How can you earn money while sleeping?

It may take some effort to set up, but passive income sources can be rewarding

Earning money while you sleep definitely seems to belong in the “too good to be true” category. Getty Images

Do you want to make money while you sleep? Pretty much every video or article about “passive income” starts with this alluring question. And why wouldn’t they? I think all of us want the maximum benefit for the minimum effort.

Earning money while putting in literally zero effort, because you’re asleep, is the equivalent of an infinite benefit-to-effort ratio. This is especially attractive during Covid-19 when so many are out of work. An income source that can’t be taken away seems pretty great right now.

But there’s a catch, right? There’s got to be a catch because my dad always told me that “if it seems too good to be true, it probably is”. And money for sleep definitely seems like it belongs in that “too-good-to-be-true” category.

As I fall into the category of “everybody” who would be interested in such a proposition, but also of a sceptical nature, I decided to go down the rabbit hole of passive income to try to score some of this sweet lazy money.

Passive income falls into different categories ranging from little difficulty to lots of difficulty, depending on your natural talents and interests. At the easy end of the spectrum are dividends from stocks, bonds and real estate investment trusts, which are like stocks but you partly own a bunch of rental income-producing buildings with a bunch of other people. Once you invest in them, you get regular payouts.

The effort comes in two areas: you have to earn enough extra money that you have cash to invest, and you need to learn enough about investing that you don’t get taken advantage of. And there’s some risk if your investment loses a tonne of value or even goes bankrupt.

Once you have arranged your life so that you have extra money to invest in these dividend-yielding products, it can pretty much be “set it and forget it” – and you will receive a cheque every month to three months for literally doing nothing.

One drawback is that dividends often range from 1.6 per cent to 5 per cent of the total value of investment per year. So to make a significant amount of money, you need to have invested quite a bit, or give what you invest a long time to compound.

Another less passive way to earn passive income is to become a landlord and rent your property out. But then you have to deal with the tenants and keep the property from falling apart –and know enough about real estate to ensure you get a good deal that makes you money.

When you get that all sorted, you can make a lot of money from real estate. Once you have the upfront cash investment, get a mortgage and let someone else pay it off. The yield can be lower than getting a dividend via paying stocks, bonds or REITs for a similar payday.

Then, you get into things like having a successful blog, YouTube channel or podcast, which can keep paying you money long after you create the content if you have good numbers and advertisers want to use your content to help sell their products. To me, though, this is not very passive, because you have to create all the content in the first place, do site maintenance and interact with followers.

But if you’re very good at creating content people like and that appeals to advertisers, you can make huge amounts of money this way, even long after you stop writing or making videos. Now could be a great time to build one of these platforms if a sudden loss of employment has left you with extra time during Covid-19.

Similar to this, but not exactly the same, are online products such as trainings, books you write or music you produce. If you have a particular knowledge set that can help others and you know how to create useful classes, you can get a lot of money by selling these classes online. Self-publishing books on Amazon or other platforms can also turn into a passive income stream, once you have the book written. But just like the category above, creating this content takes time and effort, so how passive is it really?

If you notice, none of these are “people pay me money for sleeping”. All of them take a lot of effort on the front end. Instead of passive income, I think they should be called “front-loaded income” streams. Personally, I have several of these sources and they took a lot of work to set up and reach a level where I notice the money I get. Don’t get me wrong, they can be massively useful, especially if you lose your job or your career gets automated or outsourced. Having your proverbial eggs in as many baskets as possible can keep you on track and earning an income.

Dubai schoolteacher Zach Holz (@HappiestTeach) documents his journey towards financial independence on his personal finance blog The Happiest Teacher