Deciding how to invest money in your 20s can seem overwhelming at first; many people have differing opinions or goals, and it’s hard to know where to start. But remember that you don’t need to have a lot of money upfront to be a successful and savvy investor.
Perhaps the most important thing is to start investing early, even if your initial investments are small. Here are a few different strategies for investing money in your 20s.
Think About Financial Goals
When determining your financial goals, you may want to break down short-, medium-, and long-term milestones. You want to ask yourself what you want from your money and figure out when you’ll need to use the money. For example, the money you save for a medium-term goal, like a down payment on your first home, should be treated differently than the retirement savings you won’t touch for 40 or more years.
So, you may want to start buying stocks right away, but you may also want to give some strategic thought as to how that may fit into your overall financial goals.
If you have not earmarked savings for a specific financial goal, take some time to think about what purpose you’d like to apply it to. A great first saving goal is to have three to six months of living expenses in an emergency fund. After that, it might be good to turn your attention toward savings and investing for longer-term goals, like retirement.
Decide Where to House Your Money
When deciding how to invest money in your 20s, it can help to think about immediate, mid-term, and long-term financial needs. Once you have outlined some money goals, you could consider setting up your accounts. The type of account you open often depends on when you need the money.
Where to Put Immediate Money
Food, bills, rent, and everything else you must pay for on a month-to-month basis are immediate needs. Often people keep this money — along with a cushion so as not to overdraft their account — in an online bank account. These types of accounts allow you to withdraw money instantaneously, generally without penalties, making them ideal for your immediate financial needs.
Where to Put Mid-term Money
Mid-term money is any money you might need in the next couple of years, such as a travel fund, wedding fund, or home down payment savings. It might make sense to keep this money in a high-yield savings account, which provides a better return on your money than traditional savings accounts.
High-yield savings accounts, along with other cash equivalents like certificates of deposits (CDs) and money market accounts, are usually considered to be lower-risk investments (though CDs are not helpful for emergency funds because of the early termination penalties).
Where to Put Mid- to Long-term Money
For money you’ll use in five to 20 years, you may be prepared to take slightly more risk than a high-yield savings account. You might choose to keep the money in your high-yield savings account or in CDs, or a online brokerage account where you can invest that money in stocks, bonds, mutual funds, or other asset classes. You can also do a combination of the different types of accounts.
Longer-term savings options, like a tax-advantage 529 plan, can also be appropriate if you’d like to start planning for higher education needs for current or future children.
Where to Put Long-Term Money
Think of long-term money as cash you won’t need for several decades. A retirement account is a great example of an appropriate place to hold long-term money. Retirement plans like a Traditional IRA, Roth IRA, or a 401(k) account can offer significant tax benefits.
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Potential Assets to Invest in During Your 20s
One important thing to understand about investing in your 20s is the tradeoff between risk and reward when implementing your investing strategy. You cannot have one without the other. With this risk and reward calculation in mind, you need to determine what asset classes you might consider when investing in your 20s.
Stocks
A stock is a tiny piece of ownership in a publicly-traded company. When you invest in a stock, you could earn money through capital appreciation, dividends, or a combination of the two.
Stocks can be volatile because prices fluctuate according to supply and demand forces as they trade on an open exchange. Even though stocks can be volatile and experience losses, they tend to provide positive returns over time. The S&P 500 index has had an average annual growth rate of 10.3% from 1957 through the end of 2023.
Bonds
Although not risk-free, experts generally consider bonds less risky (though not risk-free) than stocks because they are a contract that comes with a stated rate of return. Bonds backed by the U.S. government, called treasury bonds, are the safest within the category of bonds because it is unlikely that the U.S. government will go bankrupt.
Bonds are debt investments, meaning investors fund the debt of some entity. The money you earn on that investment is the interest they pay you for borrowing your money. In addition to treasuries and corporate bonds, there are municipal bonds, which state and local governments issue, and mortgage- and asset-backed bonds, which are bundles of mortgages or other financial assets that pass through the interest paid on mortgages or assets.
A fund is essentially a basket of investments — stocks, bonds, another investment type, or a combination thereof. Funds are helpful because they provide immediate diversification: safety against the risk of having too much money invested in one stock, sector, or any other single asset.
Funds are either actively or passively managed. A fund that is passively managed is attempting to track a specific index. An actively managed fund is maintained with a hands-on approach to determine investments in a portfolio. ETFs tend to be passively managed, but there are many actively managed ETFs funds on the market. Mutual funds can be either passively or actively managed.
Tips for Investing In Your 20s
Once you’ve become familiar with the basics of investing, it’s time to put that knowledge into action. These tips can help you shape a strategy for how to invest money in your 20s and beyond.
Gauge Your Personal Risk Tolerance
One of the key things to remember about investing in your 20s is that time is on your side. You have a significant time horizon window to allow your portfolio to recover from bouts of inevitable stock market volatility. Because of this, you could take more risks with your investments to try and achieve higher rewards.
Getting to know your personal risk preferences can help you decide where and how to invest in your 20s to achieve your investment goals. It’s also important to understand how risk tolerance matches your risk capacity and appetite.
Risk tolerance means the level of risk you’re comfortable taking. Risk capacity is the level of risk you prefer to take to reach your investment goals, while risk appetite is the level of risk you need to hit those milestones. When you’re younger, playing it too safe with your portfolio might mean missing out on significant investment returns.
Know the Difference Between Asset Allocation and Asset Location
People often invest in a combination of stocks and bonds, which is easy to do using mutual funds and ETFs. One strategy for investing in your 20s is to invest a higher allocation of your long-term investments in stocks and less in bonds, slowly moving into more bond funds the closer you get to retirement. This big picture decision is called asset allocation.
But asset allocation is only part of the picture. One might also consider asset location: the types of accounts where you’re putting your money, like savings accounts, an online brokerage account, a 401k, or an IRA.
Asset location matters when it comes to investing money in your 20s because it can maximize tax advantages if you’re utilizing a 401k or IRA. But these retirement accounts also have restrictions and penalties for withdrawing money. So if you want to be able to access your investments quickly, an online brokerage may be a complimentary investing account.
Take Advantage of Free Money
One of the simplest ways to start investing in your 20s is to enroll in your workplace retirement plan like a 401k.
Once you’ve enrolled in a plan, consider contributing at least enough to get the full company match if your employer offers one. If you don’t, you could be leaving money on the table.
And if you can’t make the full contribution to get the match right away, you can still work your way up to it by gradually increasing your salary deferral percentage. For example, you could raise your contribution rate by 1% each year until you reach the maximum deferral amount.
Don’t Be Afraid of Investment Alternatives
Stocks, bonds, and mutual funds can all be good places to start investing in your 20s. But don’t count out other alternative investments outside these markets.
Real estate is one example of an alternative investment that can be attractive to some investors. Investing in real estate in your 20s doesn’t necessarily mean you have to own a rental property, though that’s one option. You could also invest in fix-and-flip properties, real estate investment trusts (REITs), or crowdfunded real estate investments.
Adding alternative investments such as real estate, cryptocurrency, and commodities to your portfolio may improve diversification and could create some insulation against risk.
Learning how to invest money in your 20s doesn’t happen overnight. And you may still be fuzzy on how certain parts of the market work as you enter your 30s or 40s. But by continually educating yourself about different investments and investing strategies, you can gain the knowledge needed to guide your portfolio toward your financial goals.
One thing to know about investing in your 20s is that consistency can pay off in the long run. Even if you’re only able to invest a little money at a time through 401k contributions or by purchasing partial or fractional shares of stock, those amounts can add up as the years and decades pass.
If you’re ready to start saving and investing for your financial goals, the SoFi investment app can help. With SoFi Invest®, you can begin building a portfolio of stocks, and ETFs for as little as $5 to meet all the critical financial goals and milestones in your life.
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Between inflation and rising prices, being frugal with your spending is a good idea. But you can go a step further: By learning some valuable life skills and DIY-ing more activities, you can save money.
Mastering skills like cooking, cleaning, riding a bike, and doing your own taxes means you don’t have to pay professionals for expensive services. While it can be time-consuming, harnessing new skills can make you more independent, help you keep more of your money, and maybe even inspire a few new hobbies.
In this article, we’ll take a look at 20 basic money-saving skills that almost everyone can learn. They can be fun to dig into, build confidence, and free up funds to put towards your financial goals.
How Life Skills Are Essential to Your Financial Freedom
Life is built on financial transactions. We pay for food at the restaurant, spend money on a haircut, reach deep into our wallets at the gas station, and shell out for repairs when something in our home breaks.
While we can’t possibly learn enough life skills to replace all these transactions, it is possible to take up a few new savings skills, like cooking, painting, and sewing, so that you can hoard a little more money each month.
That little bit of money adds up — honing several life skills can be an important step toward your financial freedom. The money you save can go towards your emergency fund, paying down student loan debt faster, or gathering the down payment on a house.
20 Life Skills That Can Help You Save Money
So which life skills are worth learning? We’ve rounded up 20 of the top money-saving skills that, when mastered, can help you avoid spending your cash on basic goods and services. They’ll help put you on the path to becoming financially disciplined.
1. Cooking
Eating out now and then is perfectly fine — a well-deserved reward after a long week at the office or a celebratory dinner for a major milestone. But eating out for lunch or dinner every day can be unhealthy (those portion sizes!) and can get quite expensive. Learning the basics of cooking can keep you out of the pricey restaurants and in your own kitchen instead.
Cooking can require an investment in the proper cookware and staple ingredients, but overall it’s bound to be cheaper than getting food to go or at an eatery. Just think about the price difference between avocado toast whipped up in your kitchen and what you’d pay at a cute cafe. Search for recipes online, and follow tips to save money on food before you head out to the grocery.
2. Painting
Ready to pick up a paintbrush and unlock another savings skill? According to Angi (formerly known as Angi’s List), homeowners spend more than $3,100 on average to paint the exterior of their home, and renters and homeowners alike might pay painters even more to paint the interior. The current rate for painting the interior typically runs from $2 to $6 per square foot.
While painting the exterior of your home can be a little more challenging, painting the interior is not complicated at all. If you are willing to take the time to learn, you can save yourself thousands of dollars every time you want to change up the inside of your living space. You could use that extra money to open a savings account or add to the one you already have.
3. Gardening
Yes, professional landscapers can weave a certain kind of magic. But doing your own gardening can be a tremendously satisfying and creative pursuit, not to mention that it can save you a lot of moolah. Spending time learning the basics about what zone you live in and which plants will thrive, plus wandering around nurseries and garden centers, can provide plenty of inspiration.
You can grow fresh produce for the small price of starter seeds and the occasional watering, which means less money spent at the grocery store.
What’s more, when selling your house, landscaping is an important part of curb appeal. A well-cared-for garden might attract potential buyers and help your home sell more quickly.
Plumbing emergencies like a flooded basement or a broken water heater are probably still better left to a licensed contractor, but teaching yourself to be handy with a wrench and a screwdriver might save you on smaller problems, like a leaky faucet or a running toilet.
This money-saving skill can serve you well over the years. Calling a plumber for every small problem that your house encounters over the years can add up. In fact, most plumbers charge $45 to $200 an hour and may charge a fee of $100-$250 just for a service call.
Beyond plumbing, you can teach yourself basic electrical and carpentry skills so that you can tackle some easy home improvement projects for beginners.
5. Budgeting
Knowing how to make a budget — and sticking to it — is a crucial life skill. When you are able to analyze your monthly expenses against your monthly income in an easy-to-read format, you can quickly discover which spending habits you need to scale back. Many people like the 50/30/20 rule, which spells out that you should spend 50% of your after-tax income on needs, 30% should be put towards wants, and 20% should go into savings.
And you don’t even need to pay for fancy budgeting software. Many online banking platforms make it easy to see all of your transactions in one place, and you can use a simple spreadsheet to design a budget that works for you.
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6. Haggling
Not every price is negotiable, but when it is, it’s important to know how to haggle with confidence. While you might immediately think of haggling at a used car lot (and that’s a great place to do it), you can also haggle over things like your monthly cell phone bill, your rent, and even credit card interest rates. Politely asking, “Is there any flexibility on the price?” may yield a surprising positive response.
Even if you’re only successful in lowering one expense, that’s money in your wallet that you wouldn’t otherwise have had.
You might not ever create your own clothes from scratch (though you certainly can!), but knowing how to sew can come in handy when you get a rip in your favorite shirt or a parka’s zipper starts to detach. Instead of throwing out clothes with holes or lost buttons, sew them back together. Mending the torn back pocket on your favorite jeans, for instance, and you’ll save yourself from dropping $50 or much more on a new pair.
8. Cutting Your Family’s Hair
Haircuts at chain salons are certainly not cheap, often ranging from $30 to $70+, but boutique salons are even more expensive. Learning to cut your family’s hair (or your own, if you’re brave) can cut out one monthly expense. Check out the tutorials on YouTube and other video platforms and see if you can’t hone your skills.
9. Investing
The average stock market return over the last 10 years has been more than 10%. And though you can certainly pay a traditional broker to manage your portfolio, it’s totally possible to do it yourself.
In fact, there are many platforms for investing to choose among, some of which enable automated investing. Plus, you can help build your financial know-how by reading blogs and books on investing, as well as listening to podcasts or taking an online class to sharpen your skills. Just remember that investing entails risk, so make sure to choose an investment vehicle you are comfortable with.
10. Changing Your Car’s Oil
Done by a professional, the average oil change costs from $20 to $100, but the cost of doing it yourself is $30 to $45. Being able to change your car’s oil by yourself (typically twice a year, depending on how much you drive) can mean you pocket an extra $10 to $55 every time. It’s a great life skill to learn and then stash the cash you save, year after year.
11. Cutting Firewood
If you have ample trees in your yard — or a generous neighbor has just taken down a tree and doesn’t mind sharing the spoils — you can chop the wood yourself for an outdoor firepit or your fireplace. If your home has a fireplace, you can use that wood to heat a single room while leaving the heater setting lower in the rest of your home, cutting down on your utility bill.
12. Doing Your Own Taxes
If you have a complicated tax situation, an accountant might be a good investment, especially if they can help you maximize your credits and tax deductions even if you’re a student. However, if you have a straightforward income and financial situation, it might be beneficial to skip the accountant fees and file by yourself.
Check out the IRS Free File hub to find programs that will help you do it all by yourself.
13. Bartering
The time-honored tradition of bartering, or trading goods and services, can help you lower your expenses. Let’s say there’s a spinning class you love that’s beyond your budget. Could you offer to swap your digital savvy (say, filming videos and posting on social media for the studio) in exchange for no-cost sessions? Think creatively about the skills you have and how you might use them to get some freebies. It never hurts to ask about such arrangements, and it could help.
14. Roasting Your Own Coffee
Buying a latte at a coffee shop every morning may be convenient (and relaxing), but it also gets expensive. If you spend $5 (or more!) every day on a cup of coffee, that’s more than $1,800 a year. Instead, learn how to save on coffee expenses. Brew coffee at home — and better yet, learn how to grind and roast your own coffee beans for maximum savings. You’ll find that whole beans are typically less pricey than pre-ground ones at the supermarket.
15. Baking
Going to the bakery when you said you’d bring a dessert to your family’s holiday get-together may be convenient, but buying fresh cakes and cookies can get expensive. Baking can be a little more challenging than cooking, but it’s certainly a great way to save money. And it can be a wonderful creative pursuit and a new pastime. Need inspiration? Just watch any of the addictive shows on TV, like The Great British Baking Show.
16. Upcycling
Upcycling is a buzzword for reusing an item instead of buying something totally new. For example, you might use reclaimed wood or an old door to make a desk or table, turn a sweater with torn elbows into a vest, or use old towels as cleaning rags for a while before tossing them. Upcycling can help you save on common expenses, and it’s great for the environment; less goes into the trash.
17. Cleaning
Most people probably don’t like to clean, but it’s a big part of being an adult. Whether it’s scrubbing the bathroom, vacuuming the rug, or wiping down kitchen counters, these are chores that just need to be done.
It might be tempting to pay for a cleaning service, but doing so is expensive. Cleaning professionals typically charge $30 to $50 per hour — or more than $600 for a large home over 3,000 square feet.
Don’t give into that temptation to farm it out. Grab a rag (or an upcycled towel), a bottle of cleaning solution, and a monthly house maintenance checklist. You’ve got this!
18. Riding a Bike
Gas is expensive (and you probably know its impact on the environment). While you probably can’t bike everywhere you need to go, each trip on a bike you make — to work, to school, or just to a friend’s house — means you won’t be spending money on gas or bus fare.
19. Hosting
Hanging out with friends at your favorite bar is nice, but a fun night out adds up quickly when you do it every weekend. Instead, host your next friend or family gathering at your own home. Stock some wine, cold beer, and snacks, and you’re good to go. (You can be next-level and make a pitcher of a signature cocktail; it’s a fun way to build your mixology skills.)
Or switch things over to a morning meet-up with a pot of coffee and some home-made muffins. You’re likely to save big.
20. Doing It Yourself
Our final life skill ties all the rest together: Do things yourself instead of paying someone else to do them. If you don’t know how to do something, research online or find someone who does and learn. Once you’ve mastered the skill, share your knowledge with others.
Whether mowing your lawn, washing windows, or doing yoga or Pilates at home, you can really open up room in your budget when you DIY.
Banking With SoFi
Honing these valuable money-saving skills is a great way to establish financial freedom, and having a quality bank account will elevate your efforts. That way, you can immediately stash all the money you’re saving into your account so you won’t be tempted to spend it.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.
FAQ
Is saving money a life skill?
Saving money is an important life skill. By learning to do various tasks yourself around the house and in your daily life, you can avoid paying for a lot of expensive goods and services. Also, being a smart consumer and comparison-shopping will help you save money. This is especially important when making a big purchase; look around for the best price, coupons, and other discounts.
How do I find the time to develop these life skills?
Most of these life skills can fit into your regular day. If you normally spend a couple of hours going out to dinner, you can instead spend that time finding a recipe and trying to cook it at home. You may also find that some of these tasks (cooking, gardening) become hobbies in which you happily invest time.
What is the most valuable life skill?
Learning to do things yourself, from cooking to filing taxes to changing your car’s oil, can be the most valuable life skill. This can give you confidence, know-how, and self-reliance, plus it requires you to be curious and willing to educate yourself, all of which are important traits.
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While there’s no official guideline on what makes a salary “good,” a $20,000 salary is not typically enough for a household to live comfortably in most parts of the United States. Certainly, each person’s situation is unique in terms of their assets and expenses, but an individual making $20K a year may have a hard time making ends meet. They might need to rely on assistance from family, friends, and/or the government to afford basic necessities.
A $20,000 salary puts a single person above the poverty threshold for 2024. An individual supporting themselves plus one or more people on $20K a year, however, will live below the poverty threshold. With the record-high inflation we’ve seen in recent years, affording basic needs on a $20,000 salary has become even more challenging.
So is $20K a year good? While a $20,000 salary averages out to more than the federal minimum wage of $7.25/hour for full-time work, it is likely not an adequate income for anyone living independently and especially those with a family. In this piece, we’ll cover:
• The current American median income.
• Is $20K a year good?
• A breakdown of a $20,000 salary.
• The best and worst places to live on $20,000.
• Tips for living on $20K a year.
Factors to Determine if a $20,000 Salary Is Good
A $20,000 salary will be challenging for anyone to live on, but a few factors may determine if it can be done — or if it’s impossible:
• Taxes: If you are filing singly, a $20,000 salary will put you at the 12% federal income tax bracket. You may owe additional taxes for your state, city, and/or school district. For the sake of example, assume a flat 15%. That means, although you make $20,000, you only bring home $17,000 after taxes.
• Family size: Single individuals without children can make $20,000 stretch more easily. Two or more people living off a $20,000 salary will face more challenges.
• Location: Money goes further in some places more than others. If you live in an area with a low cost of living, a $20,000 salary may be more manageable. But if you live in a popular city, $20,000 a year may not even cover rent.
• Debt: If you have debt, it can be more challenging to allocate your limited money to basic necessities and important financial goals, like building an emergency savings fund. If you are dealing with high-interest debt, you probably know how quickly this debt can grow when you are only paying the minimum amount due.
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How Does a $20,000 Salary Compare to the American Median Income?
According to the most recent U.S. Census Bureau report, median household income was $80,610 in 2023. Keep in mind, though, that this number represents all households, which may include more than one earner. According to the Bureau of Labor Statistics, median weekly earnings for American workers was $1,117 in 2023, which comes out to $58,084.
Either way, $20,000 is far below either estimate for a median income. If you earn $20,000 and have a domestic partner or spouse who earns additional income, your salaries together might get you closer to the median income level.
Again, no judgment here: It’s not a matter of if a $20,000 salary is good or bad. To someone just out of high school, $20K a year might look like a good entry-level salary. But anyone who has handled monthly bills like rent and utilities will likely recognize that a $20,000 salary may be insufficient.
Here’s how a $20,000 annual salary breaks down:
• Monthly income: $1,666.66
• Biweekly paycheck: $769.23
• Weekly income: $384.62
• Daily income: $76.92 based on working 260 days a year
• Hourly income: $9.62 based on working 2,080 hours a year
These estimates do not account for taxes. In the example above, a $20,000 salary may shrink to $17,000 after Uncle Sam has taken his cut.
It is possible to live individually on a $20,000 income, but you will likely only be able to afford the items on your basic living expenses list if you aren’t able to supplement your income. Living comfortably — with easy access to good health care (including mental health), balanced nutrition, safe housing, and efficient transportation — may be far more challenging on $20,000 a year.
If you make $20,000 a year, you might be able to minimize monthly expenses by looking for government assistance, getting a roommate or moving in with family, cooking at home, and using an online bank account with a high interest rate and automatic savings features.
How Much Rent Can You Afford Living on a $20,000 Income?
Wondering how much you can afford to spend on rent? Researchers have long argued that you should spend no more than 30% of your income on housing. With rising inflation and increasing rent prices, however, that’s not always possible.
If you were to stick to the 30% rule (and forget about income taxes for the sake of the example), that means you can spend $6,000 a year on rent, or $500 a month. But the median cost of rent in the U.S. was $2,100 as of September 2024, according to Zillow. That’s about four times what you could afford on $20K a year.
To afford rent on a $20,000 salary, it’s a good idea to live in a place with a very low cost of living and to have one or more roommates who can help share living expenses of rent and utilities with you. Moving in with family is also a solution if you cannot afford rent on your salary.
Best Places to Live on a $20,000 Salary
If you are making $20,000 a year (or $9.62 an hour), it might be a good idea to explore cities and states with a low cost of living.
These are the five least expensive cities to live in for 2024-2025, per U.S. News:
• Fort Wayne, Indiana
• Huntsville, Alabama
• Wichita, Kansas
• Springfield, Missouri
• Davenport, Iowa
Living outside a city altogether is usually more affordable. Consider a rural location in one of these five cheapest states to live in:
On the flip side, there are some major cities that are exorbitantly expensive to live in. If possible, it’s a good idea to avoid living in the following locations when you are living on $20,000 a year:
• Hartford, Connecticut
• Los Angeles, California
• Miami, Florida
• New Haven, Connecticut
• New York City, New York
California cities clearly carry a high cost of living, but other states are also expensive. If you have a $20,000 annual salary, it’s a good idea to steer clear of any of the five most expensive states to live in:
• Hawaii
• New York
• California
• Massachusetts
• Oregon
Is a $20,000 Salary Considered Poverty?
A $20,000 salary is above the poverty line for an individual, but if you are a couple or a family of three or more people living on a $20,000 salary, the government considers you to be below the poverty line.
These numbers do not consider factors like variable cost of living. A localized poverty line could be more telling, especially if you live in a place with a high cost of living. If you are, say, living in a pricey city and earning $20,000 a year, you might be feeling the financial pinch more.
Tips for Living on a $20,000 Budget
While advocating for a higher salary can infuse your line item budget with more funds, you can’t necessarily count on a raise. Taking other steps now may make it easier to live on your $20,000 salary.
Finding Out What Assistance You Qualify For
If you are making $20,000 or less, you may qualify for government assistance. Here are a few actions to consider taking:
If you do not qualify for rental assistance from the government, you may need to come up with another plan to avoid high rent costs. Roommates can be a good way to keep rent low.
Alternatively, family and friends may be willing to offer free lodging while you save money. While it can be hard to lean on others in this way, it can be a form of financial self-care to do so until you are able to be out on your own. If you do move in with a loved one, just remember to be helpful around the house and chip in with utilities and groceries if you’re able.
Cutting Costs
After reducing your largest cost (rent), it may be possible to reduce other costs in your budget. For example, a car payment, gas, and car insurance can be costly monthly expenses. If you live in an area with great public transportation or are comfortable walking and riding a bike, you may be able to get around without owning your own vehicle.
Other costs you might be able to cut include streaming services, gym memberships, and bills from dining out.
Getting on a Budget
After finding low-cost housing and trimming unnecessary expenses, it’s a good idea to make a monthly budget that accounts for your post-tax income and your monthly expenses.
Not sure how to budget on a $20K salary? Taking care of all necessary bills (housing, utilities, groceries) is the perfect first step. Once you’ve accounted for those monthly expenses, see how much you can allocate to paying down debt or building your savings.
Taking on debt is often necessary — when buying a house, purchasing a car, or even going to college. But when you make a low salary and struggle to pay the bills, it can be tempting to take out a payday loan or overuse a high-interest credit card.
When possible, it’s a good idea to avoid high-interest loans. In fact, instead of taking on more credit card debt, you may be able to take control of your bad debt by applying for a debt consolidation loan. These are typically personal loans that charge an interest rate that may be significantly lower than your credit cards’ rates. You use the loan to pay off the cards and then you work to eliminate the personal loan.
You might also meet with a counselor from a nonprofit debt counseling organization like the National Foundation for Credit Counseling, or NFCC .
You might also consider ways to bring in more income to pump up your spending power. This could include seeing if additional hours are available at your primary workplace, as well as taking on a seasonal part-time job or starting a side hustle. These are all ways to use some of your leisure time to bump up your income.
The Takeaway
A $20,000 is usually not enough for a family to live on, and it may be difficult for individuals to get by on this salary too. It may be wise to research government assistance, look for roommates to lower housing costs, and build (and stick to) a monthly budget that prioritizes paying down debt and building emergency savings. These steps can help you live on a $20,000 annual income.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.
FAQ
Can you live comfortably on $20,000 a year?
It can be difficult for an individual to live comfortably on $20,000 a year. With the right assistance from friends, family, and the government, however, it may be possible to meet basic needs. Families will face more challenges living off $20,000 a year.
What can I afford making $20K a year?
A $20,000 salary may leave room in your budget for the most basic expenses: rent, utilities, transportation, and groceries. Even then, getting government assistance and a roommate might be necessary for managing monthly expenses on $20K a year.
Is $20,000 a year middle class?
According to the most recent data from the Pew Research Center, middle class, middle-income households have incomes ranging from about $56,600 to $169,800. Thus, a family living on $20,000 is not middle class; it’s actually below the poverty level. While an individual earning $20,000 a year is not below the poverty line, they are still not considered middle class.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Want to know how to never pay full price for anything? There are plenty of tips and tricks that can help you get a better deal on everything from a car to a big carton of cereal.
Saving money does more than put money back in your pocket. It can truly help you feel in control of your finances, which can, in turn, help motivate you to continue building good financial habits.
If you’re interested in becoming more conscious about how you’re spending money, be sure to take a look at these 15 tips. Even if you’re already a savvy shopper, you may be able to learn some new ways to optimize your spending and saving habits.
Common Retail Markups
Before delving into strategies for saving money off of retail, consider how much most items are marked up for sale. While there is no set or ideal number, many businesses charge 50% more than the actual cost of the item. So if it cost a company $50 to make a sweater, they would sell it for 50% more than that, or $75.
This means that, while not optimal for their financial goals, they could sell the garment for less than $75 and still be recouping their costs, plus a profit.
Some categories of products are known for having even higher markups. Consider these:
• Mattresses, up to 900%
• Designer jeans, up to 500%
• Furniture, up to 400%
• Coffee to go, up to 300%
• Diamonds, up to 100%
Places Where the Price Is Non-Negotiable
While there isn’t a rule about where you can and can’t negotiate, you are more likely to be able to get a better price at some locations than others. For instance, bargaining is more appropriate at:
• Flea markets
• Car dealerships
• Small shops
It’s less likely to be effective at:
• Luxury retailers
• Chain stores
• Malls
That said, some top-notch negotiators say they have scored discounts almost anywhere. Read on for tips to help you do the same.
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15 Tips to Avoid Paying Full Price for Anything
Smart shoppers often get the latest and greatest – without having to pay full price for it. These tips can help boost the balance in your bank account by helping you save money on many of the things you buy.
1. Install Browser Extensions on Your Computer or Apps on Your Phone
There are a whole host of browser extensions and apps that can save you money with minimal effort on your part. You can see cash back options, rebates, price drops, and places where you can find an item for a lower price on another website. Some examples of boosting your money-saving skills this way include:
• The Honey Extension will automatically look for and apply digital coupons and promo codes when you’re shopping online.
• Rakuten is a rebate extension that offers cash back, coupons, and deals at more than 3,500+ stores.
• CamelCamelCamel is an Amazon price tracker that alerts you when the price drops on an item you’ve been looking to buy.
• Booklovers alert: The Library Extension works when you’re searching for a book to buy, such as on Amazon. It’ll allow you to check the online catalog of your local library so you can save some money by borrowing a book from the library instead of buying it online.
You’ll find rebates from many manufacturers and retailers. Order new contact lens or an electric toothbrush, and you may get $25 or $50 back. Don’t let that piece of paper (which you may have to mail back in to get your reward) wind up in the trash.
Another popular source: Your power company likely offers some type of rebate for energy-efficient appliances, air conditioners, water heaters, smart thermostats, light fixtures, and more. For example, you may be able to find a $50 rebate for an energy efficient refrigerator. Pair that with a $50 credit for recycling your old one, and you have $100 off a new fridge. Just be sure to check with your power company to make sure your appliance meets the requirements and you send in the rebate on time.
3. Buy Used or Refurbished Products
Buying used consumer items can net you substantial savings — upwards of 90% off — and sometimes you can find these things for free. Essentials for babies and kids, clothing, and home decor can be found for a fraction of their original retail price. They’re often in great shape and there’s such an abundance of used items for sale that you can be picky with what used items you buy.
Where to look? Try the following:
• Freecycle sites
• Local thrift shops and flea markets
• Nextdoor and Facebook Marketplace
Buying discounted goods this way can be part of your financial freedom plan and help you find more money in your monthly budget.
4. Buy Items in the Offseason
You’ll score major discounts if you can buy things you need in the offseason. When a store is trying to make room for new inventory, you’ll often see several price drops. Buying snow boots in March or swimsuits in September could save you 50% or more.
5. Redeem Credit Card Rewards for Travel, Gift Cards, and Merchandise
A great way to never pay full price on travel is to redeem credit card points for airfare, hotel stays, transportation, and other travel expenses. Some credit cards have partners (such as airlines and hotel chains) where you can transfer points and book directly with the travel provider. Other credit cards offer a simpler redemption based on cash back rewards.
The benefit for redeeming points depends on which credit card you have, but many offer a tremendous value for the frugal traveler who never pays full price.
You may also be able to redeem cash back in the form of gift cards. You may be surprised to see a 25% bonus for cash back when you redeem it as a gift card. To do a bit of the math, that means $40 in cash back might become a $50 gift card for your favorite retailer.
Many credit cards also offer consumers the ability to use cash back or points to pay for purchases. You may have a card that offers you the ability to erase charges with the cash back you’ve earned after you receive your statement. Or, you may see an option to pay for a purchase at checkout with your cash back or points (usually if you’re using a third-party site like PayPal). These can be a good way to avoid paying retail.
You don’t need to become an extreme couponer to avoid paying full price. If you find something you want to buy online, for example, getting a discount may be as easy as searching online for a promo code.
Promo codes are essentially just digital coupons for the site you want to buy something from. They can help you avoid overspending money by reducing the cost of buying the product or service you need.
7. Learn the Pantry Principle
The pantry principle is to stockpile goods at a low price. For example, if a can of corn normally costs $1 and goes on sale for 50 cents, you would buy in bulk to take advantage of that reduced price. You’ve cut your cost for corn in half for as long as you have the cans in your pantry.
The same idea can work with other non-perishable essentials. If you can buy, say, your favorite yoga pants or cleaning products on sale and in bulk, you’ll reduce your spending.
Warehouse clubs and outlet stores offer different ways to save money. Costco and Sam’s Club, for instance, focus on selling products in bulk, which can result in a decent amount of savings. Keep in mind, however, that not all products sold at a warehouse are cheaper than what you can find at other retailers, so just be sure to check your price, especially per unit, whether that’s by the ounce or the liter. Also take advantage of discounts your membership may offer on health services, entertainment, tires, and more.
Likewise, outlets can offer savings by selling overstock items from other retailers. You might find a pair of boots you’ve been coveting or a new armchair at a deep discount.
9. Take Advantage of Birthday Deals at Certain Places
Want a free dessert? $10 off your meal? A surprise gift? Take advantage of special perks on your big day. Birthday deals abound, particularly at restaurants and certain retailers, like Sephora, Macy’s, and Petco, among others. To take advantage of a great birthday deal, you may need to sign up online in advance.
10. Look for Price Matching and Price Drop Refunds
If you’re about to make a significant purchase, do your research online first. You might find, for example, that one retailer is offering no delivery fees on refrigerators, but that they charge $75 more for the model you want than a competitor. You could see if they will match the price of the competitor in order to snag the best deal possible
Also, some retailers offer a price drop refund on items you previously purchased. This works by taking your receipt back to the retailer if the item you just bought went on sale shortly after your purchase (usually within two weeks, but the time can vary by each retailer’s policy).
Sometimes, scoring a deal is as easy as asking for it. You can politely ask, “Is there any discount you can offer me for this?” or “Would it be possible to ask for a discount on this?” The best places to ask for a discount are the ones where there is some discretion at giving discounts, such as a seller on Facebook Marketplace, a retail manager, or even a hotel clerk.
Nevertheless, even a big-box salesperson can help you identify any current or upcoming discounts if you take a moment to inquire.
12. Wait for Sales
Eventually, many of the items you’re shopping for will go on sale, so it’s best to never pay full price at retailers that have frequent sales. Retailers will often use any excuse to hold a sale. (Ever see an ad for a furniture store selling mattresses on Presidents’ Day?) After all, retailers know you’re more likely to spend money if you feel like you got a good deal.
13. Abandon Your Online Cart
This one is a little sneaky. Abandoning an online cart occurs when you add something to your online shopping cart but don’t actually complete your purchase. Nearly 70% of carts are abandoned by consumers. To help increase sales of abandoned shopping carts, retailers have some smart ways to get consumers to come back and finalize the purchase. Sometimes, the retailer will email you a coupon or entice you with another offer to get you to finish your purchase.
It’s common for websites to show their newest (and most expensive) products first, but if you sort your search to have the lowest-priced items shown first, you’ll likely find the things you need for less.
15. Subscribe to Email Lists or Newsletters
Many retailers offer a discount when you subscribe to their email list or newsletter for the first time. Retailers know that a major portion of their sales come from offering coupons or discounts. This means the discount they offer has to be good enough for a consumer to subscribe, so offering up your email could save you a bit of money.
These offers might be for 10% or more off, free shipping, or other deal sweeteners. And you can opt out of future emails whenever you like. Additionally, some retailers will offer these deals or increased savings if you allow them to text you with their latest news and sales.
The Takeaway
It pays to be a smart shopper. And, not only that, it just plain feels good to know you’re saving money off of retail prices. If you have a few tricks up your sleeve, you’ll know how to never pay full price for anything ever again. Whether it means using a browser extension when shopping online, taking advantage of cash back offers, or tapping your negotiation skills, there are many ways to make sure you get the best possible price tag whenever you buy.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.
FAQ
Is paying retail bad?
If you feel the price is fair, there’s nothing wrong with paying full retail price. In fact, studies have shown that always focusing on a deal can result in spending more, rather than less, money. If you’re also more conscious of what you buy, that’s often more important than saving a few bucks on something that won’t last or doesn’t hold value.
Why are wholesale and outlet stores cheaper?
While not every item is going to be cheaper at wholesale and outlet stores, in general, you will find better prices shopping at stores that offer an alternative to full retail price. Wholesale stores can offer better prices by focusing on fewer products and selling inventory in bulk. Outlet stores often have better prices because they sell overstock items.
Should I pay retail if an item is limited?
The adage, “spend according to your values,” can help you decide when to pay retail price. If you’re purposeful with spending your money, paying retail price on a limited item is a decision that may make sense for you.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
With inflation and interest rates rising, many people are looking for ways to generate additional income these days — and finding reliable sources of passive income, which require less effort than most jobs — has become particularly desirable.
Creating and managing passive income streams isn’t a truly passive activity, however. Generating passive income usually requires upfront work, or sometimes a substantial investment to get the ball rolling. And depending on what your passive income ideas are, whether you’re renting out property or selling a product via online platforms, you’ll likely have ongoing tasks to keep the money coming in.
That said, passive income can in some cases deliver more income with less effort than a traditional job that requires a fixed number of hours per week.
Key Points
• Passive income is money earned without active involvement.
• High-interest savings accounts, investing in business, P2P lending, and rental properties are some ways to generate passive income.
• Benefits of passive income include extra money with less effort, freedom, and flexibility.
• Initial work and investments are often needed to set up a stream of passive income.
• The opposite of passive income is active income, which usually involves a job and is also known as earned income.
What Is Passive Income?
Passive income is money that you earn without active involvement. In other words, it is income that isn’t attached to an hourly wage or annual salary. Passive income ideas could include things like cash flow from rental properties, dividend stocks, sales of a product (that requires little or no effort), royalties, and more.
Essentially, these side hustles can help you earn money without contributing much, if any, active effort. If you are paid for a service you perform, that’s active income — you have to put in time and energy in order to get paid. If you can continue making money while staying mostly hands-off, that can be a form of passive income. That doesn’t mean you won’t have to put work in up front to get started — you probably will. But besides some maintenance, passive income shouldn’t require your active involvement.
There are obvious benefits to these low-effort side hustles over traditional active income. Earning more money without putting in more hours offers the opportunity to make extra cash without burning yourself out. If you’re successful enough, it might even give you the freedom and flexibility to quit your day job and do whatever you want instead, whether that’s going to school, traveling, writing, or making art.
39 Passive Income Ideas to Help You Make Money
There are a number of ways to earn passive income. Some options, like the following types of passive income, take relatively little active supervision.
A high-yield savings account (HYSA) is an alternative to traditional savings accounts, and they’re attracting more attention these days thanks to higher interest payments that might be 2% or more. By simply putting your money in the bank, you may be able to start to earn passive income on it. If you invest in an FDIC-insured account, the first $250,000 of your money is protected. There are both banks and online platforms which offer a high-yield savings account.
Savings accounts are generally appealing because they are a separate place to store money you don’t necessarily want to use on day-to-day expenses. For example, it could be a good place to save for emergencies, or even to save for a vacation or a move across the country.
When you find a high-interest savings account, take a look at the fine print. What conditions are attached for you to get that rate? The financial institution may require you to have a certain amount of money deposited into that account each month, maintain a certain balance or have your bills automatically deducted from it. You may need to use your debit card a predetermined number of times, as yet another example — or be limited in the number of transactions that can take place each month.
Earn up to 4.00% APY with a high-yield savings account from SoFi.
No account or monthly fees. No minimum balance.
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2. Invest In a Business
Although this may take an up-front investment, buying into a business and becoming a silent partner can be another passive income source.
Even if the company you are thinking of investing in seems solid, it’s important to have an understanding of the challenges the organization may face. There are some red flags to look out for, such as a company whose revenue is earned from just a couple of clients — or just one client — as opposed to several.
It’s also important to lay out the exact terms of your investment and compensation.
3. Become a Peer-to-Peer (P2P) Lender
Peer-to-peer (P2P) lending platforms are another type of crowdfunding that allows people to borrow money from individual investors. Through these sites, you can be matched with an individual seeking a loan, and lend your money at a rate that could be higher than the usual bank rates.
That’s because investors taking part in peer-to-peer lending tend to bear the bulk of any risk. It is possible that borrowers will default on their loans, leading to a higher risk if an investor were to lend money with a lower credit rating, for example. Returns are never guaranteed and while investors will receive a return on the money they invest, they could also lose some or all of it in the long run.
Another popular passive income source is rental property. You might want to purchase a home to rent out to an ongoing tenant or list a property on a short-term rental site. Hiring a property management company lessens your day-to-day involvement, thereby making this venture a more passive income strategy than active.
Obviously, setting up this type of income requires a pretty big outlay, and it may be a while before your investment property generates a profit over and above the many expenses required to run it. In addition, there are always risks in the rental markets to keep in mind.
If you don’t have thousands of dollars to spend on a piece of property, you can always check out your options on crowdfunded real estate sites. These may require a smaller initial investment, and likewise the costs are also shared.
Crowdfunded real estate investments can be complex, however, and you’ll want to balance the risks and rewards.
6. Invest in Dividend Stocks
When companies choose to share a portion of their profits with the investors who own shares of the firm, those payments are called dividends, and they work generally the same way from company to company.
Typically, dividends are paid in cash (though some might be paid in stock), on a regular schedule. Dividends are usually paid quarterly, though there are variations.
Investors might receive dividends from companies they’re invested in, or from mutual funds they’re invested in that hold shares of dividend-paying companies.
There is no guarantee that investing in dividend stocks will continue to earn you passive income. As Liz Young Thomas, Head of Investment Strategy at SoFi, points out, “A stock’s dividend yield will fluctuate because it’s based on the stock’s price and prices can be volatile. You should also consider other factors like a company’s track record of increasing the dividend, the dividend payout ratio, debt load, and cash on hand when determining the overall health of an investment.”
If you’re just getting started with investing, you may want to use automated investing tools to help you choose the appropriate allocation of assets for your goals.
Typically, an automated platform — also called a robo-advisor — is a digital investing service that provides you with a questionnaire so you can establish your financial goals, risk preferences, and time horizon.
On the backend, a sophisticated algorithm then recommends a pre-set, automated portfolio that aligns with your responses. These portfolios often have lower account minimums compared with traditional brokers, and the portfolios themselves are typically comprised of low-cost exchange-traded funds (ETFs) — which adds to the cost efficiency of some robo products.
You can use a robo investing as you would any account — for retirement, as a taxable investment account, or even for your emergency fund — and you typically invest using automatic deposits or contributions. The allocation in each portfolio is usually pre-determined, and investors cannot change the investments.
Tools such as SoFi’s Automated Investing allow you to automatically invest each month and potentially grow your portfolio over time.
One way to earn income in a retirement account is by investing in mutual funds. You can choose the level of risk you want to take with your money by finding a mutual fund that is higher or lower risk.
When you join a company’s affiliate program, you earn a commission from every product that someone purchases from that company. All you have to do is post the link on your blog, website, or social media pages. Amazon Associates is a great place to start.
10. Rent Out Your Car
Another one of the best passive income opportunities is renting out your car on a site like Turo. It’s basically the Airbnb of cars, and, according to Turo, the average annual income for one car on the site is $10,516.
11. Advertise on Your Car
If you have a clean driving record as well as a newer car, consider getting in touch with a car advertising agency. You simply drive around town with ads on your car and easily generate passive income.
12. Rent Your Parking Space
Do you have space in your driveway that you aren’t using? Then rent it out on platforms like Stow It, where you can find people who will pay to rent out the space.
13. Rent Storage Space
If you have extra space in your garage, shed, or storage unit, then you could start earning passive income by using a peer-to-peer storage site like Stashii to find people who need your space.
14. Invest in Real Estate Investment Trusts (REITs)
An alternative to becoming a property owner or landlord are real estate investment trusts, or REITs. REITs are publicly traded companies on the stock market that own income-producing real estate. They give you the chance to invest in real estate portfolios. REITs sometimes come at a higher risk than other funds.
You might consider investing in a REIT that focuses on storage units. For example, one option is Public Storage, which has ownership or interest in 2,548 properties located in 38 states.
Perhaps you don’t have a car, but you do have a bike that’s just sitting around. Your bike could be a lucrative passive income source, especially if you live in a high-traffic area. List your bike on Spinlister to get started.
16. Airbnb or Rent Out a Room
Even if you don’t own an investment property, with your landlord’s permission, you may be able to rent out a room in your apartment or list it on Airbnb.
17. Pet Sit in Your Home
If you love pets, you can earn passive income by welcoming pets into your home while their owners are on vacation. For instance, you could charge $30 to $80 per day just for running a doggy daycare. You can gain clients through word of mouth or use a site like Rover to find customers.
18. House Sit for Someone
When your friends go out of town, they may need someone to stay in their home and do simple things like water their plants and collect their mail. You can easily make money and have somewhere new to stay for a little bit. Along with making yourself available to friends, you can sign up to be a house sitter on HouseSitter.com.
19. Buy and Sell Domain Names
Some domain names are cheap, while others cost a lot of money because they are in high demand. One thing you could do to start another passive income stream is to purchase domain names you think will be popular. Purchase low for around $10 to $100 and then sell them for a much higher price later on.
20. Rent Your Tools
Have you ever done a home improvement project that required you to purchase tools? You may never need to use those tools again. Thankfully, now you can rent tools, and rent out your tools, on peer-to-peer platforms such as Sparetoolz to earn passive income.
21. Invest in Royalties
Let’s say you don’t have any songwriting ability, but you would like to make money on other artists’ work. You can invest in royalties through Royalty Exchange and earn passive income on the intellectual property.
22. Purchase a Billboard
You can make thousands of dollars per month if you own a billboard where companies can advertise their products and services. Do your research and make sure you get the right permits before committing to a billboard.
23. Purchase a Blog
If you don’t have the time or energy to create content for your own blog, then look into ones that are already successful and see if the owners are willing to sell. You could also hire someone to manage your blog so that you’re truly earning in a passive way.
24. Create an Online Course
If you have a special skill or knowledge about a certain topic, you may be able to create a video course where you teach people about that topic and charge them to take the course.
25. Sell Digital Products
You may want to research online platforms where you can sell everything from digital art to e-books. Whether you’re an artist, graphic designer, or writer, you can create digital products to sell online.
26. License Your Photos
Many companies, bloggers, and individuals use stock photos on a regular basis. You may be able to upload your best photos to stock media platforms and earn passive income on them.
27. Create a Mobile App
If you’ve been dreaming about an amazing phone app that you think a lot of other people would use, you may want to look into hiring a development team to create it.
28. Sell a Product
You may be able to earn passive income through sales of a product that you create. This could be a book that you write or a physical product that you design and make. You might also list items you already own on sites like eBay and earn extra income through those sales.
29. License Your Music
Do you love to write songs? Then you could license your music and start earning passive income. You’ll just have to team up with a music licensing company to get started.
30. Self-Publish a Book
Through platforms like Amazon’s KDP, you can self-publish a book and earn a royalty on it every time someone makes a purchase. You will be able to set the price of your book and be in full control of your book’s Amazon page, where you can list pictures of the book, reviews, and videos promoting it.
31. Sell Blank Books
You can start selling books online without having to write anything. How? By focusing on blank books, such as journals, sketchbooks, and planners. Simply find a design you believe will appeal to people and begin collecting royalties when people buy your books.
32. Create Greeting Cards
Another artistic endeavor that could be a good passive income stream is creating greeting cards that you sell to a wholesale or retail stationery company that accepts independent artist submissions.
33. Sign Up for Dropshipping
If you want to sell products and make money online but don’t want to store any of the goods, you could always look into dropshipping to create passive income. With dropshipping, you don’t have to have much money to start since you don’t need inventory to fulfill orders for customers.
34. Start a Blog
Blogging seems like a pretty cool space to operate in and gives you a lot of creative freedom. You can make your blog all about crafts, share tutorials, ideas, and more. It’s up to you how your space operates.
Blogging might seem like too much work to many people, but it doesn’t have to be a full-time job for everyone. For some people, blogging can be fun after a day at the office — and, with time and effort, it could turn into something more lucrative.
Here are a few ideas on how you can make passive income from blogging:
• Affiliate marketing
• Google AdSense: Cost Per Click and Cost Per Impression
• Sponsored posts
• Selling products
35. Start a YouTube Channel
If you enjoy creating videos more than writing, then consider starting your own YouTube channel. Once you get enough viewers, you can begin to generate passive income through YouTube advertising.
36. Publish an Ebook
Like an online course, an ebook is a way to share your expertise with the world. Anyone can self-publish a book online through services like Amazon’s Kindle Direct Publishing, iBooks Author, or Kobo Writing Life.
The percentage of royalties you earn varies depending on the publisher. Of course, the more marketing you do, the more copies you’re likely to sell — and there’s no shortage of online marketing strategies to investigate. But once you write and publish the e-book, it’s out there ready to generate passive income for you.
37. Create a Podcast
Podcasts are still popular, and they can generate some passive income for you. If you start a podcast that resonates with people, then you can grow your audience and monetize your show by sponsoring with ad partners. If you get enough listeners, you may be able to sign up for podcast advertising networks.
38. Start an ATM Business
When people are out at a bar or nightclub or they’re frequenting a cash-only business, they may need cash right away. If you own an ATM business and you place your ATM in high-traffic locations, you could start to generate passive income through surcharge fees. Typically, you could earn around $3 per withdrawal.
39. Start a Vending Machine Business
Similar to an ATM business, a vending machine business allows you to use your creativity and determine high-traffic areas where you could make a lot of money. If you buy in bulk, you’ll be able to save on the snacks and drinks you purchase for your machines.
Potential Benefits of Earning Passive Income
There are only 24 hours in a day. If you go to a job each day that pays you a set amount of money, that is the maximum amount that you’ll ever make in a 24-hour period. That is called earned income.
By investing some of that earned income into different passive income ideas, you may be able to increase your earnings. Diversifying your income stream may also improve your financial security. Some benefits of passive income are:
• More Free Time: By earning money through passive income sources, you might be able to free time in your schedule. You may choose to spend more time with your family, pursue a creative project or new business idea, or travel the world.
• Financial Security: Even if you still plan to keep your 9-to-5 job, having multiple sources of income could help increase your financial security. If you lose your job, become sick, or get injured, you may still have money coming in to cover expenses. This is especially important if you are supporting a family.
• Tax Benefits: You may want certain legal protections for your personal assets or to qualify for tax breaks. Consulting with an attorney and/or tax advisor to explore setting up a formal business structure like a sole proprietorship, a limited liability company (LLC), or a corporation, for example, might help you decide if this is a good route for your particular situation.
• Location Flexibility: If you don’t have to go into an office each day, you’ll be free to move around and, possibly, live anywhere in the world. Many streams of passive income can be managed from your phone or laptop.
• Achieve Financial Independence: The definition of financial independence is having enough income to cover your expenses without having to actively work in order to cover living expenses. This could allow you to retire early and have more freedom to live your life the way you choose. Whether you’re interested in retiring early or not, passive income can be one way to help you reach financial independence.
• Pay Off Debt: Passive income may help you to supplement your income so that you will have the opportunity to pay off any debts more quickly.
Potential Downsides of Earning Passive Income
Although it might sound like a dream come true to quit your job and travel the world, earning through passive income is not quite that simple.
• Earning Passive Income Is Not a Passive Activity: Whether you’re generating passive income through a rental income, running a blog, or in another way, you will still need to put in some time and effort. It takes upfront investment to get these income sources up and running, and they don’t always work out as planned.
If, for example, you run an Airbnb, you have to maintain the property, ensure a high-quality experience for guests, and address any issues or concerns guests may have to secure positive reviews.
• Passive Income Requires Diversity: In order to earn enough passive income to quit your job and cover all your expenses, you would most likely need more than one source of income. Although you may no longer need to clock into a 9-to-5 job, you will likely still need to spend time managing multiple income streams.
• It’s Lonely at the Top: It might sound great to never have to go to the office again and to have the freedom to travel, but earning money through passive income can become lonely.
Not having anyone to talk to during the day might make you feel lonely, and if you aren’t self-motivated, you may find it difficult to stay on task if you need to manage your passive income streams.
• Getting Started May Require Investment: Depending on how you plan to create passive income, it may require an initial financial investment. You may need money for a down payment on an investment property, the development of a product you plan to sell, or for investment into dividend stocks.
Managing Passive Income Streams
No matter which type of passive income you choose to pursue, it’s important to keep track of your personal finances and both your short-term and long-term financial goals.
Tracking multiple sources of income in a monthly budget can be a complex task. To be profitable, it’s important to pay attention to how much money you put into the maintenance of your passive income stream(s), such as property upkeep or monthly online services.
SoFi is one option to simplify how you manage your income streams because it allows you to see all of your financial information in one place. In the app, you can keep track of your monthly income and create goals for your passive income, such as a home, vacation, or retirement, and automate your personal finances.
The Takeaway
Establishing passive income streams is one way to diversify your income and can help you build wealth and achieve financial freedom in the long term. There are a variety of ways to earn passive income, such as through investing, rental properties, and automated investing.
Some passive income sources require a financial commitment or upfront investment, such as purchasing a rental property, and others may require a time commitment. And passive income, of course, is rarely 100% passive. Often there is considerable time and effort that goes into setting up a passive income stream. And some sources of passive income (from investing, real estate, running a business or creative endeavor) require ongoing maintenance.
Once you’re earning passive income, you can think about where to put that money. Whether you’re able to generate a passive income stream from your investments, or that’s a goal of yours, consider opening an Active Invest account with SoFi Invest. You can invest in stocks, exchange-traded funds, and SoFi also offers an automated portfolio.
For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.
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