Here Is the Brutal Truth about Passive Income
Don't fall for this new age snake-oil
Become a paid subscriber to Making of a Millionaire and make this your online “money home.”
Here are just a few perks you’ll get on day one.
Exclusive articles for paying subscribers
Access to my personal finance course
A free digital copy of my book “The Financial Freedom Equation” and;
Exclusive early access to my next book “The Rational Investor.”
“If you give me 30 seconds, I’m going to explain how I made a kazillion dollars in passive income with my formula that’s so simple, even your dog can follow it.”
Raise your hand if you’ve seen a YouTube ad like that in the past month?
Look Google, I just want to watch a damn video showing me all the easter eggs from the latest Spiderman movie. Why are you showing me this spammy garbage about starting a drop-shipping company?
Of course, we know why we get served so many ads about how to “easily” make money online and quit your job in 30-days; people are sick of their jobs and looking for a way out.
Passive income is modern snake oil
If you have enough “passive income,” you could quit your job and spend your days doing whatever you want.
There’s literally the most appealing financial goal I can think of.
So, anyone who can help you achieve that goal— or, more accurately, anyone who convinces you that they can help you build passive income— will have a massive amount of influence. That is why the internet is full of spammy articles and videos, promising easy solutions to generate passive income.
The brutal truth about passive income
I have some good news and some bad news.
The good news first (I am an optimist at heart): I can show you how to build enough passive income to quit your job.
The bad news: It might take you the rest of your life to reach that point.
Here’s that brutal truth I promised you (part 1)
Generating enough passive income to cover your living expenses takes years, if not decades. Anyone who promises to show you how to quickly generate passive income is either trying to sell you something or has no idea what they are talking about.
Why does it take years or decades to build passive income? To answer that question, you need to know part 2 of the brutal truth about passive income:
The only true source of passive income comes from income generated by investments
Think:
Capital gains from selling investments
Dividends from stocks
Interest from bonds
Rent from real estate (if you use a property manager)
Investment income is the only source of passive income because it’s the only way to get paid by literally doing nothing (hence, the word “passive.”)
What these online “passive income” gurus are really selling you on is starting an online business. Which, I mean, sure might be a good idea. But, there is nothing passive about the things they are trying to sell you, like affiliate marketing, blogging, podcasting, selling on Amazon etc.…
What most people think of as passive income is actually “scalable income,” which is another way of saying business income. There is no limit on how much you can earn, but you aren’t guaranteed a dime.
I’ve covered the difference between passive income and scalable income here.
The path to passive income is slow and steady
Here’s some hypothetical math that provides an honest timeline of how most people build passive income.
Let’s assume the following.
You’re 30.
You make $50,000 per year after tax.
Your annual living expenses are $40,000.
That leaves you with $10,000 per year to invest in assets that yield approximately 3.5% in passive income.
To cover your entire $40,000 annual living expenses entirely with passive income, you would need $1,143,000 invested. If you were saving $10,000 per year, it would take 38 years.
Most people working a 9–5 job will be around retirement age before they have true F-You money.
The nugget of truth in the passive income snake oil
The best lies have a little nugget of truth barrier deep down below the bullshit.
For the passive income guru’s the nugget of truth is also the glimmer of hope they want to exploit.
You don’t need to spend 40-years working a job you don’t like.
If you want financial freedom, you need three things.
Master-level skills in managing money.
A second income stream that’s independent of your job.
Patience.
If you are subscribed to this newsletter, the first two points probably won’t surprise you, and we will be dedicating many future posts to discussing money management and building alternative income streams.
But, it’s the third point I want to leave you on today. You need patience because building a strong financial position and new income streams takes time.
A recipe for disaster is having unrealistic expectations and then reality smacking you in the face. That’s why most side hustles fail; people think this is easy and that they will be able to quit their job in a few months. It will probably take years unless you are stupidly talented.
If you aren’t ready to commit years to build a second income stream, your better off finding a way to be happy with your job.
Earlier this week, I published my first book “The Financial Freedom Equation.” If you like this newsletter, you’ll love the book because I wrote it for my subscribers. Pick up your copy here.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
What about that one in a zillion chance of making money writing an amazing story which sells gets made into a movie etc. Isn't that passive income?