Why Passive Income Isn’t Really Passive


Disclosure: I am not licensed to provide financial advice in Australia and this information should be taken as educational only. Read the disclaimer.

You've probably heard about this amazing thing called passive income, right?

We've all had the dream: make money while you sleep, lounge on the beach while your bank account grows, enjoy the freedom of passive income.

Sounds too good to be true, doesn't it?

Well, that's because, in many ways, it kind of is.

The reality of passive income is much more complex than the name implies.

There might be ways to earn money passively, but setting it up?

That takes time, effort, and energy.

Maintaining it?

That takes even more work.

And that's ok.

It's completely normal and I personally think that while passive income is a nice goal, perusing active income will give us far greater results.

Let's dig into what “passive income” really means and how you can actually achieve it.

The Passive Income Dream

The appeal of passive income is strong.

Who wouldn't want money rolling in without lifting a finger?

It stands in contrast to the typical 9-to-5 grind where time and energy are exchanged for a salary or wage.

An example of active income – or leveraging your labor to generate income.

Many of us might get to a stage of our working lives where we question what the point of it all is.

Or we are too exhausted to put more time and labor into something that has a certain ceiling of reward.

So, we dream of that passive income source that can give us financial freedom, a better work life balance or better security.

However, the common perception of passive income is often far from reality.

Passive income is not a golden ticket.

It's not a magic money tree that suddenly sprouts cash.

It's a result, an outcome of wise decisions, strategic efforts, active involvement, and yes, hard work.

Understanding the Effort Required

While the word “passive” might suggest a hands-off approach, achieving it often requires more work, planning, and dedication than one might first think.

And unlike a conventional job, where you're paid directly for your time, passive income may require months or even years of work before it starts to bear fruit.

It's not so much “effortless” as it is a strategic investment of your time and energy that can lead to compounding returns down the line.

Let's look at a few examples from my own journey, which highlight the active/passiveness of each:

Investing in property

Buying a place and renting it out might seem a simple money-making opportunity, but there's a lot more to it than buy, wait, sell.

Consider things like stamp duty, renovations, property management, tenant requests, upgrades, advertising vacancies, and market preparation.

This is all after you've done your research, assessed properties, got your money in order and committed to owning one.

I've been a landlord, and while it wasn't a 9-5 job, it was far from a passive position.

Investing in shares

Income from dividends is a prime example of passive income.

Owning dividend-producing stocks lets you collect regular payments, but how do you get started?

You'll need to learn to invest in shares, research products, decide what to invest in, and choose a platform.

You'll also need to invest money or contribute regularly to make the dividends meaningful.

Monitoring and tracking are essential too.

It's a bit of work, but with the right guidance (like my 1:1 coaching or online investing course), it can lead to substantial income over time.

Content creation

The idea of a blog that effortlessly brings in cash might seem like a dream, right?

Well, it took me two- and a-bit years of writing on a site no one visited before it made any money, and that income only came from me committing to providing regular updates (like my email newsletter or new articles).

Yes, there is passive income to be made from the articles and courses I've already built, but that's only part of the story.

Keeping them relevant and promoting them is an ongoing commitment that requires consistent effort.

It's not just about creating the content; it's about nurturing and sustaining it.

The common denominator in the above examples is that all of them took time to earn a decent income, and all of them required me to put in the work to get them to a place where the income felt meaningful.

But the key difference?

This income becomes less of a trade-off of time for money.

Unlike a conventional job where you clock in hours to earn your pay, these streams can turn into something more self-sustaining, rewarding you for the early effort and strategic decisions you made.

They can be nurtured into providing consistent returns, minimizing the time spent while maximising the income received.

Now before I carry on too much about how your dreams of passive income are not worth the effort, I want to share what I think is a better way to frame our minds on how it's supposed to work.

And how it can be realistically achievable as well.

The Active Path to Passive Income

If passive income is your goal, understand that it's not simply setting turning on a money tap and watching the cash flow out.

It's a result, and to achieve it, you need a strategy.

You need to become an active income builder.

Actively building income doesn't mean trading all your time for money.

It's not about working overtime or getting a higher paid job.

It means investing your energy in finding ways to create or grow assets that generate income, like choosing to invest, enhancing skills to start a one-person business, or even creating and selling a physical product.

Consider it a journey:

  1. The Learning Phase: understanding the basics of the path you've chosen, whether it's investing in shares, starting a blog, or exploring other income-generating assets. Dive into the learning materials available to you, experiment with different strategies, make mistakes, and learn from them.
  2. The Building Phase: This is where the groundwork is laid, and you start to build the foundation of your future passive income streams. Invest your time and energy, even if immediate rewards aren't apparent. Keep focused on the bigger picture. This is where people quit and move on to the next shiny thing.
  3. The Refinement Phase: This phase is where you begin to see rewards start to trickle in. You've learned what works, and now it's time to refine and optimise your approach. Assess your progress, identify what's working well, and focus on those areas.
  4. The Maturation Phase: This is where your efforts start generating significant passive income. You've reached a point of maturation in your income-generating assets. Continue to monitor and strategically manage your income streams.

Ok, but how does this look in reality?

  • Building a web presence or blog requires research, content generation like writing or video, optimisation, and marketing.
  • Investing in shares need you to spend time researching and understanding what you know and are comfortable investing in while committing to a process of investing over the long term.
  • Even property investment goes beyond merely buying and collecting rent, requiring active management and liaising between property managers once you have done all the work selecting and financing a property.

The beauty of active engagement is seeing the results.

Your effort turns into growth.

Your time translates into progress.

And yes, eventually, your active management can lead to more consistent and reliable income, even when you're not actively working.

But never lose sight of the fact that passive income doesn't mean ‘no effort.'

It's about building something substantial that, over time, requires less direct intervention.

It's not a get-rich-quick scheme; it's a get-rich-smart approach.

In our household we are building passive income by being active and participating in growing assets.

Like me (trying to) grow this website, adding to our portfolio of ETFs, monetising our skills that are in demand and paying off our house.

The True Path to Financial Freedom

So is passive income a myth?

Not quite.

But it's not a starting point; it's a destination.

It's the reward for understanding, engaging, and managing your money actively.

It's about shifting from a “get rich quick” mentality to a “work smart and see the results” mindset.

Financial freedom, real financial freedom, isn't about shortcuts or magic solutions.

It's about effort, wisdom, and perseverance.

And guess what?

You've got what it takes.

It's not about sitting back and waiting for success to come to you.

It's about standing up, diving in, and actively shaping your financial future.

The passive income dream might take some effort to accomplish but you're in control, and the rewards are waiting.

Related Articles

Tim Ellis is the creator of DadInvestor.com.au, a website dedicated to getting people confidently investing and managing their money. Inspired by his own experiences, Tim has a passion to create a financially secure future for his family and loves to share the knowledge he's found in personal finance with the rest of the world.

Leave a comment