Passive income is not passive

By Stew

On Wednesday, I shared some problems with the IRS list of income streams that are considered “passive”. I think much of what we consider to be passive income, is in reality, an alternate stream of income. An alternate stream of income is generally any money that you earn outside of your regular job. Some people have grown alternate income so much that they no longer have to work a 9 to 5, but most of us will never get to that point.

Mrs. Stew has tried her hand at generating alternate streams of income through multi-level marketing. During our marriage, she worked for two different companies. Both were quality products and not pyramid schemes, but I eventually asked her to stop because we were losing more money than she was making. It wasn’t really her fault or the fault of the product, it was just that she assumed the income would be passive. Mrs. Stew, bless her heart, is just not good at sales because sales, especially in multi-level paradigms require you to be always alert for potential leads. Successful ML marketers are always talking about the product, integrating it into their day and thinking of ways for more product exposure. This is not Mrs. Stew. She is a people person and when having a conversation, she is focused on what the other person is saying (imagine that!), instead of trying to figure out a way to work her product into the discussion. Also, when she drives a bargain with someone, she always gets the short end and when Mrs. Stew happened to actually make a sale, she was almost apologetic about it. Successful marketers are not and can not be passive.

Here is what you need to be prepared for, if you are seeking to generate so-called passive income:

Risk

This is the primary characteristic of an alternate stream of income. You need to be willing to either put capital at risk or invest prodigious amounts of time (a risk of sorts) with no guarantee of success.

Prior work

An author might look like they have it made when their book hits the New York Times best-seller list, but it is a daunting task to get to that point. The book itself is typically a project that takes years and most authors need extra schooling or must have worked hard in another field before they will have credibility as an author. Furthermore, as I mentioned under “Risk”, an idea or product that will generate passive income will usually require a great deal of work up front.

Physical labor

Sometimes we consider passive income to be income for which one does not physically work. Yes, sitting at a desk with computer might look like less work than digging a ditch, but in terms of stress, focus, intensity and toll on one’s psyche and body, the jobs might be the same. My sister once told me that she wanted to work in a hair salon right out of high school without getting any kind of college degree. I told her that fixing hair is a fine career, but at some point, you will want to own the salon and a college degree will help give you the tools to someday be able to work without tools.

Odd hours

Some might say that I earn passive income as a blogger . . . I would beg to differ, although I understand why it might seem easier to type at a computer and make a little money from time to time. The reality is that while I enjoy blogging, I spent almost 500 hours in the medium before I made a single penny. Furthermore, I do have a day job and I often have to pry myself out of bed early in the morning or weekends or else I type until the wee hours of the morning. This is the case with most alternate forms of income.

Major Bucks

Some passive income might be earned through interest or investing. For the former, I must mention that you first have to acquire a sum of money that will generate a decent amount of interest. That typically takes a lot of work, unless you find yourself the recipient of an inheritance or life insurance. In those cases, someone had to work for that money and the death of a loved one is not usually an event where we look forward to making passive income. For investing income, this is hard work too. It might seem easy to sit in your pajamas and invest money, but if you plan to be successful at it, you have to spend a great deal of time in research.

Unique Talent

There are a few lucky people in this world who seem to make money easily because of their ability to come up with great ideas or because of their good looks or because of their unique talent. Hollywood actors, professional athletes, and musicians fit this profile. To those people, I say, congratulations, you might just be the person who found truly passive income.

But, I bet that if you asked them, most would have stories about the hard work, sacrifices and risks that brought them to the point where they were able to make “easy money”.

Article by Stew

Photo by woodleywonderworks


3 Responses (including trackbacks) to “Passive income is not passive”

  1. Courtney Says:

    The idea behind ‘passive income’ doesn’t mean it doesn’t take any work to generate. It means that it can continue to generate income AFTER my work has been put in. I can spend a couple hours designing a t-shirt to put on CafePress, and then people can buy that t-shirt for years to come and I get a portion of the sales without any additional effort on my part. I can spend a year writing a book or recording an album, and then receive royalties on any future purchase without any additional effort on my part. I can purchase a share of a quality dividend-paying stock, ETF or mutual fund, and I will receive dividends as long as I own that share without any additional effort on my part. Passive income does not mean ‘without work’ – it means ‘without continued work’ as opposed to active income, such as a job, where I have to continually show up and complete tasks to get paid.

  2. Financial Samurai Says:

    Only true passive income is the 4% interest income we receive from our long term CDs.

    Build the nut, and live happily ever after!

    Sam

  3. Gary Says:

    My wife and I are also trying to build a “passive” income from our MLM business. We found a product and service that really has no competition, and even though the product is sold retail, our service is not. Our product is sold for 25% of what you can get at your local retail store, and the service allows you to get this product online without ever leaving your home. We loved the idea so much that we would use it even if we didn’t choose to be distributors. It is NOT a pyramid, or a get rich quick scheme. We also know that it will take us several years to create a decent “passive” income from our business just because we are not natural salespeople. But we are enjoying our business, and look forward to our “passive” income to help fund our retirement years. Sure, it takes work, but so does saving money and putting it into CD’s and IRA’s, which we are still doing.

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