Imagine if you could lie on the beach knowing that more money than you need is being poured in your bank account every single day?
Wouldn’t that be awesome?
Don’t get too excited though. In this article, I’m going to tell you why I believe you should stop trying to make passive income.
You might think, but why? Isn’t this guy just bitter because he failed to make passive income?
Well, the truth is that the large majority of my income comes from “passive” incomes (i.e. book royalties).
So, why am I writing this article when I could be on an exotic beach sipping cocktails? Why am I telling you to stop chasing passive income?
If you want to know, read on.
I. Debunking the myth of passive income
The quickest way to not be on the beach in Mexico is to think that passive income exists. It’s a bad mindset —Gary Vaynerchuk.
The first thing to understand about “passive” income is that it’s largely a myth. If we could create one product or invest in one thing and make money for the rest of our life, why would most people still be working at a 9-to-5 job they hate? If it was that easy, everybody would be making passive income, right?
The impact of competition on your “passive” income
The main reason passive income is a myth is because of something you might not like: competition. In any reasonably free market, whenever a new industry or niche offers great opportunities for profits, competitors will soon arrive, hoping to get their piece of the pie. This will make it harder and harder to generate income over time (including passive income).
In short, while you may be making “passive” income right now, it won’t last very long unless you keep strengthening your position in your niche. If you fail to optimize your products or services, your passive income streams will quickly dry up leaving you with (almost) nothing.
Passive income or deferred income?
You now understand that the only way to maintain your “passive” income for more than a few months or a few years is to build rock-solid foundations that allow you to withstand competition. By solid foundations, I mean things such as:
- A strong brand: people know who you are and can clearly identify your offering among the sea of products available.
- A solid network: you’ve established solid connections with key partners who can support you.
- An efficient system: you continuously optimize every aspect of your business to maintain an edge over your competitors.
- High-quality products or services: your products stand out because of their quality and how effectively they solve a problem.
Guess what! It will take you months, if not years of consistent work to get to that point.
Not so passive anymore, is it?
That’s why I prefer to use the term “deferred income”. As Pat Flynn, the founder of SmartPassiveIncome.com puts it “it’s all about working hard now so that you can sit back and reap the benefits later.” The point is, you’ll have to put the hard work first before you can reap the long-term rewards. But that’s not the message you hear from marketers. They tell you it’s easy and won’t require much work. Then, when you fail to achieve the promised results, you feel like something is wrong with you. Most likely, nothing is wrong with you. Things just take more time and effort than you had imagined.
Now, let me give you two examples of so-called passive income opportunities I came across recently.
Example 1. Write a short book this weekend and make $237.97 per day
Did you know that if you can write a simple sentence and have internet, you could make an extra $1,000 or even $10,000 per month for the rest of your life?
That’s the message conveyed on a sales page for a self-publishing course. Below is one of the claims that were made:
“In this letter, you’ll see exactly how ANYONE can write a short, 22-page book this weekend and make $237.97 per day (maybe even more)…”
Sure, you’re going to make $273.97 per day ($100,000 per year) by writing a 22-page book this weekend.
I can tell you from experience that making $273.97 per day from book sales is extremely hard. For most people, it will take years. That is, if they ever get there.
Now, let’s see the second example.
Example 2. Make royalties with audiobooks even after you’re dead (like Dr. Seuss)
Do you want to build passive income streams that your children or even great-children will be able to benefit from?
I have the solution for you (well, not me, but self-publishing experts do).
In a webinar I watched recently, “self-publishing gurus” promised me I could make lifetime royalties. Yes, you heard it well: royalties for the rest of my life (even after I die).
Can you imagine how excited I was?
And all I have to do is to find a ghostwriter and get him to write a short book in a hot niche for just a few hundred bucks. Then, I can simply hire a cheap narrator and put the final product on Audible.
And, voila! Royalties for the rest of my life.
Apparently, my ghostwriter is going to become the next Dr. Seuss. He is so good he can write books that will sell even after my death.
Let’s be serious. The large majority of books will stop selling after a few months. Remember this word: competition. Hundreds of books are published every day. And algorithms will favor these books over your cheap and poorly written books.
On a side note, if these self-publishing gurus believed their audiobooks would sell for decades, would they go through the hassle of creating an online course?
It seems to me they’re in dire need for cash flow. Who knows, their ghostwriters might not turn out to be the next Dr. Seuss after all.
II. The danger of believing in passive income
The word “passive” implies you want something for nothing. You want to do nothing and, somewhat, results and income just fall on your lap without doing any work. It doesn’t exist. — Dan Lok.
In this section, I’d like to discuss the danger of believing in “passive” income. If you want to build (relatively) passive income streams, you must be aware of these pitfalls.
1. Unrealistic expectations
If you believe building “passive” income will be easy, you might give up a few weeks or months in when you realize you’re still not making any money.
Putting in place solid “passive” income streams will take time and effort. Thus, you must have realistic expectations. With proper expectations, you’ll be able to grow your “passive” income streams with greater patience and more consistency.
When I started my online business, I didn’t expect to make “passive” income overnight. I understood it would likely take years before I could generate substantial incomes (and it did).
The point is, your journey toward building “passive” income will be made of ups and downs. It will take time and will often be chaotic. In order to increase your odds of success, you must relinquish unrealistic expectations and think long-term.
Now, here is a tip: focus on creating a business, not on making “passive” income.
It’s a much healthier way to go about it. With this mindset, you’ll work more consistently and with greater patience and might end up being successful.
You may aspire to make enough “passive income” so that you never have to work again. While this is a noble goal, being overly focused on escaping your present reality can do you more harm than good. Again, remember that most of your “passive” incomes will not last forever. You’ll need to make at least some effort to protect them and grow them. Thus, stop believing you can spend a few years building passive incomes and, then, do nothing for the rest of your life. For most of us, it’s unrealistic.
Also, relying on “passive” income to pay your bills can generate a lot of fear and anxiety. What if your passive income streams suddenly dry up? What if you have to go back to that regular 9-5 job you dread? That’s another reason to focus on building an actual business—not just making passive income. When you think of generating cash flow from a business rather than making “passive” income, you’ll feel more incentivized to work on your business consistently. This could be done by:
- building new passive income streams
- improving existing ones and/or
- offering services in the niche you’re in (not passive though).
The bottom line is, building passive income so that you can sit back and relax is usually a poor strategy. It will lead you, not only to worry about the long-term sustainability of your incomes, but also to become complacent.
This leads us to our next point.
Imagine if you could get paid every day without having to work? How motivated would be to go to work? How much drive would you have?
Once you begin generating passive income, it’s easy to become complacent and lower your standard over time. But if you’re not careful enough, you might see your “passive” income dwindle until you can’t pay the bills anymore. You may start slacking off, falling off your daily routines. Or you may be putting things off become there is no sense of urgency anymore.
But complacency doesn’t stop there. In addition to putting your passive income streams at risk, it will impact other areas of your life. For instance, slacking off will negatively affect your sense of self-worth. And believing you finally made it may lead you to lose your sense of purpose making you feel empty.
What is the solution?
It is to realize there is no such thing as passive income and to understand that having a consistent working schedule is important. Sure, your “passive” income may give you more flexibility but it doesn’t mean you shouldn’t be working in some capacity or another. Work keeps us engage and healthy (if it’s something we enjoy).
III. Passive income vs. reality
In this last section, let’s discuss why the idea of “passive” income goes against the way reality works.
In life, everything either grows or decays
If one thing is true about life is that things are always changing. Nothing stands still. Things either grow or decay. This applies to your “passive” income streams too. If you don’t watch them closely enough, they’ll dry out. It’s just a matter of time.
That’s why thinking in terms of “passive income” is counter-productive. Instead, I invite you to think in terms of “automated income.” Automated incomes aren’t passive but they use the power of leverage, hence reducing the amount of effort required once the initial work is done. For instance, any online content generating revenue falls into that category whether it is:
- a Youtube video monetized with ads,
- a book published on Amazon, or
- a paid online course published on platforms like Udemy or Teachable
The beauty of automated income is that you only need to create the content once and can sell it (potentially) forever. In short, rather than selling your time for money, you put a product out there and get paid over and over again. Very nice, isn’t it?
For example, it doesn’t require me more effort to sell ten books than ten thousand books. In both cases, Amazon will take care of distributing my ebooks, books or audiobooks to its customers. (The marketing effort needed will be completely different though).
Now, let’s see why it might be a good idea to build “passive” income around something you’re excited about.
Why you should create passive incomes you’re excited about
Hundreds of books, products and courses are released every day—and I believe this trend will accelerate in the future. Thus, whatever piece of content you create today, it will get lost in the sea of information available online. Even if you gain enough visibility to make money with your products, you won’t be able to maintain your “passive” income very long without consistent work.
For instance, I certainly don’t expect my books to sell forever. I know I will have to promote them continuously and revise them on a regular basis. II will also need to keep writing more books to stay visible and build stronger brand awareness. That’s the price to pay to build “passive” income that will last for years.
In the same way, you’ll have to market your products and keep them up-to-date. That’s why I believe you should focus on creating “passive” income around something you’re excited about. If you have no interest in what you’re doing, you won’t do the work necessary to protect and grow your income streams. Sure, you might make a quick buck, but, you’ll soon have to start all over again. Do you really want to be the guy who jumps from one get-rich-quick scheme to the next, never building anything significantly—and, more importantly, never making any money?
The bottom line is, seek to build “passive” income in a field you’re interested in. That way, you’ll be more likely to keep going when things don’t work as planned.
Don’t get me wrong, I love “passive” income. I’d rather build assets that will make me money for years than sell my time for money.
However, believing that true passive income exists is counter-productive. It will lead you to fall for get-rich-quick schemes. Even if you manage to generate passive incomes, they will often be short-lived as you’ll find yourself slacking off over time.
Remember, there is no such thing as passive income, only deferred or automated incomes. You’ll have to do the hard work first to reap the rewards later. Then, you’ll have to keep strengthening your income streams and protect them over time. Since building “passive” income will require blood, sweat and tears, you’d rather make sure your future “passive” income comes from products and services you’re excited to build.
To conclude I would say this: you don’t have passive income. You have automated income generated by your business. Your passive income will only be as consistent as your business is sound. If you have no business, you have no “passive” income,—you only have temporary pocket money. And knowing your pocket money can be taken away at any time isn’t a pleasant feeling.
- How to Escape the Rat Race and Live the Life You Want
- 4 Essential Questions to Answer Before Quitting Your Job and Starting A Business
- Jobs vs. Passive Income (Steve Pavlina’s blog)