The brutal realities of passive income vs active income

Passive income has become the golden goal for everyone. And we see the same trend in marketing, where people seem to seek quick and easy tactics - free tricks to achieve success. But people who run successful businesses don't have this mindset. Want to know why? Let's take a look at the difference between passive income vs active income by investigating some of the complications and myths that surround the concept of passive income. If you've ever found yourself down a rabbit hole where you're doing a lot of work and making hardly any money at all, here's why.

What is passive income?

So first thing first, what is passive income? A quick search on the Internet will point you to a four main types of passive income.

  1. Buying assets (i.e. property) and renting them out.
  2. Building a profitable business that brings in cash.
  3. Selling things. Although it's debatable you can actually make any money out of selling things you already bought, for example, second-hand goods.
  4. "Reverse passive income". While I'm a big fan of this, it's not really passive income. This is to do with reducing your overheads, which is great. You're saving money by not spending it, but you also don't have to earn that money in the first place to cover those expenses you can cut down on.

So what does this all mean in practice?

Passive income ideas

You're now probably wondering what you could do to generate passive income. So in no particular order, here are some ideas for you.

1. Earn interests on savings or stocks and shares

You could earn interest on your savings or from stocks and shares. When it comes to stocks and shares, you could go onto the stock market but also reach out directly to other business owners you know to buy a share of their business. You could also potentially become a non-executive director on those companies, which might mean turning up every month for a director meeting. So, is this really passive income? But still, you'd have an influence and an interest in the business without doing the day-in-day-out work, so if that's what you're after, this could be a great option.

2. Earn royalties from art or music

If you have written a book or created art or music, you could earn royalties from that. That's definitely a form of passive income where the work goes in upfront.

So if you've written a book, you could sell print-on-demand physical copies via Amazon ACX. You could then record your own audiobook and sell it through Audible and even produce an eBook to distribute on Kindle.

3. Earn money from courses

Similarly, if you create your own content, you could package that up in an online course or two and sell it on platforms such as Thinkfic or Udemy, for example. Once you've created and uploaded your assets, people can find them and buy them through those platforms and make you money over time.

4. Earning money from video or audio content

If you have a YouTube channel, you could earn money from that. Or if you have a podcast show, you could make money from sponsorship.

5. Earn affiliate commissions or from selling other products

If you don't sell your own product or service, you could earn affiliate commissions by recommending other products or services you trust.

Or you could sell via Amazon FBA - Fulfilled by Amazon. You source a product, ensure your supplier sends it to an Amazon warehouse, and then sell it on the Amazon marketplace.

6. Earn cashback on purchases

Another option is to earn cashback rewards on purchases on your credit card, for example. In my opinion, this is not really passive income, especially if you're buying goods that aren't needed just in order to earn cashback rewards. If you would have purchased the product anyway, then sure, you can make some passive income out of it. But exactly how much?

The brutal reality about passive income 

These are just some of the ideas you can find on the Internet when you look for passive income. But let's be honest for a second. Every single one of these ideas requires either a huge amount of money to buy the asset upfront (think about buying a rental property, for example) or a considerable amount of work in order for you to make some money. Or both. 

For example, if you have a YouTube channel, getting to one thousand followers and then making $5k or so per month isn't easy! It's not realistic, either. It might take a good couple of years for your YouTube channel to pick up. Similarly, if you have a podcast, you won't gain any sponsorship until you have a certain amount of followers. You might need to learn about social media, spend time on ads, and more!

All of the above passive income ideas require a considerable amount of maintenance, management, monitoring, and admin. You might need to learn a number of skills upfront, and with everything you'll have to manage to keep going, you'll be left feeling like you're running a very messy and complicated business.
So what can you do instead?

Passive income vs active income

My top tip when it comes to passive income vs active income? Move away from all these passive income ideas and, instead, set out to run a really good business that looks after its customers, solves problems for them, transforms their lives, gives them value, and pays you a nice profit back. That's when you can accrue large quantities of cash - by running a good, solid business.

So if you want to start selling a product on Amazon, for example, make sure your product is remarkable, exceptional, and in demand. Aim to constantly improve it, build a trustworthy brand, and then sell a range of products you truly believe in underneath that brand. That's what is going to bring in exponential amounts of money. And if you're looking for a more passive way of earning money, once you've built a successful business you might be able to walk away from the day-to-day management of it and turn your active income into something that requires less of your time.

As you can see, when you're running a proper business that gives you active income, the idea of passive income becomes a lot less appealing. It comes with a range of messy, complicated operations that will earn you small money in comparison. And all the while, you could be running a well thought-through, structured business that could generate excess profit, which you could then invest in property or stocks and shares, for example. But remember - your business has the opportunity to bring in a much more significant income.

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