Passive income is income you don't have to work for day by day. It can come from stock dividends, blog income, affiliate sales, rental income or other forms. While passive income is something we would all ideally prepare to live off of in retirement, the reality of creating it during one's traditional "working years" isn't as well known and so is the source of many assumptions. Here are four common passive income myths.
Passive Income Requires No Effort
One common myth in passive investing is that you don't have to do any work beyond signing up. The reality is that passive income requires work in some form, even if it is only checking on your investments to rebalance the portfolio or making certain your real estate management company is depositing the right amount into your account.
In the case of blogging and affiliate sales, there is effort, especially up front, to get it going and start the income coming in. You'll then need to invest some effort to keep the site running, though you can automate much of it with content generation via paid freelancers and software that automatically posts the articles to your blog or social media accounts on a schedule you set. If you write a book, you have to upload it to Amazon and then invest time in marketing it when you can or when you want the sales to go up. In this regard, the passive income work is done in spurts instead of a day to day grind.
"In the case of blogging and affiliate sales, there is effort, especially up front, to get it going and start the income coming in.
Let's say you're launching an amazon affiliate website — it's certainly not a turnkey solution scenario. To get it to a place where you're generating an income, you'll have to put in tons of work at the start. You'll need to master new skills like content writing, email list building and lead generation."
You Can Get Rich Quick
A commonly hyped myth in passive income is that you can get rich quick. The only person getting rich quick off of passive income is the person selling the kits that promise to tell you how to get rich quick off passive income. Buying rental real estate can give you a multi-million dollar net worth and thousands of dollars in net worth, but it takes months to find and close on properties, rehabilitate them, find tenants and generate that income stream. Creating a knowledge product like a blog, book or paid newsletter takes months to build a following and often years to generate a passive income stream large enough to live off of.
Day trading has the potential of high returns, but the majority lose money in day trading, while slow, steady investing in mutual funds is a reliable and safe way to build up an income stream but takes time. Buying options may let you make a quick turn around, but the losses most investors face curtail the long term income stream. Investing in startup businesses may let you earn solid passive income later, but you cannot get rich quick unless they succeed and sell out at a high price later.
One common passive income myth is that there are systems and investments that are guaranteed. Nothing is guaranteed short of federal savings bonds, and those have a payout right now below the real inflation rate. Some investments are more certain than others, such as investment real estate almost always appreciating if fixed up and then maintained.
If I Invent It, They Will Come
A common misconception about passive income is that if you come up with an invention idea, you can sell it and make a fortune. The reality is that you have to find a company to buy the patent or rights to the idea, and that takes significant effort. If you develop the product yourself, you have to make your own logo, develop a business model and then hire affiliates to sell it for you. Once they are selling the product and hiring the next layer of salespeople, you can hand off day to day management to someone else. However, this is far more work than simply coming up with an idea and expecting passive income for years in return for a presentation on it.
Passive income always requires effort beyond signing up, reading a program and investing your money if you don't want to be ripped off or see the income peter off, but it can be achieved if you go about it in the right way.
Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.