5 ways to start earning passive income with a $500 investment, according to financial pros

  • I want to earn more passive income, so I asked financial pros how to start with just $500.
  • They suggested real-estate crowdfunding and peer-to-peer lending sites.
  • High-yield ETFs and mutual funds, as well as starting an online business, were other options.
  • SmartAsset's free tool can find a financial planner to help you take control of your money »

One of the biggest things I'm working on this year, when it comes to personal finances, is finding more ways to make passive income. Over the years, I've started to do this in a handful of different ways, from switching my cash over to a high-yield savings account to offering digital services through my business that bring in money without me having to do much work. 

Finding new ways to make passive income is a way for my finances to evolve and grow, though some of the new ways I've been exploring require me to invest a lot of money (for example, buying an apartment to rent out and collect monthly income). Which is why I wondered what other things I could do that wouldn't require me to drop a lot of money at the start.

Here are five tips, from financial planners and advisors, on how to start making passive income by investing just $500 or less.

1. Real-estate crowdfunding

I've always wanted to get into real estate as a way of making passive income, but shied away from it when I saw how much cash it would take to buy a place and rent it out.

Financial planner Cynthia Meyer says there are real-estate investing sites, like Fundrise, that offer options where people can begin investing with just $500 to participate in a commercial real-estate investment.

"Remember that any real estate investment is illiquid, so best for long-term investors," says Meyer. 

2. Peer-to-peer lending

Another thing I've never considered doing with my money to make passive income is peer-to-peer lending. Meyer says that peer-to-peer lending is another potential way to make a steady stream of passive income with a smaller upfront investment.

"Lend your money to someone else on a peer-to-peer lending platform and earn interest paid by the borrower. Private lending can be risky, and loan opportunities are typically categorized by borrower credit worthiness," says Meyer. Some options for peer-to-peer lending include LendingClub, Prosper, and Upstart.

3. Start a side hustle

If you ever wanted to start your own business with the hope of it bringing in some side passive income, financial planner Tania P. Brown says you can start with just $500. 

Start an online business, like a blog — all that's required is hosting and a website, says Brown. Then, add affiliate marketing and you're on your way to passive income. "Website hosting can start for as little as $2.88 a month, and if you are tech-savvy enough you can either create a website for free or purchase a website template (many are under $100). If you are willing to put in a lot of sweat equity to learn as you go, you can cut out a lot of costs. If you decide you want to sell your knowledge, websites like Thinkific and Teachable offer free options."

4. Invest the cash

If you're willing to take on some risk or perhaps wait some time before having full access to the passive income, financial advisor Justin Yoo recommends investing the money in two different ways.

"If you don't need the money in the short term, you should consider investing it in high-quality stocks," he says. "$500 may not seem like a lot, but with the power of compound interest it can go a long way with a 10 to 15-year time horizon. It's important to start somewhere, and to start young."

Next, Yoo recommends putting that money into an IRA for retirement.

"Retirement accounts provide a lot of tax benefits for those willing to part ways with their capital until they turn 59.5, but there are limitations around liquidity ," says Yoo. 

5. High-yield ETFs or mutual funds

One of the first ways I made passive income was through a high-yield savings account, but I've never considered other high-yield accounts. Financial planner Alex Caswell recommends I do that.

"If you are looking for the easiest way to generate passive income, you can try an ETF or a mutual fund that is focused on higher yield. This can be a high-dividend fund or a fund that focuses on higher-yield bonds," says Caswell.

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