How to Make Money While You Sleep

Imagine waking up in the morning knowing your money is working for you – even while you sleep! Whether you’re saving for a first home deposit, looking for extra cash to enjoy life, or planning for early retirement, generating passive income can help you achieve financial freedom without needing a second job or side hustle.

When we talk about passive income, we mean earnings that keep coming in with little to no daily effort. While some strategies require a bit of upfront time, money, or knowledge, the long-term rewards can be well worth it. Here’s how you can start generating passive income today.

 

1. Managed funds

One of the most effective ways to generate passive income in New Zealand is through managed funds. They offer high growth potential, and many are designed to generate regular income, making them ideal for long-term wealth creation and financial security.

Managed funds spread risk by combining money from multiple investors and investing it across a diverse range of assets, including shares, property, bonds, and cash investments. They are managed by professional fund managers, meaning you don’t have to constantly check or adjust your investments – experts handle it for you. 

If you’re used to term deposits or savings accounts, managed funds might seem a little unfamiliar at first. But in reality, they function much like other investments – and if you have KiwiSaver, you’re already investing in a type of managed fund. However, KiwiSaver is primarily for long-term retirement savings and has withdrawal restrictions. This guide focuses on non-KiwiSaver managed funds, which offer greater flexibility as part of a broader financial plan – including the option to withdraw income when needed.

Many managed funds invest in dividend-paying shares, meaning investors receive a portion of company profits, usually on a quarterly or annual basis. For example, if you hold 1,000 shares in a fund that pays $1 per share, you would receive $1,000 in dividends. While dividends are automatically reinvested to boost long-term growth, you also have the flexibility to withdraw them as income when needed. Managed funds also often include bonds which generate regular interest payments, providing stable and more predictable returns.

Plus, if you’re looking to align your investments with your personal values, Socially Responsible Investing (SRI) is an option. Many funds now focus on sustainability, ethical business practices, and strong governance while still delivering competitive financial returns. 

At Blue Canoe, we know where your money goes matters – and it matters to us too! That’s why we partner with ethical fund managers to offer socially responsible investment (SRI) options that deliver strong returns while making a positive impact on people and the planet. Our fund managers are RIAA-certified and follow strict frameworks to exclude unethical investments like tobacco, fossil fuels, and nuclear weapons.

Pro tip: To maximise returns while generating cash flow from a managed fund, consider investing in income-focused funds that distribute regular dividends or interest payments, and reinvest a portion to compound your growth over time. A financial adviser or fund manager can provide expert guidance on fund options and optimising growth strategies.

 

2. Rental Property Income

Owning a rental property is one of the most popular and reliable ways to earn passive income in New Zealand. Not only can it provide regular rental income, but the property itself is likely to increase in value over time, helping you build long-term wealth.

A well-planned rental property investment can cover a big chunk of your costs, including mortgage repayments, rates, and maintenance – especially if you buy in a high-demand area. Once the mortgage is paid off, the rent you collect can become a steady income stream, which you can adjust over time as market rents and inflation change. While rental income is taxable, you may be able to offset some costs by claiming expenses like mortgage interest, property management fees, insurance, and repairs.

At Blue Canoe, we use our financial planning software to help assess whether buying a rental property fits your overall financial goals. We also work with industry experts to help you structure your property investment in the most tax-efficient way possible, whether that’s owning it personally, through a trust, or in a company. The goal is to ensure you have a high-yield, low-maintenance, tax-smart rental property that works as part of a well-rounded financial plan.

Pro tip: If you want regular rental income, aim for a rental yield of 5-6%. If you’re more focused on long-term capital growth, a 4-5% yield might be more suitable. Your ideal yield depends on market conditions, your investment goals, and how much risk you’re comfortable with. A financial adviser can help you find the right balance and make sure your rental property is working for you, both now and in the future.

 

3. Renting out a portion of your home

Speaking of rentals, if you have extra space in your main home, transforming it into a rental opportunity can be a simple but effective way to generate passive income. Renting out a space to a long-term tenant, hosting short-term guests through Airbnb, or even accommodating an international student can provide steady cash flow while making good use of unused space. 

This approach allows you to earn income without a major upfront investment. Like other investment income, rental income is taxable. And if you rent a portion of your main home for short stays through Airbnb or similar platforms, and earn over $60,000 per year, you’ll need to register for GST. Despite tax obligations, renting out part of your home remains one of the most accessible and flexible passive income strategies around.

Pro tip: Check out the IRD website to work out the tax you need to pay when renting out a portion of your home – it depends on whether you rent it out long-term or offer short stays.

 

4. Cash funds

For those looking for a more stable investment option to generate passive income, cash funds are becoming increasingly popular. The interest earned from cash funds is not fixed. Instead, it fluctuates depending on the performance of underlying investments.

Cash fund products are well-suited to retirees and anyone who wants to protect their hard earned savings, while maintaining some growth potential. They maximise returns while removing restrictions of locking up money in a term deposit for a fixed term. Cash fund assets are invested constantly, with returns accruing and compounding daily. However, due to the focus on capital preservation and low-risk investments, cash funds usually provide lower returns than other assets.

We recommend cash funds, like Booster Savvy, as an alternative to a bank term deposit or on-call savings account because they offer higher returns, with interest compounding daily, and they are more diversified than a TD or savings account which is with one bank only. Plus, you can withdraw your money in a couple of business days without any penalties or break costs, and you don’t have to worry about reinvesting at the end of a term.

Pro Tip: Not all cash funds are created equal. To ensure you get an investment that delivers long-term results, we recommend talking to a financial adviser who can help you evaluate fees and historical returns, and guide you on which best balances flexibility and wealth creation.

 

5. Peer-to-peer lending

Peer-to-peer (P2P) lending has seen growth in New Zealand since its introduction over a decade ago, providing investors with a unique, albeit unconventional, way to earn passive income by lending money directly to vetted borrowers via online platforms. Unlike traditional term deposits, P2P lending often boasts higher interest rates, making it an increasingly attractive alternative for those seeking better returns. 

By investing in multiple loans, investors can earn monthly repayments that include interest, much like a bank would on a loan. However, P2P lending does carry risk, as borrower defaults can impact returns. While P2P platforms vet borrowers thoroughly, returns are not guaranteed, and funds may be tied up for the loan term.

Platforms like Squirrel Money, Harmony and Zagga have gained traction amongst Kiwi investors, but the industry has seen fluctuations, with several platforms exiting the market. This raises concerns about the long-term viability of remaining platforms and the potential impact on investors’ funds.

Pro tip: If you’re comfortable with the risks that come with P2P lending and still keen to explore it, consider starting with small amounts and diversifying across multiple loans and other asset classes. Spreading your investments helps minimise exposure to individual borrower defaults while maintaining a balanced portfolio.

 

6. Specialist retirement income funds

For retirees looking for consistent, long-term passive income, specialist retirement income funds provide a structured way to generate steady cash flow beyond NZ Super. 

While KiwiSaver focuses on building wealth before retirement, specialist retirement income funds serve a different purpose. They are designed to provide regular income for retirees by investing in a diversified mix of assets, such as equities, property, bonds, and term deposits. They prioritise stability and sustainability by allocating a larger portion of funds into income-generating investments, ensuring retirees can draw a regular income without depleting their capital too quickly.

Pro tip: Look for funds with a strong track record of delivering stable income while managing risk effectively. Consulting a financial adviser can help tailor your retirement investment strategy to ensure long-term financial security.

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There are plenty of ways to earn passive income in NZ, but knowing where to start, how to manage risk, and what works best for you can be tricky. The key is to start early, stay consistent, and make informed choices. A financial adviser can help you build a smart strategy, avoid common mistakes, and make the most of your money. 

Want a personalised plan to generate passive income? Chat with a Blue Canoe adviser today and take the first step toward a smoother financial journey.