I became mesmerized by the idea of passive income in my early twenties, after I read Rich Dad, Poor Dad. The whole concept of how rich people let money work for them, instead of working for money, opened my eyes. There were only two tiny obstacles on my way to financial freedom. I did not have a large capital to work for me, neither I had any skills that would allow me to put those dollars to work.
Since those early days, I tried a lot of things to avoid 9-5 job but in hindsight a lot of them actually were not passive at all. I played online poker. That was hardly passive, as I spent hours glued to the computer screen, watching strenuously multiple tables at once. I also tried day trading in the stock market. Although hours were shorter than a typical office job (yet still far from passive), the stress of this profession was unlike the one of air traffic controllers. I compiled a lot from experience in a separate article on why trading full-time is a bad idea and what to do instead.
I eventually left poker with a timid gain and day trading with not so timid loss and jumped at building my own business. Sure, the hours were actually longer than office job and I had to be everything from a package boy to a salesman but I was propelled by the vision of building company with enough cash flow that would allow me to employ other people instead. Since I was lacking some necessary skills and experience, I never made it to that point but even if I had, I would only realize that managing those employees is also time consuming and stressful. Sure, you can hire a manager but a good executive is costly, so my business would also have to support him before any dollars run to me in a happily passive way.
I am pretty sure that many ambitious young people can relate and they experienced a similar frustration on their path to the elusive free money. Therefore you can find a lot of online articles claiming that the passive income is a myth or a lie. I am a little bit more optimistic than that but I believe that you have to be careful what you wish for.
May this article help you avoid the biggest mistakes I made. I will give you the definition of a REAL passive income and some ideas for passive money streams that can make you rich. Because it is not a lie. It is just so crazy hard to get there. At least if you are like me and did not inherit a fortune. At the end, I will tell you why this might be actually a dangerous path, if you succeed.
My current definition of passive income is following: Significant and regular income that does not require more time from you than a couple hours per week. Without much stress, those few hours of your attention should be enough to maintain and ideally also to further grow your cash stream.
I made a big mistake when I was younger. It was not conscious but I somehow drifted towards anything that could replace my 9-5 job. And that is natural. I wanted to be my own boss and I wanted not to have a limit on how much I can earn. Those two things, although nice, do not make for a passive income. They can steer you to many risky a stressful paths that are littered with broke people.
Freedom of being your own boss is one part. Having enough free time is a completely different story. And you will eventually find out that 2 or 3 stressful hours of maximum concentration each day are exhausting maybe more than 8 hours of cushy office job with no real responsibility.
Now it is time to give you some great ideas for passive income streams. Online poker or day trading is obviously not it. So what is? Collecting royalties of any kind is probably the most passive way to earn money you can get (aside from inheritance or hitting jackpot) and you also don’t need any starting capital. That is why it is so great to be a successful musician. Money from people using your work just keep coming. Every time play your song, you make dollars. Writing a book gives you similar benefits. But what if you are not a great musician or writer? Some companies are willing to pay you royalties for using all sorts of patented inventions.
Still nothing? Don’t worry, here are some more ideas. Renting can be relatively passive. What if you don’t have big bucks to buy an apartment or house to rent? Think smaller. In big cities even a garage or parking spot can fetch you a decent income stream. Some people rent cars, construction equipment, and so on. In business ventures of this type, don’t forget to check local laws and regulations pertaining to you though.
I already explained why day trading is far from being passive. But there are other types of investing in the stock market. While old school “Warren Buffett” way takes too long (I would prefer to be rich before I hit the retirement age), there is a lot of middle ground between hectic day trading and boring indexing until you turn 80. Some more volatile stocks or leveraged ETFs are moving just enough to be interesting for positions spanning across a few days or weeks. This way you can not only avoid account minimum set for day trading accounts but also you don’t have to check your stocks constantly. Instead of sitting glued to a chair for hours, you simply review and adjust your positions either once a day or even less often.
Although creating a passive income is not simple, it was never more easy in a history of mankind. All the social media are presenting endless opportunities. Thousands of young people are making a crazy amount of money from their video channels, blogs, social media accounts and new professions like “influencer” or “vlogger” came to life. In all of the above, you definitely need to pick the right topic and differentiate yourself from the crowd. The best of the best are creating online content about things they love and they persist. Even in the online world, you will not succeed overnight.
While making few bucks online is easy, making thousands of dollars is a completely different game. Many people, after they start earning a little, decide to focus solely on their new fun online work, expecting to grow it. This is always a risky venture and I advise against it. Here is my rule of thumb that I verified over and over myself: If it has a real potential to be a good passive income, it will be able to take off even if you are doing it only on side, while keeping your regular job.
Now I am getting to the danger I mentioned also in the headline. Even if you make it and build a powerful passive stream of money, you still have something to fear. Most people are used to have most of their daily schedule revolving around school or work. Once you lose the motivation to do that, it is hard to keep the discipline and maintain a meaningful schedule. Your whole life can literally fall apart. Just watch how kids of rich and famous often end up with their trust funds. It rarely brings them happiness.
Of course, if you had to create your passive income from scratch yourself, chances are you will be better equipped to handle it than trust fund brats but do not underestimate the weight of the situation. If I can suggest, keep as much from your old life, as possible. If you have to quit your old job because you hate it, do so but start actively seek a new job. You never know for sure if your effortless cash stream gonna last.