Is Passive Income Truly Passive?
Last Updated: Aug 22, 2023
What is passive income? It is the income that requires little to no effort to earn and maintain. It is often combined with another source of income, such as regular employment or a side job. Passive income can be a way of creating financial independence and early retirement, because the beneficiary will receive an income regardless of whether they are materially active in the activity creating the revenue.
In the world of financial independence and the rush for side hustles, “passive income” is a phrase that glitters with gold. Its allure is undeniable: earn money while you sleep, lounge on the beach, or binge-watch your favorite series. It sounds like a dream, doesn’t it?
Imagine telling a farmer, “Hey, I’d love to harvest fruits without planting trees.” The farmer, leaning on his shovel, might chuckle, “Well, then you better find a magic beanstalk, Jack.” Much like our fictitious farmer’s fruit, passive income doesn’t just fall from the sky. There’s tilling, planting, and nurturing long before the rewards appear.
Let’s deconstruct the term “passive income” by examining the effort vs. reward paradigm.
The Upfront Work
Most sources of passive income require a considerable amount of work upfront. Whether it’s writing a bestselling book, creating a popular mobile app, or setting up a blog or YouTube channel, the “set it” phase often demands time, dedication, research, and sometimes a fair bit of capital.
“Two friends, Sally and Jane, saw a ‘Grow Your Own Roses’ kit. Sally said, ‘Instant roses? Sign me up!’ She was disappointed to find a bag of soil and seeds. Meanwhile, Jane chuckled, ‘Guess they forgot to mention you can’t skip the ‘grow’ part!’
Once your passive income source is established, it doesn’t mean you can neglect it entirely. Websites need updates, rental properties need maintenance, and investments require periodic reviews. It’s less like planting a tree and more like having a garden: after the initial planting, you still have to weed and water.
“Ever heard of Tim’s ‘Self-Watering’ plant? He bought it, assuming it’d thrive on its own. A week later, it was a sad, wilted mess. Turns out, ‘self-watering’ meant it had a reservoir, but Tim still had to fill it! Lesson learned: even ‘self-doing’ things need a little nudge.”
The Illusion of Effortlessness
The final stage, when you’re supposedly lounging and raking in the money, is rarely as hands-off as it’s portrayed. Sure, the effort might significantly decrease, and you’re not trading hours for dollars in a direct sense. But passive income streams can, and often do, dry up if left unattended for too long. Trends change, competition arises, and market dynamics shift.
“Danny watched a magician pull a rabbit out of a hat and thought, ‘That looks easy!’ He bought a hat, waved a wand, but no rabbit. Later, he realized the magician spent years mastering that trick. Magic? Yes. Effortless? Far from it!”
Diversification is Key
Relying solely on one passive income stream is akin to placing all your eggs in one basket and hoping it has a titanium shell. The most successful passive income earners diversify their portfolio, be it different kinds of investments, various rental properties, or multiple online platforms.
While the idea of passive income sounds idyllic, it’s crucial to approach it with both feet grounded in reality. Remember, even in the world of music, the term ‘play’ is a verb. Just like playing an instrument effortlessly requires hours of practice, so does setting up a genuinely rewarding passive income stream.
So, next time someone pitches you the idea of “effortless passive income,” think of our witty farmer and remember: no beanstalks, just beans… and a whole lot of nurturing before the magic happens.