5 Passive Income Myths, Debunked

Money notes

Hi guys! 😀 As someone running a passive income business, I thought to debunk some common myths about passive income (P.I.) that prevent many from earning it.

1. I need to invest / trade forex / get property / etc. to earn passive income.

When I was at Never Work Again years ago (essentially a pitch fest seminar for trainers to sell their courses), I saw trainers pitching specific instruments they used to earn passive income and how each was this effortless tool to generate massive P.I. (This was followed by a 20-minute hard sell on why you should get their course.) These instruments ranged from investing in stocks, to forex trading, to options trading, to tax liens, to lease investment, to creating mobile apps, and more.

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While good to know that these tools have worked for others (assuming their claims were legit), there was a fallacy in the whole spiel, in that passive income isn’t exclusive to any of these tools — it’s something you can create in any business, as long as you have the right setup. (Note that I said “business” and not “job,” as most day jobs are active-income-based, whereby the job contract requires you to trade your time (and effort) to earn money. With a business however, you get the leeway to make it anything you want it to be, including earn passive income if you like.

Take for example, my business. I’m in personal development, and I coach and train (active income). I earn passive income as well, and this passive income comes from as many as 15 different P.I. streams, all of which I’ve built around my business over the years. Below are some passive income transactions I get in a week:

Passive Income Transactions for November 2014

Some of my passive income transactions in the past week (in USD)

Passive income payments in my business

Email notifications of incoming payments, all handled without my involvement

Passive income (Google Adsense)

Passive income from Google Adsense, another passive income stream. The income is automatically deposited into my bank account each month so I’m not involved at all.

These are transactions that take place without me hustling for them, and they happen independent of my time and involvement. Here, I’ve not included my active income earnings like coaching and training, and I’ve also not included other P.I. streams like my book sales outside PE as well as miscellaneous affiliate programs which form another chunk of my P.I. The above are examples of passive income transactions that have been flowing into my business since 4 years ago, when I started creating my passive income setup. Today, my passive income earnings give me a very comfortable lifestyle, and active income has become a choice, as opposed to a necessity like in the past.

For the same reason, passive income isn’t exclusive to MLMs (multi-level marketing), even though some pitch it as such. Passive income can be earned in any work and industry, as long as you’re running a business (as opposed to a day job). Though to be clear, MLM doesn’t actually generate passive income in that it provides residual income, in that passive income doesn’t involve any time or effort at all, while residual income is recurring income you need to work to maintain, such as recruiting downlines, meeting them, training them, etc. 

So is passive income limited to a particular channel or tool? No, not at all. It’s not unique to stocks, trading, MLMs, affiliate marketing, investing, or whatever tools you may have heard being touted as “P.I.” tools before. (By the way, stocks and trading aren’t passive income tools either unlike popular belief, but are simply alternate forms of active income, because there’s a lot of work involved in doing it, from active monitoring the stocks/currency, doing chart analysis, consulting your broker, micro-decision-making in whether to buy/sell/hold, etc. — and that’s assuming you even make a profit at the end of it, because most people actually don’t.) Passive income is simply the philosophy of earning income independent of your time and money, and it’s something you can build around any business–if you want to.

Truth: Passive income is not specific to any instrument, channel or tool; one can earn P.I. via any business, as long as he/she has the right passive income setup.

Myth #2: I should earn passive income first, then pursue what I want to do.

Many people have the mindset to earn passive income first (be it using a financial vehicle or something else), then pursue whatever they want to do. Logically it makes sense. Earn passive income first, so that your time is freed from making money. With P.I. coming in, you can now pursue whatever you want.

However, there’s a flaw in this thinking. This theory holds true if passive income is something you just spend 3 months, 6 months, or even a year to set up, then collect money afterwards. The reality, though, is that it isn’t. You may get $10 or $20 perhaps, $100 to $200 even, perhaps $300 if you work like a dog and you’re very sharp in how you do things, but that’s not money you can retire off of. To get measurable returns, you need to master yourself in the vehicle you’re using first. The 10,000 hours rule applies, and until you’ve done your due work and built yourself to “expert” status, there’s no reason why (huge) P.I. is going to fly your way.

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That’s why I’ve seen so many people burn out trying to earn “passive income.” They pick up some financial instrument, join MLMs, sell insurance, learn real estate, create affiliate pages, start a blog, start a random internet business, etc. all in hopes of securing quick passive income. In a matter of a year or 2 (some even months), they get burnt out (even disillusioned) when they realize that it’s not as easy as it seems. Imagine facing rejections, working on something you don’t particularly enjoy, learning about things you don’t really care about, having to network and hustle things that you don’t believe in, etc. plus seeing minimal to no results month after month — it’s really not easy, and it quickly dampens your soul over time.

And that’s fine if all you lose is time, but there have been many who lost money too — plenty of it. The most benign would be money spent in qualification courses and miscellany to get started in the “passive income” vehicles (some of the so-called passive income vehicles require people to invest money to be a part of the team — go figure), and the worst would be losing a chunk — if not all — of your life savings in stocks / bad investments. This has happened to many people I know unfortunately — all smart people too, and it wasn’t that they were “stupid” or “unskilled” but that some financial instruments just can’t be profited from ultimately.

This is why it doesn’t make sense to blindly pursue passive income. Firstly, the goal itself is hollow; secondly, you need to achieve expert status in anything to profit massively from it (assuming the vehicle does work), which means at least 5 years of time invested; thirdly, it’s possible to earn P.I. around anything, as mentioned in Myth #1. So rather, what I recommend is to identify something you like to do instead — be it your passion, a fun interest, or a business idea you care about. Work on this, build your skills, and build a P.I. setup around it. This is a lot more sustainable than pursuing P.I. as a blind goal; it’s no different than building a cake that’s hollow.

Truth: Rather than chase after P.I., identify what you like to do, then create a P.I. setup around it. This way, you can earn passive income and do what you love, which is really the key to success in a P.I. journey.

Myth #3: Passive income is only for online businesses.

Earlier this month I received this query:

Passive income myth #2: Passive income is only for online businesses and selling of e-books/e-courses

(Note: The Passive Income System that Mar mentioned is a course that I offered from 2012 to 2015 and have since discontinued. More details here: Discontinuing Blogging Success Program & Passive Income System)

Mar’s question is a great one, because too many people have the perception that passive income has to do with just online, e-books, or e-courses.

The reality is that earning passive income is a whole lot more than just online, e-books, or e-courses. It’s a philosophy that can apply to both online and offline businesses, like how passive income isn’t limited to just one tool or channel (Myth #1). Online is just more widely associated with P.I. because the medium does lend itself to a convenient passive-income setup (zero marginal cost of selling an e-product, easy systemizing, etc.). Back when I was running my passive income course, I had participants with all kinds of business ideas, from starting a pastry business, to starting a medical practice, to (offline) training, to hotel booking solutions, and all of them can be passive-income-tized, online or not. It doesn’t necessarily have to do with e-books, e-courses, or blogs.

On a side note, productizing is a great strategy to create P.I. for any business. Not only does it offload demand on your services, it creates scale as well. And lest you say, “But I’m in a service-based industry, I can’t productize!” there are ways to productize even in service-heavy businesses like life coaching and graphic design. With life coaching, it could be creating a program that clients can administer themselves, sort of how I have the on-demand PE courses. With graphic design, it could be creating stock templates that customers could easily customize themselves, or creating a tool where customers could easily create designs using preset options. Even then, productizing is simply one of many steps to create a P.I. business, and there are other steps such as automating, systemizing, layering with multiple streams, and more.

Truth: Passive income isn’t limited to online businesses or e-books or e-courses. Passive income is possible in any kind of business, be it online or offline, such as training, coaching, graphic design, web design, baking, fitness, music, martial arts, blogging, etc. It’s about creating the right passive income setup for P.I. to happen.

Myth #4: It’s hard to earn passive income. / I don’t know how to earn passive income.

I think there are generally 2 groups of people when it comes to earning P.I. (and here I’m talking about people who have not earned P.I. yet): (1) people who have absolutely no clue about what it takes to earn P.I. and think it’s very easy, and (2) people who think earning P.I. is extremely hard and they’ll never have a chance in earning it.

For the first group, suffice to say that they are completely out of their league — earning P.I. is not meant to be easy. Imagine it — if you’re having difficulty earning a lot of money in terms of active wages/income, then what makes you think that earning P.I. would be easy? Wouldn’t you think that every single person who attended wealth seminars etc. would already be earning P.I. by now? (Far from it — my own take is that 99% of people actually do not get anywhere in their P.I. goals, even after investing heavy money in such seminars.) Take the effort to earn active wages/income as X, and the amount of effort needed to make the same amount in P.I. happen (from scratch) would be at least 5X. Hopefully that gives a rough idea.

Now, this myth is addressed to people in the second group — people who think earning P.I. is extremely hard. Well, 3 big facts that may help:

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  1. Earning P.I. isn’t meant to be easy as I mentioned above. It’s not about just opening a laptop, clicking some buttons, and waiting for money to roll in.
  2. It takes time and effort. There’s no free lunch in the world. But the great thing to know is that as long as you focus on delivering value, success is yours.
  3. It’s about having a strategy and proper framework to earn P.I. (which is beyond the scope of what I can offer in this post).

If it helps, my P.I. journey was not an overnight one. It never was, and I don’t think anyone who has tried to earn P.I. can claim that they earned massive money right away. (If they did, then it’s either (a) they’re lying or (b) they were never starting from scratch but had a pre-existing platform to market to.)

So for me, I earned my first passive income in the third month of my business, and it was… guess what…  5 cents (which happened to be the first 5 cents I earned in my business too). 5 whooping cents, which I didn’t sneer at, but instead felt extremely ecstatic and excited about, as I saw this as the very first sign of my success. As I built my business and P.I. streams, I generated more P.I. Over the next 3 years, my monthly P.I. gradually increased from $0.05 to $50–100, to 1 grand, to over 2 grand, to over 5 grand, to at times nearly 10 grand. And I continue to build my P.I. as I go along.

My Passive Income Over Time (Monthly)

My average passive income / month over time. Peaks/drops are typical of a business income cycle — focus on the overall trend here that’s upwards. This is a P.I. only graph, not including my active income.

Did the money fly in by itself? Hardly. There was a lot of work involved, from building my audience, to understanding their needs, to creating my P.I. streams, to creating a robust P.I. setup. Every step of the way, I’d focus on giving value as my first and utmost priority. Every step of the way, I’d focus on setting my foundations as opposed to being distracted by monetary earnings which is more of an effect than a cause. And with the right elements in place, I began to earn P.I. steadily and continue to do so even today (even with minimal involvement in my P.I. streams), because they are robust passive income streams that been properly set up to begin with and can’t be easily knocked off by 1 or 2 external factors.

Similarly for you, know that P.I. isn’t meant to be an overnight result. It’s not easy like ABC, it’s also not easy in that you can see “instant” results in 3 months, 6 months, or even a year. But it’s also not hard as long as you invest due time, due effort, and apply the right strategy (including knowing your audience, giving tremendous value, focusing on productizing, building multiple P.I. streams that are linked and add value to your business, and more). When you have that, results will come to you soon enough.

Truth: Earning P.I. isn’t an impossible goal. It’s about having the right strategy and investing due time and effort. Don’t get overwhelmed by the idea of P.I. but rather, focus on giving real value to others.

Myth #5: I’m happy with active income. I don’t need passive income.

Perhaps there are people who don’t mind working. Perhaps they don’t care about trading their time for income. Maybe they’re in a decent job that they like, that gives them decent pay, and hence they are okay with remaining status quo.

Consider my scenario though: Before I moved to a passive-income setup, I was coaching and training full time. I was earning healthy income, having constant coaching clients, and enjoying my work. Not only that, what I was doing is my passion; there’s nothing else I’d rather do for life.

However, there were many issues with the picture, hidden issues really:

  • Having a limit to how many people I could serve. Work-wise, I was constantly having a wait list of clients —  people with goals/issues they wanted to work on, but needed to put their goals on hold due to my coaching bottleneck. I wished to help them, all of them, but it was not feasible for me to have more than X clients at any one point for quality reasons. (8 clients was the optimal number; any higher and it would be too taxing.)
  • Neglected Quadrant 2 goals. I was constantly distributing my time between coaching, training, and article writing, with the first 2 being priorities for cash flow, income reasons. I was constantly putting off higher-level Quadrant 2 business goals in the face of urgent Quadrant 1 activities.
  • No personal life. In terms of personal life, I was dedicating a lot of time to work. I barely had time for social. Even worse for dating/romance.
  • Neglecting of self. I was neglecting my health and fitness, and I definitely had no concept of “me” time (defined as me taking a break and relaxing, not me alone working).

It hit me that as long I was in this current active-income setup, I’d be stuck with these issues. Sure, perhaps I could prioritize better, use time pockets, be more efficient, whatever (all of which I was already doing very well, and all of which I cover in my book 10 Rules of Super Productive People), but the underlying bottleneck was that X hours had to be frozen in my day every day just for income-generation / sustenance. Even if I just spent 8 hours a day working (rare, usually more), that’d leave me with little time for anything else, considering time needed to eat, shower, commute, cook, etc. And there were a lot of things I wanted to do besides what I was doing daily, such as socializing, traveling, working on new business projects, exercising, being healthier, spending time with loved ones, personal care, etc.). The only time I ever got to do a smidge of these would be during the weekends, but the weekends would end as quickly as they came. And then the whole cycle would continue.

It was clear: the problem wasn’t that I wasn’t working fast enough or long enoughThe problem was simply the inherent limitation of the active income setup, which limited my free time a day. (And based on what many of my coaching clients and course participants constantly tell me, I suspect they struggle with this exact same problem too.) Something needed to change, and it was the way I was running my business.

So, I changed things around. I changed to a passive income setup. I moved from active income, to passive income. I created systems, processes, for my business to run well without me. And I set things up such that my business can go on auto-pilot without me around, be it a week, a month, or even a year if I wanted to.

And with that, came significant shifts in my life. I began to pursue higher-level Quadrant 2 goals that I kept in the back burner before, such as experimenting with online webinars (which paved the way for the PE courses that you see today), creating videos, and writing a book, because I now can. I began to embark on long travels without a limit on my return date (month-long trips are normal; the longest I’ve away so far is 7 months). I’m able to embark on work projects for the value that they bring to others, without a focus on profits (such as free PE challenges and investing in equipment for my videos). I can go on temporary hiatus as and when needed (such as when I was preparing for my wedding, house hunting, and moving to my new home between last year and this year — I took probably a good 4–5 months of time away from work in total), without an impact on income. And I’m definitely spending significantly more time fostering friendships, spending time with my loved ones, and having “me” time today than I ever had in my entire life.

I still coach and train today — both active income streams — but I do these at my own pace, in my own time, out of interest and passion, as my agenda permits. Because I want to and love to, not because I’m obligated to to secure my bottom/top line.

Obviously passive income is not for everyone. But it’s important to be aware of the possibilities that passive income can bring to you. It’s not about going, “Heyyy look at meEE, I’m earning pAsSiVeEEE INCOMEEE!!!!” It’s about freedom (of agenda), where you’re not bound by never-ending work to-dos nor the need to deliver X work per month to meet your income needs. It’s about freedom (of time), whereby you can take time to travel, take extended breaks, pursue your personal goals, and pursue other work goals, without worrying about money. It’s about freedom (in life), where you have all the time in the world to dedicate to your relationships, both with others and yourself, because they’re no longer in battle with the work area of your life.

If you ask me, beyond surface monetary rewards and freedom of time, passive income is really about living a fuller life at the end of the day, because instead of battling for the 2 biggest commodity scarcities that the modern man faces (time and money), you are able to reap the rewards of having an abundance of both time and money. And that is really what life should be about at the end of the day — creating and living in abundance, as opposed to locking ourselves in scarcity (of time, because we’re trying to use our time to earn money).

Truth: Passive income isn’t about being lazy, not wanting to work, or [insert negative fear-based factor]. It’s about really about abundance at the end of the day: doing more, achieving more, living more, and being more. Because now instead of battling with 2 biggest scarcities that modern man faces (time and money), you’re now able to enjoy an abundance of both, to now live the life you never thought off.

How to Start Your Passive Income Business: The Passive Income System

If you are interested to start your business be it now or in the future, and you’re interested to earn passive income off it, The Passive Income System, my only business course on PE will teach you the nuts and bolts of starting your passive income business. This is a business strategy course that will teach you to look at revenue generation and business development in a different way, such that you don’t have to be involved in your business just to earn money. I’ll be teaching universal and timeless strategies on how to create a P.I. setup — regardless what your business is — and this knowledge will go a long way in your business journey.

Even if you don’t plan to start a business till a couple of years later, the program will help you to start thinking about how you want to map out your business be it in 1 year, 2 years) as you listen to the examples in the program. I recall when I was working in my corporate job, I was listening to podcasts about passive income, even though I had no plans to quit my job in 6 months or 2 years. (I subsequently quit my job after a year to start PE.) Your business isn’t going to create itself; you need to proactively gather knowledge, plan, and map the path for it to manifest.

Update, Aug 2015: After 3 years of running The Passive Income System, I’ve since retired the course/product. Thank you everyone for your support all these years! Please read: Retiring Blogging Success Program & Passive Income System

Images: Money notes; Other images: Personal Excellence

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