There is No Such Thing as Passive Income
The title of this post is a phrase that caught my attention as I was reading a personal finance blog that stresses on working hard to climb up the corporate ladder and saving your way to building wealth.
I totally disagree with it. Sure, there are semi passive activities that take some time to manage, but to say there is no such thing such as passive income is absurd. What do you call interest income earned on your money parked in a certificate of deposit in a bank?
Now that I have thrown the validity of the phrase out the window, let me explain why the author and several others who agreed via commenting on the post feel this way. First, any passive venture requires some type of management and ongoing monitoring.
Second, even the truest passive forms of income take time and work to establish. For example, earning the capital required to make interest income on takes time and work. So does finding a property to buy, buying it and then renting it out.
If you really get bogged down in all that minutiae, you will never find a truly passive venture. But you need to. Establishing passive streams of income brings freedom, flexibility and peace of mind for many. That is what this blog is all about.
What is Passive Income?
In its simplest definition, passive income is the moolah you make while you eat, shower, S#@&, sleep and do all else that you do daily. The formal definition of passive income however is as follows: Passive income is any income from an activity in which an individual does not actively participate. Well, if you are not participating actively, then it must be passive. Simple enough right?
Wrong. Here is where all kinds of experts have varying opinions on what is truly active vs. passive. I call this the useless minutiae people fall into and as a result end up paralyzing any chances of making forward progress. Who cares is what I say. If you enjoy it and think it is anywhere near remotely being passive, then pursue it.
Choose What You Enjoy Doing Best
Truth is, everything in life (at least when it comes to making money) involves some level of work. Even opening a CD in a bank requires that you research the type of CD you want, whether or not the bank is FDIC insured, open the account, fund it, monitor the statements and then reinvest your money upon maturity. Then you have to claim it on your taxes, pay taxes on it, etc.
The residential rental business has its own set of “to dos”. The point is, all activities involve some type of work. Entrepreneurship, whether full or part time, allows you the freedom to choose how much work you want to put in and what type of work you want to do.
For example, do you want to manage rental properties, find and replace tenants and collect rent, or do you want to blog or build a website and earn passive and residual income from advertisement?
Both activities are passive to a degree, both involve work to a degree, both are lucrative and promise good return on investment and both involve their fair share of risk and costs associated. You just have to choose what you are most comfortable with.
Other Avenues of Passive Income
There are many other ways to generate passive income. Whether they are truly passive is a question I will leave for you to answer. I will simply share what I know. Some require time, some require money, some require hard work and some require a combination of any of these or all.
Royalties –These are fees you collect from selling rights to something. If you are able to get a book published, the author pays you royalties upon sale of each copy. Actors and musicians collect royalties when their products sell (movies, CDs, etc). If you own rights to anything that has value to someone else, you can rent out your rights for a cost. Patents and franchises are two mainstream examples through which owners earn royalties.
Investments – Similar to the CD deposited in a bank, investments in the stock and bond markets can also bring in passive income, though they come with increased risks. An investment in a solid blue chip company paying healthy dividends is passive income. So is earning yield (interest) on a bond coupon. Alternatively, one can invest in a small business and benefit from the business’ profits through profit sharing agreements.
Venture Capital and Angel Investing – These are also forms of investing, close to the last example provided above involving investment in a business. Investing in companies (usually relatively younger ones) and betting on the Management behind it is a risky venture. However, the rewards can be tremendous and long lasting in nature. It is fundamentally not very different from investing in stocks.
Website / Blog – Building a high traffic blog or website is one of the most popular ways to generate passive income today for the average Joe. There are very low barriers to entry (if any at all) and the cost is minimal. Be ready to invest a lot of time however in self education and implementation.
There is a lot of work involved in establishing and properly marketing a website or a blog. If done the right way however, income will keep flowing long after the work has already been done. The key is to develop a website around timeless content so you don’t have to update it regularly.
Information based products are typically the easiest to make and distribute in the online space. These are ebooks, DVDs, tutorials, online videos, etc. Often times, you don’t even need your own website or blog.
There are several platforms online that allow you to submit your product for inclusion in their store. Each time a sale is made, they keep a percentage and remit the rest to you. Clickbank is a popular one that sells ebooks. Amazon is another popular one.
Can You Become Rich With Passive Income?
Most certainly you can. That doesn’t have to be the case however. People often relate passive income to rich automatically. It’s been ingrained in their subconscious because of the hype created by few exceptional stories around it.
Passive income does bring with it riches in terms of freed time. It eliminates the need to work as much or as hard to sustain the lifestyle you want. Not everyone needs a six figure paycheck to live life on their own terms. What if you only need $50,000 to get by? Can you make $50,000 in passive income? You bet.
Passive income can also be a long term vehicle to building wealth over time. If you are working a full time job and have established streams of passive income on the side, assuming your spending doesn’t get out of control, your saving rate should increase which will help build a bigger retirement portfolio and expedite your journey to becoming a millionaire.
In general, passive income is what you want it to be. You can make millions and become rich, or enough to live life on your own terms. The point is that it does exist and it is achievable by those that believe in it and are savvy enough to implement the principles to manifest it into their lives.
A rare breed out there structure their entire lives around passive income and business automation. I salute those few individuals. Is it easy? Nothing worthwhile having in life is. This certainly isn’t either.
Readers: What is your opinion on the subject matter? Does passive income exist? If so, in what form? Is it worth your time?
Read my definition of residual and passive income in this blog post.
Sunil
Believer
Next: How to Make Money Doing Whatever You Want to Do
12 Responses to “There is No Such Thing as Passive Income”
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Blogging does require a lot of work and a lot of thinking. You have to invest a lot into it. I am not talking about money but I mean investing your time, ideas, efforts and so on. Not everyone though is cut out for it.
Agreed – and it is important to clarify investing as you did. It is an investment of oneself and everything that comes with it. As we have always heard, nothing worthwhile is free or easy…
I think when people write a post like the one you read, it is really them venting frustration as to how hard it really is to set up a passive/semi-passive income stream.
why do you think that is? what is the root cause of the frustration? what makes many think this is not something they can achieve?
Because most people give up! Block out the negativity
it’s unfortunate isn’t it? sadly many people are just at that tipping point but because they quit they don’t get to see the other side of the fence at all.
actually blogging requires writing skills. because content of any blog is more important.
Sachit, yes blogging requires writing skills just like web design requires programming or coding skills. the blog’s content is its product or deliverable. no matter what venture you delve into, it is the deliverable that will fetch you financial rewards.
Hi Sunil, thank you for this as it hits very close to home with me. I have actually revisited this theme a few times in my life, and ignored it a bit as well, especially after I “almost” made it! So between the time I almost made it and around 8 years forward I ignored the issue rather then trying to find ways to embrace it, big mistake! There is a strange temptation for one to think they are greedy and why should I merit to be on the path to passive residual income when 99.99% of the population basically does not seem to think about it at all. I have blogged about it as well if you follow my link. I think there is just simply a general blindness towards it and secondarily very few real ways to achieve it, especially if you are not starting with large money. So please if you know other ways then Network Marketing, Social Lending, CD and Bank interest, Real Estate drop me a line. Thanks.
Welcome to the blog Randy,
I will definitely be covering the wide array of topics you had suggested. Everything but network marketing as I don’t have experience in that field. But I will definitely have some guest posts on the topic – stay tuned.
I think the issue isn’t that passive income doesn’t exist, it is whether you can build passive income that actually matters without much work or risk involved. And the answer to that question is no.
I deal with a lot of people who have bought into the blogging for passive income to turn it into a living and I have to tell you…there are lots of variables that stand in the way with generating passive income over the long term.
Many people assume that building pages on the internet for passive income has to do with using each page as a building block. Most generate traffic from the search engines. One variable changes its algorithm and all those blocks come tumbling down.
Now, is there a such thing as an almost passive income? Sure. But the way the philosophy is sold is totally misleading.
Leo – welcome to the blog and very well explained. Great perspective to add on the topic. You are right, many niche site owners recently experienced their traffic and income plummet as Google changed its algorithm.