The Best Passive Income Ideas For Financial Freedom

Imagine a world where you no longer have to work because you have enough passive income to pay for your best life's living expenses? It's possible if you spend and invest your money wisely and build your own portfolio of the best passive income ideas covered below.

I've been working on building passive income since 1999 when I first graduated from college.

Only until 2012 did I start making enough passive income where I felt comfortable negotiating a severance to no longer work for a living. The figure was about $78,000 a year. With my passive income, I focused on traveling the world and building this site to generate more passive income.

Today, my family makes roughly $300,000 a year in passive income so that both my wife and I can stay at home and raise our boy until he goes to kindergarten. San Francisco is an expensive place to live and we're ultimately shooting for $300,000 a year in passive income by 2023.

Below is our current passive income portfolio where we still save at least 20% of the income and reinvest the money back into existing investments.

Financial Samurai 2021 Passive Income Streams

Here are the best passive income investment ideas to help you get started.

Best Passive Income Ideas

1) Open An Online Savings Account

One of the easiest ways to start generating passive income is with a high yield savings account. The Federal Reserve cut rates to 0% in 2020 and will likely stay at 0% or close to 0% for the foreseeable future.

Our current favorite is the CIT Bank Savings Builder account.

CIT Savings Builder Account: Top Features

  • No opening or monthly service fees
  • Minimum deposit of $100
  • No online transfer fees (ACH)

2) Invest In Real Estate Crowdfunding

One of the best passive income ideas stems from my love of real estate. I've currently got $810,000 invested in real estate crowdfunding after selling my San Francisco rental for 30X annual gross rent. My favorite platform is Fundrise, founded in 2012 after the JOBS Act was created.

Fundrise is the most innovative real estate crowdfunding platform. They invented the eREIT space and are working on Opportunity Funds to take advantage of new tax laws.

My other favorite real estate crowdfunding platform is Crowdstreet, for accredited investors. They were also founded in 2012 and are mainly for accredited investors. Both Fundrise and CrowdStreet are free to sign up and explore.

I’ve personally got $810,000 invested across 18 different commercial real estate projects around the country. My current internal rate of return is about 15% since 2016.

Real Estate Crowdfunding - passive income investments

3) Invest With A Digital Wealth Advisor

Robo-advisory was invented in the SF Bay Area where I'm from. The industry has drastically cut down on fees (0.25% vs. 1% – 3% for traditional advisors) and can help you invest passively.

I recommend exploring an account with Betterment because they’ll build a portfolio around your preferences. The first $5,000 managed is free and you can see what type of customized investment portfolio they'll create for you based on some answers you give.

Here is one of their sample portfolios with a 5 out of 10 on the risk tolerance scale. They use low-cost Vanguard ETFs so you pay the lowest fees possible.

Wealthfront digital wealth manager portfolio

4) Invest In Various Bonds

With so much volatility in the stock market, bond investing has become much more attractive. If you are a high income earner, then look to municipal bonds since you don't have to pay state or federal income tax.

You want to build a bond step stool not a ladder in a flat to inverted yield curve environment. The short end of the yield curve is much more attractive relative to the long end.

For example, you can earn 2.74% if you invest in a 1-year bond, but you're only going to make 0.16% more if you invest in a 10-year bond.

A bond yield table makes it clear which duration you must choose to invest

The same is true for government bonds. In exchange for your cash now, they promise to pay back your initial investment plus interest.

If you are in a high tax bracket, then consider municipal bonds from your state where you don't pay state income tax or federal income tax. Earning interest from bonds is a pretty easy choice amongst this list of the best passive income investments, and a good way to diversify if you're only holding stocks or cash.

5) Invest In Peer-to-Peer Lending

Peer to peer lending (P2P) gives you a chance to help out others and make money doing it. You lend your money to someone else with the goal that they’ll pay you back plus interest. The simplest way to begin a passive income stream with P2P lending is with Lending Club.

It requires an initial investment of $1,000, but you choose how to spread your cash across different loans. Screening your loans will help increase your success. If it doesn’t work out, Lending Club has a good collections process to tap into.

6) Create A CD Step Stool

Certificates of deposit are risk-free investments up to $250,000. Like a savings account, your money is insured by the FDIC or NCUA.

Earning passive income on a CD is pretty easy. The trouble is that higher rates tend to require longer periods of investment. Not having free and unrestricted access to your cash can be difficult.

If you set up a CD step stool, your investments mature at various intervals. But you're taking advantage of the short end of the yield curve where you get the most bang for your buck. Accessing your funds on a rotating basis makes CD ladders an effortless passive income stream.

There's no need to invest in a 5-year bond or CD at less than 2.5% when you can invest in short-term CDs or bonds that yield more.

Inverted Yield Curve In 2019
Flat yield curve

7) Buy Dividend Stocks

When it comes to passive income ideas, dividend stocks are a time-tested option and one of the easiest ways to generate passive income.

Making money this way isn’t a guarantee since the market can fluctuate, but it can help you build up a significant passive income stream over time. The easiest way to invest in dividend stocks is to buy a low-cost equity dividend ETF like HDY, SPYD, VSDA, NOBL, SPDV, TDIV, SPHD, PGX, LVHI and others.

You can also build a dividend heavy portfolio with digital wealth advisor Betterment as well. I wouldn't bother picking individual dividend stocks. It's much safer and smarter to buy a dividend ETF for the long run.

8) Become A Landlord

Real estate is my absolute favorite asset class to building long term wealth because it's a tangible asset that provides shelter and can generate rent. I've been buying real estate since 2003 in San Francisco, and it's turned out to be a great move.

The only problem is is that you have to come up with a 20% – 30% downpayment to buy rental property. That's a concentrated bet on a single asset with leverage.

Then you have to find tenants and maintain the property. Once I became a dad in 2017, I decided to simplify life and sell one property and reinvest $550,000 of the proceeds in real estate crowdfunding for an easier life.

9) Rent A Room In Your House

Renting out a spare room in your house is a great way to earn extra income. I did this for years after I bought my second property in San Francisco since it was a four bedroom house with only two of us living in it.

Today, you can use Airbnb and other platforms to help find you tenants. It's good to utilize all your rooms until you can fill them with your own family. Because we didn't have children, we decided to rent out the entire rental house and buy a smaller house. But of course, then our son came!

10) REIT: Real Estate Investment Trust

Another option to start in real estate without the hassle of being a landlord is with real estate investment trusts (REIT). You don’t own any specific building (typically), but you do own part of the REIT and its portfolio, which often trade publicly like stocks.

Public REITs give you much broad exposure than real estate crowdfunding, which is great for more specific real estate exposure. For example, I believe the heartland of America will be a multi-decade real estate winner. Therefore, I invest in commercial properties in non-coastal cities via a platform like Fundrise.

Public REITs and real estate in general has performed extremely well over the past couple of decades.

REIT Investment Performance Is Tops

11) Start a Blog

Blogging is one of the best ways for anybody to make money from the comfort of their own home. I've been blogging since 2009 and Financial Samurai now generates a healthy amount of income. Given I've been blogging for so long, I'm totally bias into believing that blogging is the best passive income idea.

However, blogging is not passive. It's taken me three hours to write this post. Hopefully it will rank well in the search engines and generate passive advertisement revenue in the future, but there are no guarantees. You've first got to put in a lot of work before making a good amount of passive income blogging.

If you want to make money blogging, this guide can walk you through getting started. After your initial time investment, you can earn tons of cash.

Blogging For A Living Income Example: $300,000+
Blogging income statement

12) Publish an eBook

You don’t need a big publishing deal to write a book. Plenty of authors self-publish their work and make good money doing it, including myself! Everybody should consider self-publishing as a passive income idea.

Best passive income idea - publish an ebook

In 2012, I wrote a book called How To Engineer Your Layoff, to teach others how to negotiate a severance instead of foolishly quit their jobs with nothing.

The book now generates about $4,000 a month in passive income. It started off as 100 pages. Now, in its 4th edition published in 2020, the book has grown to over 180 pages.

First things first. To have a successful self-published book, you need to start your own website. So don't delay.

The Best Passive Income Ideas Take Time To Grow

The Best Passive Income Investments For Financial Freedom

All passive income first requires plenty of activity. Some investments, like dividend investing and real estate crowdfunding take less effort to get started than others.

The earlier you can start building your passive income, the better. You don't want to wake up one day hating your job and not having any ability to do something new. Hopefully this article has given you a great idea of the best passive income ideas today.

I credit passive income for enabling my wife and I to live the life we've always wanted. It is a blessing to take care of our two young children full-time, especially during a global pandemic!

About the Author: Sam worked in investment banking for 13 years at GS and CS. He received his undergraduate degree in Economics from The College of William & Mary and got his MBA from UC Berkeley. In 2012, Sam was able to retire at the age of 34 largely due to his investments. He spends most of his time playing tennis and taking care of his family. Financial Samurai was started in 2009 and is one of the most trusted personal finance sites on the web with over 1.5 million pageviews a month.