my case, I enjoy writing, giving presentations about financial literacy, tutoring kids in math and teaching families. I got started by volunteering for nonprofits as a way to help my community, but this experience gave me confidence to turn it into a passive income.

Some ideas on generating income include:

  • Writing a book on something you love doing

  • Teaching a class on a hobby you do well

  • Writing and or translating documents

  • Selling stock pictures

  • Selling or renting things you don’t use, such as your car or a room in your place

  • House sitting or taking care of animals

Here’s How to Increase Your Income

Here’s How to Increase Your Income

Having a budget in place is wise but will only get you so far, whereas there are no real limits on your earning potential.

Find out more

Long-term passive income to move toward financial independence

This one is a must have in everyone’s portfolio: real estate. There are many ways to own it and you should have it as part of your diversified portfolio.

Headshot of real estate investor Tom Brickman

How This Movie Theater Manager-Turned-Real Estate Investor "Retired" at 39

How This Movie Theater Manager-Turned-Real Estate Investor "Retired" at 39

Tom Brickman left his 9-to-5 behind before age 40 thanks to years spent learning about real estate investing. He owns and rents out 19 properties in Texas and Ohio.

Find out more

You may not have the down payment or credit necessary to commit to a long-term mortgage, but you may be able to buy something with a relative, friend or business partner. Other low-barrier-to-entry ideas include:

  • Look into real estate investment trust funds—there are many types, and you can start with as little as $1,000. Ask a certified financial advisor about the best funds for you.

  • Buy land for the future and build income-producing properties over time—hence the long-term passive income heading.

Dividing your passive income into short, medium and long-term objectives—or as investment, business and real estate—and participating at any price level should put on a fast track toward financial independence.

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About the Authors

Elaine King

Elaine King CFP®

Elaine has served as the Family’s Financial Planner for over 1,200 families and 100 multigenerational family enterprises crafting actionable family financial plans.

Full bio

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