Many households may be thinking of ways to generate extra income to cope with the rising cost of living.
But rather than taking on a second or third job, some are earning what is known as passive income, said Forbes Advisor, which can be “a good way of supplementing your household earnings to provide a safety buffer when finances are tight”.
Passive income does not need a significant commitment of time or money, the financial publication said, adding that it “should require only minimal monitoring on an ongoing basis”.
The earnings from passive income aren’t tied to a set amount of regular working hours, said Save The Student, although the key is to focus on low-maintenance “side hustles” that sell several times.
Here are some of the top ways to boost your earnings with passive income.
Interest earned from savings accounts or returns from investing in the stock market can generate passive income.
The idea is that you benefit from regular payouts without further effort beyond the initial research of deciding where to put your money.
Buying dividend stocks – companies that make regular payments to investors – can be a great choice for investors who want to achieve a passive income, said MoneyWeek.
These are typically “old economy” stocks, said the Evening Standard, such as energy, companies, utilities, and banks with large customer bases and an established business model.
The amount you receive is known as the dividend yield, calculated by dividing the company’s share price by the annual dividend. For example, if a company is paying annual dividends of £5 and has a share price of £100, the dividend yield is 5%.
But not all income plays are created equal, warned MoneyWeek. “Some companies have much better dividend qualities than others,” the financial publication said, while a high dividend yield may also indicate that the market believes the payout is unsustainable.
Investment trusts also pay dividends, and funds may invest in companies that make regular payouts to add to your portfolio.
Another option is investing in property such as becoming a buy-to-let landlord.
This involves “significant up-front investment, as well as ongoing maintenance and management of the property”, said Forbes Adviser, but can reap “substantial passive income”, either from long-term rental or short-term holiday lets.
As with any investment, the financial publication said, you should consider the level of risk associated with the product and whether you are able to absorb any losses.
The sharing economy
You could make some much-needed extra cash by getting people to pay to use your assets through the sharing economy.
Homeowners can rent a spare room to a lodger or foreign student and earn up to £7,500 a year tax-free under the government’s Rent a Room Scheme.
That works out at around £625 a month, said The Money Edit, but check that your mortgage and insurance allow this.
Perhaps an easier option, the financial publication said, is renting out your drive. You can rent out a private parking space through websites such as JustPark, ParkLet, or YourParkingSpace.
Renting out your drive could earn on average £213 a month, according to Stashbee, with spaces near a train station, airport or sports stadium particularly popular.
Sell your skills
Think about skills, hobbies, or even time you have that people might pay for, said The Money Edit. Crafts, dog walking, ironing, or gardening are all potential options.
Eager artists could design templates for items such as business cards, CVs, or books, said Metro, on platforms like Etsy and Amazon. These could sell from 50p to £50, the news website said. “It all depends on how complex they are.”
From images to music, video, and sound effects, “people are willing to pay for good content”, said SaveTheStudent.
Think of ideas for photos, logos, jingles, stickers, icons, buttons and banners that can be sold through websites such as Shutterstock and GettyImages or even your own website.
Royalties are typically quite low, said SaveTheStudent, and you will need a bank of work to start earning good money.
Another option is blogging. If you can build a large audience, said NerdWallet, you could generate revenue through display advertising using programmes such as Google AdSense, or run sponsored content, which means companies pay you a fee to publish a post on your blog.
Another way to monetise a blog is through affiliate marketing, the financial website added. This allows you to earn commissions if readers purchase a product or service you’ve recommended or linked to. Content creation doesn’t come without effort though, the website said. “There’s always pressure to create more content or update what you have to keep it viable.”
Loyalty schemes and cashback
If you’re shopping online, said The Money Edit, you can earn cashback by visiting retailers through the tracked links on cashback sites such as Quidco and TopCashback.
Retail and supermarket loyalty schemes such as Tesco Clubcard and Sainsbury’s Nectar can also help you earn points on your spending, the financial website added, which can be exchanged for discounts or special offers.
Beware of the taxman
As helpful as this extra cash can be, watch out for your tax bill.
HMRC provides a trading allowance of £1,000 a year that can be earned through a “side hustle” before tax is due. You will need to complete a self-assessment tax return and pay tax on anything above that threshold, said The Money Edit.
In most cases, income tax will be payable on passive investment income, said Forbes Advisor, unless you hold investments in a tax-efficient wrapper such as an ISA.
Marc Shoffman is an award-winning freelance journalist, specialising in business, property and personal finance. He has a master’s degree in financial journalism from City University and has previously written for FT Adviser, This Is Money, the Mail on Sunday and MoneyWeek. This article is based on information first published on The Week’s sister site, The Money Edit.
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