What if you could sit back and earn money by doing nothing?
What if I told you that you could earn $500 a day while traveling the world and no effort was required? Would you want to know the secret? Would you want the passive income?
It sounds glamorous. It sounds easy. The problem is it is unrealistic.
Passive income is not passive.
First, let’s define passive. According to Dictionary.com, it is “not participating readily or actively.”
Therefore, passive income would be not participating actively to create the income.
There is no way to easily create an income source that requires no effort or very little effort from you. There just isn’t. I wish more people realized this fact.
I see lists across the web, YouTube channels, and books dedicated to this type of financial cocaine.
I love the concept behind passive income. Diversify your income sources – don’t rely on one income or one business for your livelihood. Use your skills to earn more. Don’t just focus on reducing expenses to help your finances. The message is great, but the glamour of making it look easy is misleading.
I’ll tell you what those websites won’t tell you: it’s hard to create passive income.
It takes investment: your time, money, and dedication. You likely won’t see the same level of success as the people who claim it is easy. Many people try, don’t see the same results, and give up. The people who succeed have incredible passion, persevering even when it looks like they are not seeing results.
I like the idea of creating other income streams, but calling it passive is doing you a disservice. Let’s explore what people call “passive income” and the work required.
Passive Income is Not Passive – 7 “Passive Income” Ideas Debunked
Below are the 7 “passive income” ideas we’ll explore:
- Dividend Stocks
- Real Estate and Rental Properties
- Affiliate Marketing
- Write and Sell a Book
- Build an Online Course
- Sell Digital Products
One way to build wealth is by investing in the stock market. Over time, returns have averaged 7-12% depending on the time period you analyze.
Within the stock market, there are different types of stocks. Dividend stocks are one type, which are companies who are well established and earn more profits than they know what to do with. Instead of trying to reinvest the money in the business because they can’t find projects they like, they pay the cash to shareholders, people who own the company.
Sounds great, right? You buy Company ABC and just by owning the company, ABC will pay you cash on a regular basis, such as monthly or quarterly.
It’s not passive. How did you find Company ABC? Or if you are investing in an index fund that buys hundreds of dividend paying stocks, how did you select it? How much research and time did you put into it?
There is still an initial time investment to select the investment and then ongoing research to ensure it still makes sense in your overall financial picture. You can’t set it and forget it.
And, there is no guarantee you won’t lose money. Dividend paying stocks can go down in value or bankrupt. For example, if a stock pays a 2% dividend, but goes down 10% in the year, you still have an 8% loss. Ask investors in General Motors or Washington Mutual what happened with their investments.
While dividend stocks may not be as time intensive as other ideas on the list, it still is not passive income.
Real Estate and Rental Properties
Passive rental income is a far cry from passive. I consider it the biggest fallacy.
You buy a house, condo, or other real estate property and the rental checks hit your mailbox each month. That’s why they call it “mailbox money.” Easy.
In order to create rental income, you diligently need to find the right property at the right price. From there, you need to hire the right property management company or do it yourself. Then, when something breaks, you may have to approve the replacement or replace it yourself. It’s a ton of effort, even if you have a property management company to do most of the heavy lifting.
Many people fail to understand the risks of owning a rental property. You may pay too much for the real estate. Rents may go down. If you lose your job and your tenant stops paying rent, you may be unable to pay the mortgage. Unexpected expenses can happen that eat into your profit. Your tenant could sue you. Your tenant could do thousands of dollars worth of damage, destroying years worth of profits.
Real estate investors make it look easy, but many of them do it full time and have extensive experience and knowledge of what it takes to succeed. I’ve also found many people have no idea how profitable or unprofitable their property is.
Based on what I’ve seen, it’s usually a lot of effort and not very profitable unless you are dedicated to buying and managing 4+ properties.
Can rental income become more passive over time? Yes, if you already purchased a property and have the right team in place to help, rental income becomes more passive, but it’s not 100% passive.
For those who are unfamiliar, affiliate marketing is where you promote other people’s products and earn a commission for sales.
For example, someone could create a course about how to bake the perfect sourdough loaf for $100 and allow affiliates to promote their product. For every sale that person refers, they could earn $15. They track it by using a unique link that people click on to purchase the course.
Affiliate programs have different rules, but you may be able to promote it on your blog, social media platform, or newsletter.
Affiliate marketing is not passive because you need to build a following first. You can’t just sign up to be an affiliate and have the money start flowing. If you already have a brand and high engagement with a large group of people, then it may be easy to set up, but that likely took years to build.
Affiliate marketing programs can change. You will need to stay up to date on commission percentages and other products to promote. The same product likely won’t be popular forever.
While affiliate marketing can be fairly passive for those with a popular blog or many followers on social media platforms, it still takes time.
Having started a blog, I can assure you it is not passive. While you can throw together an initial blog very quickly, it takes time to build it.
After the initial build, you’ll need to create content on a regular basis to create engagement with readers. Most bloggers publish at least weekly, some more frequently. It takes time writing and publishing the content each week. You’ll also need to promote the blog, either through advertisements, engaging with other popular blogs to do guest posts to increase your site traffic, or other methods. The following is not built overnight.
After you have a blog, it can be a great source for affiliate marketing, selling your own products or courses, and ad revenue, but it’s a huge initial investment and requires regular work.
Write and Sell a Book
Who are these magical people who can write books without writing books?
I joke, sort of.
Obviously, you need to write the book before selling it. Remember back to college when you needed to write 1,000 words on some topic you did not care about?
Imagine doing that 50 times over on a particular topic, albeit something you are passionate about.
It’s not easy dedicating regular time to writing. After writing, you’ll need to edit and create the graphics for the book or outsource it. If you outsource it, you’ll need to find the right person. After that effort, you’ll have to promote the book. Most people who write books already have a popular blog or social media platform. If you don’t have one, a book likely won’t generate much income.
Build an Online Course
What course do you want to build? How long will it be? Will it include video? Who will write the script? Who will record? Where will you publish the course? How will you promote the course?
People make building and selling an online course look easy, but my guess is that by the time most people finish, their income works out to less than minimum wage.
There are those individuals who hit it big earning more than $50,000 a month with courses, but those people are the exception – not the rule.
That’s not to say you should not create a course. I think it’s great people are sharing their unique skills with the world and earning income from it; however, it’s important to be realistic about the time and effort required to build a course. It’s even more important to realize earning a good amount of income likely will take even longer. If you want to build a course, you should do it because you are passionate about it and would love building the course.
Sell Digital Products
While selling digital products can become more passive over time, you still need to create the product. It could take anywhere from a week to more than a few weeks to build a digital product. Whether it is journals, calendars, or logos, it takes time.
Like any of the other “passive income” ideas, you still need to promote it after building it. If you want to continue earning income, you’ll likely need to continually figure out what people want and create it for them. You may need to read reviews and tweak your product. You’ll have to respond to emails or client questions. You’ll need to stay up-to-date about where to sell the product, which will depend on your audience and income goals.
Can you make a sale while you sleep? Yes, definitely.
Can you make a sale while you sleep without putting in the work before? No, absolutely not.
Like many of these other ideas, earning “passive income” requires a huge initial investment and time to build an audience who will buy it.
Summary – Final Thoughts
As you can probably see by now, “passive income” is poorly named. There is no such thing as passive income. There is not one thing in life where you can earn income without some research, time commitment, or money.
Some ideas can become more passive over time. For example, after writing a book, you can earn sales with less effort. Same for building an online course. Many successful people follow these methods, but if you talk with them about their projects, they will share how they worked 7 days a week for 12-14 hours a day, often over a year, before they could reduce the time they spent working on their business.
I love what people are doing to create side income. It’s a way to learn, explore your passions, and potentially get paid. If you want to explore it, I want you to have reasonable expectations – not the expectation of sitting on a beach and seeing thousands of dollars magically appear in your bank account.
Many creators make it look easy, but you often never hear from the people who did not make it. After all, how many people are going to watch a 12 minute YouTube video about someone who tried to write a book, but couldn’t? Or wrote the book, but only earned $56 in income? Not many. Like most things in life, we tend to see the famous, the beautiful, and the successful. It makes us feel good and crave a piece of it.
The next time someone tries to sell you on 17 ways to create passive income, remember no income is passive. As you read through each of the ideas, ask yourself, “What would I need to do to earn $500 through that idea?”
Spend 15 minutes writing down every step and then attempt to estimate the time it would take you to do each one. If after that point you want to try it, go for it! If it works out, don’t forget to spend the income wisely.
And if anybody actually discovers a truly passive income, I’d love to hear from you.