Passive Income Is a Lie — Build Passion Income Instead
All businesses require work, but you can decide what kind of work and when to do it.
There is no such thing as passive income because there’s no such thing as a passive business. All income comes from some form of work, the difference is simply when you put in the bulk of that effort — before, during, or after the income.
Unless the “passive income” comes from a truly passive investment source like stocks or bonds. But even then, it takes time and accumulated knowledge to choose the right investments to make, not to mention the work required to earn the capital used to invest.
Some people think of property investment as passive income, but have you ever heard a property that requires no maintenance and finds its own tenants?
You can work up-front as an investment into your business (passive income), or you can do the work as it comes in exchange for a paycheck (active income), but no matter what, you have to do the work.
“If passive income is a weighted ball, a traditional job is a weighted cube. Cubes cannot build momentum. You stop pushing, it stops moving.”
— Megan Holstein
Passive income is really “leveraged income”
When people say “passive income” they usually mean “leveraged income” or “residual income”, which means taking a risk and paying a large price up-front (in terms of time, effort, or money) with the hope of reaping disproportionately large ongoing rewards down the road.
Passive income gurus like to describe it as building a money machine. Once the machine is built, press the big green on button and income starts streaming in. What they forget to tell you is that even after the initial investment to build your machine — write your book, build your product, or whatever else you plan on selling — the work has just begun.
Next, you have to market and sell that product over and over again otherwise it stops earning you money. You have to keep getting new people interested in your machine or nobody uses it.
You may have to learn new technologies to make those sales happen, or invest in new tools. Learn how to build, and constantly maintain your machine and the ecosystem that supports it.
You may have to provide support to your customers. Help people use your machine, especially when it doesn’t work as intended.
You may have to constantly update your “passive” product to keep pace with new technologies, ideas, or customer demands. Improve your machine to keep it desirable.
And that’s all assuming you did the initial research to determine if what you’re creating has value and market fit — otherwise, you’ll be trying to make passive income off something nobody even wants. You created a shitty machine — what a waste of all that time.
That doesn’t sound passive to me. It sounds like a lot of work. Both before, during, and after. It sounds just like running any other business.
The momentum of a rolling ball
Would it make you more money for less effort if you simply get paid directly for that work? That’s the big question, and all too often people get suckered into the dream of passive riches without enough validation and concrete projection of:
- The investment needed to get their idea off the ground.
- The ongoing work required to sustain its momentum.
- And the potential income to be earned (only if those first two steps are accomplished).
Here’s a fantastic analogy from Megan Holstein that describes this reality of passive income:
Imagine you are rolling a weighted ball across the floor. Getting the ball rolling takes a lot of energy, and you’re only paid off with a little motion. Keep pushing, though, and eventually, the ball picks up momentum. At this point, you can keep pushing the ball and make it roll faster, or you can let go, and it will roll on its own some way before coming to a standstill.
A passive income business is like this weighted ball. It takes a hell of a lot of effort to get it rolling, and once it’s rolling, if someone is not walking behind making sure it keeps rolling, it will come to a standstill. You can hire people to walk behind it and keep it rolling, but you still have to oversee the people who are paid to do that. You can reduce the amount of labor required at each step, but you can’t eliminate it. Like a function approaching its limit, you can get infinitesimally close to “not working” without ever getting there.
Passive income is still a much better deal than traditional employment. If passive income is a weighted ball, a traditional job is a weighted cube. Cubes cannot build momentum. You stop pushing, it stops moving.
Leveraged income can be more difficult to implement than traditional active work because it requires the time to put in a large initial investment of effort with no immediate return.
Experienced people can find it hard to make the time, even though their success may allow them to afford the risk. They know how to push the ball, but don’t have time for it.
Others may be able to find the time, but they don’t have the skills (requiring extra learning time), or their finances cannot afford to relinquish active income for a chance as future residual earnings. They have time to push the ball, but can’t afford it.
If passive income isn’t real, what’s the next best thing?
What actually feels like passive income is earnings from doing something you enjoy — something that doesn’t feel like work. “Passion income” from desirable work is as close to true passive income as most of us will ever get.
“Passion income combines what you’re good at, what you like to do, and what matters to you.”
— Jillian Johnsrud
Jillian Johnsrud says that passion income is derived from things that:
- Are in your natural skill set or match your core competency.
- You love the outcome and feel like you’re making a difference.
- Give space for other important things in your life.
Now, before I go any further, don’t paint this with the find your passion brush. “Do what you love and the money will follow” is dangerous advice — not at all what I’m promoting.
I don’t advise you give up good active income in favour of working on your passion and hoping it will earn passive money someday — unless you validate that plan as rigorously as you would any other new business risk. But that doesn’t mean a passion of yours can’t become a genuine income stream for the future.
How to start a new passion income stream
Earning money online (or offline) is actually dead simple, and chances are you have a passion or strength that could be developed into a profitable skill:
- Develop a valuable skill or product that you enjoy working on. This takes practice and experience, so best to start with something you’re already pretty good at.
- Learn how to sell and deliver that skill or product to new customers. Mastery of a skill is useless unless you know how to translate it into concrete business value.
- Trade your service or product for the money. It’s that simple.
Read this for more details on the simple formula for making money inline:
How to Make Money Online With No Skill or Experience
You’re asking the wrong question. Instead, find how to create value.
Don’t forget that passion income can also be leveraged income. You don’t have to pick one or the other. A combination of both would be the ideal format for your new income stream.
Passion income can start small as a modest side gig. It gives you an escape plan for a later career shift or early retirement. Like any new business venture, don’t expect it to grow overnight — just as a started off saying, you still need to put in the work. The difference here is that you’re enjoying that work, which makes you even more likely to commit the time it needs to thrive.
I have a mate who started his passion side-project (a niche e-commerce shop) out of his garage on evenings and weekends while he continued to run his old business as his day job. After a few years, the passion project was making more than his regular job, so he sold his first business and invested all his effort in the new one. Now it’s a thriving international business that continues upgrading to larger warehouses and hiring new employees as it grows. All from something that started as a hobby in the garage.
Not everyone will get that lucky, but there’s no harm in trying. If yours doesn’t end up making much money, you’ve created a hobby instead of a business.
Most people spend money on their hobbies (sometimes a lot of it!). If your passion has a chance of earning instead of costing you, that sounds like an easy risk to take. It’s income from something you’d be doing anyway. If that’s not passive income, I don’t know what is.
Want to comment?See this story on Medium
Hi, I'm Benek Lisefski. Since 2001 I've run my own independent design business. Join me as I unfold 20 years of freelance business knowledge: honest advice and practical tips to help you take your indie career from good to great.
MediumTop writer in Design, Business, Creativity, and Entrepreneurship.