Why Most Passive Income Isn't As Passive As You Think

Everyone likes the idea of making money without working, and the idea of passive income taps right into that desire. Some financial websites out there talk of “low-risk” opportunities which can earn you money while only putting up a modicum of effort up front. But there is no such thing in this world as a free lunch. Passive income requires work, and the idea that you can just make a few moves and stop working as the money rolls in is nonsensical. Every income stream requires a certain level of work for it to keep functioning, and here are some key examples of how “passive income” is really pretty active. Maintenance and Work Let us first note what passive income is. Investopedia defines passive income as “Earnings an individual derives from a rental property, limited partnership or other enterprise in which he or she is not materially involved.” It also notes that some investors define the money you can make from dividends or interests as passive income. Note rental property, the first thing which Investopedia defines as passive income. Renting property to others is one of the most well-known forms of passive income. You buy some housing, rent it out to some other individuals, and let the money come in. It sounds easy, and the stereotype of the greedy shiftless landlord has existed for centuries. But anyone who has actually rented out property to others should know that it is very stressful and requires a great deal of work. There are maintenance issues, additional taxes, and bureaucracy to deal with as you handle renter’s rights. Above all else, you are putting people onto your property who you do not know that well, which can lead to disaster as these landlords can tell you. What about other forms of passive income? The reality is that most enterprises require some level of income to keep the money flowing. If you create a blog or website which earns money through advertising, you still have to constantly update it and keep the content interesting. If you want to be part of an enterprise, then you have to understand that marketing is crucial to it succeeding no matter what it is. That marketing will take up your time. Time or Money Simple Dollar has a great observation about passive income: it either requires a lot of time upfront (such as writing a book or dealing with rental property maintenance) or requires lot of money upfront (such as dividends). And odds are that you have more of the former than the latter. The good thing about passive income is that it is work which you can do on your own time. This is part of the beauty of Franklin Hatchett’s Online Dimes method. But passive income does not mean making money for free. It means putting in a certain amount of effort, and there is no point when that effort can just end. As long as you understand that and do not have unrealistic expectations, then passive income can be a great way to supplement your regular job and improve your bottom line.