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.
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.
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!
Final Words on Building Passive Income as a Teen
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.
- Under 30 Wealthers and Millionaires prefer to save until they can make cash purchases. That’s when they know they can truly afford it.
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