How to Earn Passive Income as a Teenager
In this article, I’m going to outline some different ways you can earn passive income as a teenager. But before you can earn passive income, you’re going to have to work for your money. Then you can invest that hard earned money into assets like real estate investing to build passive income.
I’ll be honest, I don’t like working for money.
I’ve only held one minimum wage job as I talked about in this article: How a Minimum Wage Job Can Change Your Life but I appreciated it much so and I recommend you try a minimum wage job at least once if possible. There are lots of lessons you can learn from it.
Why I Like Passive Income Instead
I got too accustomed to a lazy lifestyle and freedom lifestyle during the summer months of high school when I was a teenager.
My routine usually included:
- Waking up with no alarm clock
- Heading to the golf course to spend all day working on becoming a scratch golf
- Then heading home for dinner with family
- And lastly, hanging out with friends at night
I still made money in the summers, but I chose work differently than most teenagers.
I would mow lawns on weekends for $30-$50/hour and make enough money to equal the amount I would have earned if I had worked a part time minimum wage job during the week after school.
You could say I was being smart with time and money by finding high paying rate work which then allowed me the free time to do hobbies I enjoyed like golf, wakeboarding, and going to the beach with friends.
So how does this tie in to passive income?
It all changed for me when I started studying millionaires to see how they leverage their time and money to enjoy time freedom and early retirement.
I wanted to keep my lifestyle as much as possible and dreaded the days ahead where I would have to spend 9-5 at a job working for someone instead of being free to spend time as I want.
This lead me to learning about passive income and making my money work for me as a teenager.
What is Passive Income?
It’s basically money rolling into your bank account every week while you’re doing other things in the mean time. Like waking up and seeing a PayPal or Venmo notification that you’ve received money, but you were sleeping while it happened.
Unlike a job is which considered active income as you trade time for money. If you stop working, your income stops.
With passive income, you don’t work it’s just income that comes in each month on autopilot. But again, it takes either lots of time to build these assets that pay passive income or it takes lots of money to buy enough assets that pay you passive income.
An example of putting in time to build a passive income business as a teenager would be Shopify.
Most teenagers these days can leverage platforms like Shopify and start a dropshipping business that imports products from China, selling them direct to customers without doing any physical work. It’s all automated by softwares and payment processors.
An example of buying assets that pay out money would be rental properties and dividend paying stocks from the stock market.
How to Save Up Money to Buy Passive Income Assets
My challenge for you is to work hard for your money, whether it be an after school job or serving customers at a restaurant on the weekend.
Then don’t be so fast to spend it on eating out and extra pairs of shoes.
Instead, be like the millionaires and put that money to work for you so you get a taste of payback. All that hard work you did to earn it will feel wasted if you go consume unnecessary purchases.
Save it in your bank account until you have enough money to buy stocks or to pay for the cheap cost of running a website which can sell things for you online passively.
Types of Passive Income Teenagers Can Earn
One day you’ll no longer be a teenager, so we’re going to include several tips below to follow as you progress into your 20s and 30s. Some of these won’t apply right now today but they’re good to keep in mind and be prepared for!
Ways you can put money to work for you:
- Start an online business you can run from an app or from your iPhone
- Pay off high interest debt such as credit cards (20%+ APR usually)
- Pay off other debts like your student loans or car loans
- Pay down extra principal on your home to save thousands in interest over 30 years
- Maximize contributions to your 401(k) especially the amount that your employer will match as this is free money you are being given by your boss
- Buy investment property/real estate
- Buy conservative dividend paying index funds so you are diversified and earning passive dividend income
- Place left over cash in a high interest bank account or certificate of deposit
Dividend Stocks You Can Buy as a Teenager
To buy shares of a dividend paying index fund you can go to Vanguard.com. These low cost funds will diversify you across the U.S. Stock Market so that you own a piece of the market which has historically risen at an average annual rate of 7%.
You must be at least 18 to start your own investment account but you can also have your parents assist you in setting one up if you’re under 18.
Every year, place a few thousand dollars into the account and have it auto-purchase dividend paying stocks. Then have the dividend payouts get re-invested, buying more shares of stock.
Once you’ve accumulated $1 million in dividend paying stock, you’ll be earning roughly $40,000 per year or so if you’re averaging a 4% annual dividend on your $1 million worth of investments.
You won’t even worry about how the stock market is doing because you’re living off the passive dividend income and not touching the principal which will fluctuate year to year as the market goes up and down.
Over time though your $1 million investment should continue to grow from both stock price increases as well as the dividend payments. Imagine if it turned into $10 million all the things you could do with money as discussed here.
Handling Debt Before Buying Passive Income Assets
Before you can invest though, you’ll need to look at your debt situation. If the interest on debt is higher than the interest you could earn on investments, you’ll want to pay off the high interest debt first.
For example, we mention credit cards because these carry a 20% or higher interest rate usually which can trap you into a debt death spiral increasing your balance a large amount every year making it hard to pay down and eliminate.
Keep your credit card balance in control, don’t get behind!
Passive Income Ideas for Young Adults
Generating passive income is a great financial goal for young adults as it can provide financial security and flexibility in the future. Passive income streams require an initial investment of time, money, or effort, but they can continue to generate income with minimal ongoing involvement. Here are some passive income ideas for young adults:
- Invest in Stocks and Dividends: Invest in dividend-paying stocks or exchange-traded funds (ETFs). Dividend income can provide a steady stream of income as you build your investment portfolio.
- Peer-to-Peer Lending: Platforms like LendingClub or Prosper allow you to lend money to individuals or small businesses in exchange for interest payments.
- Real Estate Crowdfunding: Invest in real estate properties through crowdfunding platforms like Fundrise or RealtyMogul. These platforms allow you to invest in real estate with relatively low capital.
- Rental Properties: Purchase rental properties and hire a property management company to handle tenant issues and property maintenance. Rental income can provide a steady stream of passive income.
- Create an App or Software: If you have coding skills or a great app idea, consider developing an app or software that can generate income through downloads, subscriptions, or in-app purchases.
- High-Yield Savings Accounts and CDs: While the returns may be relatively low, these accounts and certificates of deposit (CDs) are low-risk ways to generate passive income.
- Dividend ETFs: Invest in exchange-traded funds (ETFs) that specifically focus on dividend-paying stocks. These ETFs provide exposure to a diversified portfolio of dividend stocks.
- Create an Online Course: If you have expertise in a particular subject, create and sell online courses on platforms like Udemy or Teachable. Once created, these courses can generate income with minimal ongoing effort.
- Write a Book or E-book: Write and publish a book or e-book on platforms like Amazon Kindle Direct Publishing. You can earn royalties on sales.
- Stock Photography: If you’re a photographer, submit your photos to stock photography websites like Shutterstock or Adobe Stock. You can earn royalties every time someone downloads or purchases your photos.
- Automated Dropshipping: Set up an e-commerce store and use dropshipping to sell products. With dropshipping, you don’t need to handle inventory or shipping, making it a relatively passive business model.
- Create a YouTube Channel or Blog: Build a YouTube channel or a blog around a niche you’re passionate about. Once you have a substantial following, you can earn passive income through ads, affiliate marketing, and sponsorships.
- License Your Art or Designs: If you’re an artist or designer, license your work to companies or sell it on print-on-demand platforms. You’ll earn royalties on sales.
- Royalties from Intellectual Property: If you have patents, trademarks, or copyrights, you can earn royalties from licensing your intellectual property to others.
- Create a Mobile App: If you have programming skills, create a mobile app that generates income through ads, in-app purchases, or subscription fees.
- Purchase a Vending Machine: Invest in vending machines placed in high-traffic locations. You’ll need to restock them periodically, but they can generate passive income.
- Automated Affiliate Marketing: Build niche websites that promote products or services through affiliate marketing. Once set up, these websites can generate income through affiliate commissions.
Final Words on Building Passive Income as a Teen
Remember that generating passive income often requires some upfront effort and investment. It’s important to research and choose passive income streams that align with your skills, interests, and financial goals. Diversifying your passive income sources can also help spread risk and provide more stable earnings over time.
Overall lesson today:
- Make your money work for you.
- Accumulate and save money and then put it to work.
- Delay purchases you don’t absolutely need today and avoid using debt to make purchases if possible.
- Millionaires prefer to save until they can make cash purchases. That’s when they know they can truly afford it.