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True or False: Passive Income Will Ruin Your Wealth Potential

Sep 20, 2022 10:00:00 AM

Unicorn figurine in front of coins

For investors and entrepreneurs alike, “passive income” is the name of the game, but the image people often paint of earning passive income is a far cry from reality. We think of it as “making money without having to work,” aka, working on our tan at the beach while our bank accounts get bigger.

And sure, that’s a great dream – but it’s just not the reality for most people.

If you want to find financial freedom through passive income, you’ve got to take off your rose-tinted glasses and see these opportunities for what they are…and what they require of you.

What Is Passive Income?

Passive income is income generated through investments – stocks, bonds, and real estate (under certain circumstances). It’s money you don’t have to work to earn. That’s still a bit misleading, though! You don’t have to do active work to earn passive income. But that income will always demand something from you.

Making the most of your passive income-earning potential requires time, thought, and investment.

Passive income as we picture it doesn’t really exist and holding on to the misconceptions around it is holding you back from meeting your full potential!

Let's Clarify a Few Myths About Passive Income

Myth #1: All you need is ONE source of passive income

Some people have the idea that you just need to find that one thing that will earn an extra $1,000 a week (passively, of course!). Truth be told, it’s not about striking gold on one idea or revenue stream. Passive income is most impactful when it comes from a diversified portfolio generating multiple streams of income.

Think of it like a big river being fed by many tributaries. If one stream of water is dammed up, others will continue to feed into the big river. If you only have a few tributaries, an obstruction is going to seriously impact the river’s flow. And if you only have the river? You risk it drying up entirely!

Myth #2: Passive income is the most important part of an investment

There’s a great deal of emphasis on passive income and cash flow in the investment world. These things are great to have, but they aren’t the end-all-be-all of wealth building. We’ve always said that SFR investing isn’t effective because of cash flow: it’s effective because of cash flow, appreciation and equity, and tax benefits – among other things!

You’re going to find that just about every “passive” investment takes time to pay off. So, it’s best to benefit in more than one way.

Myth #3: You can establish streams of income without much effort

If you search the Internet for ways to earn passive income, you’ll get all sorts of blogs spilling over with ideas. And if you look at any of them, you’re going to notice that they require some work, at least initially. Establishing a worthwhile stream of income takes time. It’s not something you can throw together over the weekend!

Even traditional passive investing demands that you do your due diligence, choosing the right investments, right partners, and right opportunities. These are not “get rich quick” investments! Those don’t exist.

Myth #4: Passive income requires no maintenance

Passive income is never passive in the sense that you never have to do anything. Some of the traditional forms of passive investing like stocks and real estate, may not require all that much of you at any given time. Just don’t make the mistake of letting them run wild! Will anything bad happen? Not likely. But you won’t make the most of what you’ve invested.

No matter how passive you are, you’ve got to take an active interest in guiding your portfolio. Set your standards. Know what you need. Develop relationships with the right people. And most of all, do the work of ongoing due diligence.

Myth #5: You can earn passive income through books, podcasts, Youtube, etc...

Young boy dancing in front of computer in dated GIFToday’s pop culture has truly glorified the most successful content creators on the Internet. On the outside, it seems like you can become a social media sensation (and a millionaire) overnight. Just host a successful podcast, go viral on TikTok, or write an award-winning blog.

This expanding idea of “passive income” has made everything blurry! Royalties, ad revenue, and residuals aren’t really passive. On one hand, yes, you can earn that money without actively earning it like you would in a 9-to-5. However, producing quality content is a tall order on any platform! Just about every major success on Youtube has been working at their craft for years, many of which involved being paid very little, if at all, for their content.

Earning ad revenue and royalties demands that you make and actively market something that people will engage with and continue to come back to. It’s made to sound very easy to do, but the vast majority of authors and creators don’t make a living off of their work. It takes a consistent pattern of hundreds of thousands of views (and more!) to earn a solid income.

If it’s something you want to pursue, by all means! Just don’t expect it to be a source of passive income, or for that income to come easily.


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