Updated: Aug 24, 2020
The biggest obsession in personal finance today is “passive income.” I see more and more headlines like “10 passive income ideas in 2020” or “How I make $500 per day in passive income”. The reason more of these articles are being written is because they are getting clicks. The reason these articles are getting clicks is that everyone seems to love the idea of generating passive income.
Here is the truth about passive income; it does not exist. You need to be extremely cautious of anyone who tells you that you can make money without working for it.
Let's discuss what most online "gurus" are calling passive income, why that is a lie and why you need to face the reality that the only way to get passive income is through a lot of hard work.
What is passive income?
Let’s start by defining what exactly people are talking about when they say “passive income.” Put simply, passive income is money that you did not have to work to receive.
Speaking strictly in a financial sense, passive income generally refers to income generated from investments such as stocks, bonds & real estate.
However, the definition of passive income has seemingly expanded to all manner of activities such as;
Selling information products like books and courses
Let me be clear. Speaking as someone who is currently engaging or has engaged in all of the activities listed above, I can tell you with absolute certainty that none of these activities are “passive.”
Which brings me to my central point.
Passive income is a myth
The easiest way to dispel the myth of passive income is to tell you how much active work is involved in each stream of passive income.
Selling information products
Selling online courses has become a trendy business model in 2020. I agree that selling an online course is a great way to turn your passion into a business. That is precisely why I have created my own personal finance course.
While selling an online course can be a great business, it’s the furthest thing from “passive income.”
Creating an online course is a lot of work.
First of all, you need to put in the time to become an expert in a subject you want to teach.
You need to plan a course curriculum.
Then you need to write a script or at least an outline of what you’re going to say in each lesson.
I wanted to add value to my students, so I created a custom-built spreadsheet that will do everything from tracking their spending to giving them step by step instructions on how to pay off their debt. That literally took me months to create.
Then you need to film your course.
Then you need to edit your course.
Once your editing, you’ll realize you need to go back and refilm sections of your course.
Once you have a course more or less put together, you’ll need to find a platform to host your course.
That’s only the creation of the course. Once it’s created, you need to market and sell the course.
Then once you sell the course, you have to do some customer service and deal with issues students are having.
Anytime someone includes online courses in a list of “passive income” ideas, it makes me want to tear my hair out. Creating an online course can be lucrative and rewarding, but it is the furthest thing from passive.
Affiliate marketing sounds like something that would be an excellent passive income stream.
You share a link to a product with a unique code that, when someone clicks through that link and buys the product, triggers a commission paid to you.
Affiliate marketing is less work than creating an online course. For one thing, you don’t have to create the product. You also don’t need to do any customer service. However, it’s not as simple as tweeting out a few links and waiting for the cash to roll in.
To be successful with affiliate marketing, you need to find a product you use and believe in. Then you need to go out and “market” the product. That means writing reviews and creating videos discussing the product and how it can help your audience. Which means you also have to build an audience!
Building an audience that trusts and values your opinion takes time and effort.
Another staple in “passive income” lists is Airbnb.
Again, it sounds pretty simple. You have a spare room or a house. Put the room or house on Airbnb when you’re not using it and sit back and collect passive income.
You can make a lot of money using Airbnb, but to do so requires a lot of work. Airbnb is less like traditional real estate investing and more like running your own mini-hotel. If you’re going to charge top dollar for an Airbnb, your guests are going to expect more than a bed, bathroom, and kitchen.
They want an experience.
You know the feeling you get when you walk into a hotel and the towels are folded like swans, and there are chocolates on the pillow? That’s the feeling a great Airbnb host provides its guests. That does not happen without some work.
You also need to do other work, like marketing your space. That might include professional photos and writing the perfect description/sales-pitch for the space you’re renting.
Blogging, Podcasts & YouTube
It is possible to make money by starting a blog, podcast, or YouTube channel. But it is a lot of work, and you probably won’t make much money for a long time.
The average blogger makes less than $3.50 per day.
YouTubers need at least 1,000 subscribers before they are allowed to run ads, and then they make around $9.90 for 1,000 views.
Podcast ads pull in around $20 for 1,000 downloads.
Even if you have a large audience and can monetize your blog, channel, or podcast in a meaningful way, you still need to create blog posts, videos, and podcast episodes, all of which require a lot of work.
The truth is that all of these “passive income” ideas are not passive. They are side hustles.
Let me be clear; I am all for side hustles! I think a side hustle is a great way to increase your income and redirect that new income to paying off debt or investing. Millions of people are using side hustles to improve their financial situation.
However, you can’t call a side hustle a “passive income” stream. The word “hustle” is literally the opposite of the word “passive.” If you’re going to start a side hustle, that’s great. But do so knowing that it is going to be a lot of work.
There is only one source of passive income
The only truly “passive income” that exists is the income you receive from investments. If you own stocks, bonds, or real estate (if you use a property manager), you can actually earn income while doing absolutely nothing.
Investment income is the only pure form of passive income.
However, you need to ask yourself an important question; How does someone receive investment income?
The answer is obvious. They need to invest. And where do they get the income to invest? From active income. Unless you are inheriting investments or you’ve won the lottery, the only way to acquire investments is to get a job and earn some money and invest that money.
Passive income can not exist without active income.
If you want passive income, you’ll need to find a way to make more money while maintaining your current living expenses. This frees up cash flow that can be invested in investments that produce passive income.
As I’ve written in the past, there are three simple ways to make more money.
Earn more per hour.
Work more hours.
Start a business or a side hustle.
If you want “passive income,” you’re going to need to work your ass off for it.
This article is for informational purposes only, it should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decision