An estimated 64% of Americans aren’t ready for retirement. If you don’t want to be part of this statistic, there are several ways to start saving up for your retirement fund and get an early head start.

How Can I Earn Passive Income in the Current Economic Climate?

Reviewing your assets and seeing what you can leverage for any business opportunity is a good way to find viable channels for passive income. For instance, as much of the world is starting to regain mobility subject to health-related rules and clearances, the short-term rental market is expected to pick up soon. Renting out a space for an Airbnb business requires no massive upfront costs, and it gives you the opportunity to let your otherwise underutilized real estate property to make some money through passive channels. And as explained in ZenBusiness’ guide to starting an Airbnb, it’s also easy to determine the required upkeep, business costs, and liability concerns attached to this type of business. If you either have several properties to rent out or are looking to invest in more real estate, you can also take this opportunity to either form a corporation or a limited liability company (LLC).

Although both structures can give you legal liability protection, corporation shareholders are double-taxed at the personal and at the business level, while LLC members are typically only taxed through personal income. These are important considerations for starting any type of business for passive income, as many operational costs can be considered as tax write-offs when you’re officially registered as a corporation, LLC, or even as a sole proprietor. Knowing the legalities of business structure and liability protection can shield you from the risks involved with starting any business, allowing you to more efficiently manage costs and save more for retirement.

Stock Investment is an Affordable Passive Income Method

If you can’t afford to invest in real estate, you can set your sights on the stock market instead. While there’s no technical amount you need to raise in order to start putting money into stock options, $200 to $1000 should be enough to begin. The more you invest, the more profits you can expect in terms of regular stock dividends – the higher the risks as well. And you can better manage any of the related risks by weighing stock options in relation to the current economic climate and how it affects the industries you want to invest in. Compared to real estate, stocks are more accessible, faster to sell and acquire, and are much more passive in terms of legwork. But real estate has its own advantages as well, and if you’re still undecided, we have a blog post that can help you narrow down the best choice considering the current state of your finances.

Maximize Employer 401(k) Plan Contributions

If you’re a regular employee, the Internal Revenue Service (IRS) has mechanisms that can allow you to build your retirement plan. In the IRS’ overview of the 401(k) plan, it notes how the plan allows workers to designate a portion of their salary for their individual 401(k) accounts. This account can then be linked to an underlying internal plan that may include company profit-sharing dividends, stock bonuses, or cooperative funding plans. In a traditional 401(k), employers can also elect to make contributions, which match their workers’ contribution, contribute on behalf of all their employees, or even do both. The incentive for employers is that these contributions are deductible on their federal income tax return. And while this tax deduction is subject to certain limits, it’s enough to encourage companies to ensure robust 401(k) strategies for their employees.

The funds that are in your 401(k) plan can be used for essential medical expenses, up to a year of tuition or other education-related fees, or foreclosure/eviction prevention. Furthermore, you can also use it to fund the purchase and major repairs of a home that’s designated as your principal residence. These are the major expenses that you can cover by maximizing employer contributions to your 401(k). And with a strong plan in place, you can use your funds from other accounts for other investments – all while ensuring that your federal, tax-free retirement account remains intact. Apart from reading up on the IRS’ rules for 401(k) contributions, you can also talk to your company’s HR department about optimizing your own plan.

Start Building a High-Yield Savings Account

All major banks offer some form of high-yield savings account that’s designed to accumulate exponentially over time. Much like 401(k) plans, this type of savings account works best when you don’t withdraw or take out any loans, allowing the account to grow with interest. Furthermore, the earlier you start this account, the more your money can grow exponentially. For instance, if you start a high-yield savings account with $1,000 at an annual growth rate of 5% interest, the account will grow by $50 at the end of the year. This is if the account’s interest compounds at a yearly basis, which then allows the next incoming 5% to be calculated from the new balance of $1,050 – $52.5 instead of just $50. While that may not seem like much, this growth happens per year or every time the account’s interest compounds. And you can further maximize this growth rate by contributing as much as you can to the account before the compounding happens, which brings us to our next point.

Understand Compound Interest

Compound interest determines the annual percentage yield (APY) of any savings or investments you want to make towards retirement. This is crucial to understanding the long-term value or growth potential of anything you put money into. Compound interest is actually not that complicated. When you earn money through interest via a savings account, stock options, or other investments, the overall amount you’ve invested rises – provided you don’t take out cash from that account. That new amount will then be the next base on which your future interest yields will be calculated. In short, the same aforementioned strategy for maximizing a high-yield savings account can be applied to any investment, provided the interest compounds within a certain time frame. You can find out more about calculating compound interest and APY in Data Driven Investor’s guide to compound interest.

Do your research on any investment options that seem viable and try to find passive income channels that can allow you to earn while maintaining a full-time job. While there are many other ways to work towards saving up for early retirement, nothing beats investing wisely.