Updated: August 13, 2017
For the uninitiated, passive income is “income received on a regular basis, with little effort required to maintain it.” 1
Some examples: 2
- You write a bestselling book and put it up on Amazon. It sells a few dozen copies per day, making you money consistently without any additional work.
- You create a website that sells t-shirts. The website generates $200 per day in revenue, and expenses are only $50 per day, including the cost of hiring some dude in the Philippines to update the site regularly so you barely have to do anything.
- You create a piece of software that solves a painful problem. Two-hundred people pay you $20/month for the use of this software, and there’s very little maintenance required so you can go surfing every day and still collect $4k per month.
Sounds dreamy, right?
I’m not here to give you seven steps to passive income or anything like that.
Because honestly, I’ve been self-employed and working online for six years now, and I still haven’t cracked it myself.
What I have done these past six years is waste a ton of time chasing the passive income dream.
And so I want to offer you some simple advice:
Forget about passive income.
I’m not saying it’s a myth, and I’m not saying it’s impossible.
What I am saying is this:
- Focusing on passive income when you’re just starting out trying to make a living online can be very distracting, and very costly.
In my experience (and the experience of many other web workers I’ve talked to about this), you’re far better off focusing on “active” income when you’re just getting started.
That means becoming a freelancer and trading your time for money.
Most of us don't need to focus on passive income, we need to focus on improving our active income.
Why Are You Better Off Doing This?
First and foremost, you’re simply much more likely to earn a reliable income as a freelancer. You know that if you put in five hours working on a freelance project, you’ll be compensated appropriately for those hours.
With passive income there’s a lot less certainty.
You could spend days, weeks or even months building some amazing product or automated system that you believe will generate passive income (as I’ve tried to do several times in the past), only to end up very disappointed (as I’ve ended up several times in the past).
To better illustrate this, let’s revisit those passive income examples listed up top.
The Bestselling Book
How long will that take you to write?
3-4 months, if you’re lucky?
Even if you do put in the consistent, hard graft required to produce a book you’re proud of, what guarantee do you have that it will become a bestseller?
And say you do hit one out of the park and the stars align and your book does become a bestseller, who’s to say you won’t end up like this dude, whose book was the number six bestselling title in America for a while – no small feat! – yet he ended up making only $12,000 for his efforts, pre-tax.
A nice bit of money, but hardly a fortune.
The T-Shirt Website
Some questions for you here:
How much time, money, and effort do you think would be required to build such a website?
And let’s say you went to the trouble of building it. How then would your t-shirt website stand out from the six quadzillion other t-shirt websites online?
And let’s say your hypothetical website did manage to become exceptionally popular and start generating a good chunk of sales. How much time, money, and effort do you think would be required to keep it that way?
Do you really think a few virtual assistants from the Philippines would be all it would take to keep everything running smooth while you’re off playing golf and sipping margaritas?
The Software Business
Several problems here, too.
First and foremost, it’s not that easy to find a painful problem that software can easily solve. Much of the low-hanging fruit has already been picked.
Second, just because a problem is painful doesn’t mean lots of people will happily pay you for a solution.
Third, building quality software isn’t exactly a cake walk. Doing all the coding yourself requires significant time and effort. Hiring someone to do it for you requires a sizeable monetary investment.
And fourth, there’s the whole marketing challenge again. Just because you build it, doesn’t mean they’ll come. Figuring out how to reach and win over prospective customers is a massive challenge in itself.
See What I’m Getting At?
In short: the road to passive income is mighty tough, and mighty uncertain.
That’s not to say that you should never take a risk and invest a bunch of time and energy into a project with little or no guarantee of reward, but it’s foolish to pin ALL your hopes on something like that.
- It’s much smarter to build up a reliable freelancing business first, and have that to fall back on if your later attempts at generating passive income fall short.
Another reason I recommend focusing on active income first is because the experience of working directly with real clients on real projects is invaluable.
You learn a lot about your chosen industry and begin to see which problems are most painful and prevalent. You also learn how to market your services, make pitches, close deals and manage projects.
Grow your freelancing business steadily and you can begin to outsource some of the work and transform into an agency.
Once you get to that point, you’ll be better able to identify solid opportunities for generating passive income, and you’ll be better equipped to capitalize on those opportunities.
All that said, it’s good to always have your eyes open for passive income opportunities, even if you’re just starting out. Just please please PLEASE be skeptical and do your due diligence before investing a ton of time and energy into the chase.
A Lot Of People Online Will Tell You That Passive Income Is Easy To Achieve…
…but out of the literally hundreds of web workers I’ve personally met or corresponded with over the years, I’d say less than 1% of them are truly making a good living from passive income.
Maybe you’re exceptional and you can generate passive income right out of the gate, but your best bet is to assume that you’re going to have to knuckle down and grind it out as a freelancer in the early days.
And hey, that’s not so bad!
You may go through some struggles, but in the long run freelancing beats the hell out of traditional, nine-to-five, working-for-someone-else employment.
As a freelancer, the opportunities to grow and learn and earn are endless, and you’ll have the flexibility to live wherever you want and set your own hours.
Gone will be the days of pretending to be busy until 5pm just in case the boss walks by, or having to ask permission to take the afternoon off, or having to get dressed up and trek several miles each day for the privilege of having someone else tell you what to do.
How in the hell could a man enjoy being awakened at 8:30 a.m. by an alarm clock, leap out of bed, dress, force-feed, shit, piss, brush teeth and hair, and fight traffic to get to a place where essentially you made lots of money for somebody else and were asked to be grateful for the opportunity to do so?
In whatever niche you choose to serve as a freelancer, with even a mediocre amount of hustle, you should be able to work your way up to a rate of $25 an hour within six months or so.
Work four hours a day, Monday-to-Friday at that rate, and you’re grossing more than $2,000 a month. That will buy you a nice lifestyle in many a tropical country, and give you plenty of free time to actually enjoy it.
Are You Ready To Get Real?
Let’s stop chasing unicorns and start building a real, value-adding business. No, it’s not glamorous, and it’s not easy, but it’s the most reliable way to get real-world results.
If you’re ready to get started, enter your name and email below and I’ll send you my free 10-day mini course showing you exactly what it really takes to build an online business.
- Ref: Wikipedia
- Note that these are examples of online passive income. There are plenty of offline examples, too, such as earning rent from a low-maintenance property, collecting interest from investments, etc.