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How NOT To Build Passive Income

How NOT To Build Passive Income

One of the things that I like to do on this site is to provide creative ways to build passive income. Part of that is in part due to the fact that I think it helps others think outside the box. The point is simple. You can build up passive income if you dedicate enough focus to doing it. Focus and energy to stay committed toward a goal.

The big goal is to generate enough passive income where you are financially independent and can pursue your dreams. The day-to-day goal would be to continue to build up more passive income. This isn't an easy achievement by any means. It takes dedication and hard work. I may make it sound easy with all of the different streams that I am investing in now, but it's not. One of the biggest ways that it is hard to continue working towards these goals (short-term progress and long-term goal of financial independence) is to avoid spending more money.

My Current Temptation / Necessity

My current situation has brought a new awareness to the reality of how expenses can sneak up on you. Before you know it, you have a several thousand dollar expense that you weren't expecting. Despite my interesting in planning, that's what happened to me. Here's the details.

A couple weeks ago, I decided to start looking for a new job. I realized that I need to keep progressing in my career while I dream of being self-employed. I can keep working towards this dream on nights and weekends, but I'm not going to go anywhere in my day job possibilities if I don't keep moving upward. Being stagnant is not an option. After finding two jobs that really interested me and would fit my skill set, I applied. I got an interview and it looks promising for me to get a second interview. I'm excited about the possibility. Not only would this mean a pay increase, but it would also mean that I wouldn't be able to take the train to the office. This means that my wife and I need a second car (if I get the job).While the job would pay more and I would be able to pay for a monthly payment, I don't like the idea of borrowing to buy a car.

The good news is that my wife and I have a large enough emergency fund to cover this type of expense. But, is this really an emergency? Buying a reliable car with no thrills would mean wiping out about half of our emergency fund. We'd still be able to survive without any fear of going broke and we'd be able to replace the loss in a matter of months from the surplus in our cash flow. While I won't hesitate to take the job if it is offered to me because it will provide the necessary steps to establishing a career (and huge income increases going forward), this does have another long-term effect on my finances.

By purchasing a car and depleting a part of our emergency fund, I am directing all future earnings to replacing our emergency fund. This means, no money put towards investments (other than automated retirement accounts) and ultimately no significant increase in my passive income for another few months. It's certainly not the end of the world, but it does illustrate how you can delay passive income by buying stuff.

Other Expenses that Delay Passive Income

I was talking with some of my friends about my slight frustration and he didn't seem to understand the big deal. As I was talking with him, I found out that he prioritizes things differently. Instead of focusing on investments or passive income, he is focused on enjoying life. I like to think that I enjoy life, but not in the same way. Here are some of the things that he lets distract himself from earning passive income.

Concerts – He and his wife are huge music lovers. They regularly attend concerts (like Justin Bieber tickets that they are thinking of buying). While I love a good concert, it's more of a luxury for me. Plus, spending $50 or $100 on one night seems like a lot when I could invest it and generate that much income in a year or so (saving that much each month).

Vacations – I love traveling as much  as (if not more than) anyone else. But, what I refuse to do at this stage in my life is to spend all of my extra money on traveling all over. Increasing your expenses too much can cause you to be used to that and make it harder to limit yourself later. I'm a firm believer in the once a year balance (maybe once every two years), with slowly increasing it to more frequently if you are really kicking butt.

To make a long story short, unnecessary expenses delay your ability to build up passive income. It not only reduces your income right now, but it decreases your future income (compound interest and all that). Obviously, you can't invest every penny without going a little crazy, but if you reward yourself and stay focused on your goal of building passive income, it becomes much easier to say no to these type of expenses.

Also read: Passive Income Tax – What You Need to Know About It!