If you have been interested in starting a business or getting involved with making money in some way then you might be familiar with the term passive income. Passive income is income that is supposed to require little to no effort to maintain.
But is this possible? Is passive income a real thing or is it just a misunderstanding that some have of how others make their money?
Here’s the deal, there is no such thing as passive income. Income cannot be passive since it will almost always require your time and attention. All fortunes had to have come from somewhere. Someone, somewhere, by doing something had to work extremely hard to make that money.
Now before anyone brings it up, I am not referring to inheritance. Inheritance is money that has been passed down to heirs. It does not count since someone else worked to make the money that was inherited.
What I am referring to is the potential of the average person to generate passive income. The person that is working a 9-5 and who is looking to become financially free. Unfortunately for them, no business is good enough to operate by itself, especially in the initial stages.
Why Passive Income Doesn’t Exist
I use to work with a business owner that would always complain about how others were doing relative to himself. He used to complain about how he would have to work every day while other business owners would relax at home as money just came their way.
“How good of a life these people live”, is what he once told me. The funny thing about this person is that he was not lazy at all, it’s just that he was thinking of his business in the wrong way. He would work hard but would expect some things to just work themselves out.
The problem with this is that a business owner must take the initiative of a marketer, accountant, legal advisor, employee, customer service, and pretty much everything else. The reason for this is that nobody else cares about your business as you do. The people who visit their businesses only to leave after a few hours either have the most loyal employees on the planet or their business is secretly failing.
The person that I was referring to underestimated what it means to be a business owner and eventually had to learn it the hard way. He even ran a restaurant which is probably the least passive business you could have.
No Business Is Passive
I don’t care what anybody tells you about starting a business, the reality is that no business is passive. Starting a business is a risky endeavor that requires a lot of work and dedication.
If the business grows to be public and you become the CEO, then its likely that the business owes its success to you. If you were to leave your position then there may be nobody else as passionate or innovative enough as you are to keep it running.
This is precisely what happened to Apple in the 1970s. Steve Jobs was kicked out and was replaced by an executive from another company. Apple almost went bankrupt until Jobs returned in the late 1990s.
If you are ambitious enough to start your own company, it’s going to need your blood, sweat, and tears to flourish into a successful enterprise.
What About Passive Income Streams?
Passive income streams have been popularized by bloggers and influencers alike trying to promote this idea of self-generating income.
Some of the most popular passive income streams that I’ve heard of include:
- Rental Income
- Dividend Stocks
- Affiliate Links
- Ad Revenue
The first one is ironic since I have known many successful landlords that constantly complain about the work of their rentals.
As a landlord, anything that breaks in the property is your problem. That means that a broken pipe, flood, or bug infestation in the middle of the night is your responsibility to fix. There is also the chance that your tenant will trash the place, leaving you to either evict or sue him.
What is so passive about this? Attaining rental income seems more difficult than holding a real job; at least with that, you get to go home and forget about work.
Dividend stocks are of course a great way to earn income off of your investments. However, where did you receive the capital to invest in stocks that will pay you enough in dividends?
The answer is probably by not doing something passive. Essentially, you had to work to build the capital necessary to invest in dividend stocks.
It might be true that the income you receive from dividend stocks will require no effort, but the amount of capital necessary to live off these dividends is substantial.
The wealthy invest in dividend stocks to protect their fortunes against inflation. It’s also wise to reinvest your dividends into the market, that way they can add to your capital. This means that your dividends are just part of your stock portfolio and do not represent your income.
Affiliate links will earn you a commission on anything purchased through them. This is a popular way to make money online and it makes for a great method to supplement your income. Yet, even though this requires a small effort on your part, affiliate links are not passive income.
Affiliate links require you to have authority online. You must have a loyal audience that will trust you enough to click on your links.
People today are well aware of the commission you earn on your affiliate links. For them to click on your links they have to like you; otherwise what is stopping them from just using their browser to shop?
Popularized as one of the most passive incomes online, ad revenue is a great way to make money off a website or blog. The biggest problem with ad revenue, however, is that you need a massive audience to make money from it. Where do you get a massive audience from? From making quality content on the internet that people want to consume.
Whether it be a podcast, YouTube channel, or blog; before you start seeing any income at all, the necessary work needs to be put in. We can start seeing a trend here with passive income: it’s that passive income requires more work to establish. It’s also made apparent that passive income doesn’t mean you work less but that your income is more flexible.
The Bottom Line
The reality is that making money is hard, and it will require a lot of time and effort. Searching for a miraculous passive income business is not the right way to think of it. Instead, you should be thinking of what skills and talents you can bring to the table that people would pay money for.
If you do that then maybe one day you could retire early and not have to worry about money for the rest of your life. However, don’t go into it thinking that setting up multiple passive income streams is the key to financial freedom.
The key to financial freedom is hard work and a clear strategy of the things you want to accomplish in life.