How do you make passive income by minimizing your workload but maximizing your profit? People talk about starting a business, or investing in real estate or stocks, and watching your money increase. We hear stories about someone who invested in a stock years ago and now they have millions in their bank account. The appeal of sitting back and watching an investment grow is a perfect dream. After all, wouldn’t you like to become rich one day? But how realistic are these expectations?

Table of Contents

  • What I Thought Passive Income Was
  • What Passive Income Really Isn’t
  • Leveraged Income
  • Job Mentality Versus Business Mentality
  • Leveraging Your Skills

The ugly truth is that passive income is a myth. You can’t get rich by doing nothing. I learned the hard way what passive income is. 

Wikipedia defines passive income as “income resulting from cash flow received on a regular basis, requiring minimal to no effort by the recipient to maintain it….Examples of passive income include rental income and any business activities in which the earner does not materially participate during the year.”

At one point in my business career, I thought I was generating a lot of passive income. I thought my situation fit the definition of what passive income was. You may have heard of this advice, when business gurus and investment gurus tell you to put your money into something and then get “passive income”… a continuous flow of money in your bank account so you can retire early.

The books I was reading talked about putting your money into a business. That idea has a strong appeal to people who don’t want to be stuck to a 9 to 5 job for most of their lives, working for a boss. I liked the idea of starting a business that would one day make me rich. What I didn’t know back then was how much owning a business wasn’t passive. And that was the problem.

What I Thought Passive Income Was

I used to think how you made passive income was by having one or multiple businesses and doing little or no work. Back then, I was selling a lot of digital products on ClickBank online, and I was running ads on Google. ClickBank is an affiliate marketing program where you make commissions by promoting other people’s products.

Another income source was a lot of traffic for my affiliate marketing business from selling $37 to $67 products. My business was making me tens of thousands of dollars in “passive income” while I sold products using the same strategy over and over. I saw myself retiring in a few years.

Suddenly, Google changed and the ad that was profitable before was no longer profitable. A couple of products got shut down. And then everything changed.

I was passive one moment and then a few months later, I wasn’t so passive anymore. That’s when I realized there was something wrong with the concept. You can’t really expect to make a lot of money for little to no effort.

But if passive income is a myth, then what is the truth?

Watch this video about the passive income myth.

What Passive Income Really Isn’t

Let me give you an analogy about how people they think can make passive income. Let’s say you’re in a relationship. I want you to imagine going to your significant other and saying, “You know what, honey? From now on, I just want to have a passive relationship, so we’re just going to have some passive sex.”

How long do you think they’re going to stick around? Not very long.

How about, “I want to be healthy, but I just want to have some passive health. I want to have some passive fitness.” How could you become fit by sitting around and watching other people working out at the gym?

The most common passive income ideas – investing in stocks, selling products online, and buying real estate – all require some effort if you want to be successful at it.

The most common passive income ideas - investing in stocks, selling products online, and buying real estate - all require some effort if you want to be successful at it. Click To Tweet

Passive Income In Stocks?

The market could change and your stocks will be worthless if you don’t do your research. It’s a good idea to regularly monitor your investments to check how they are doing. Experts say that, “As with market timing, profitable trading requires a full-time commitment that’s nearly impossible when one is employed outside the financial services industry.”

Investors need to review their portfolios to get the best returns in the long run. Young investors may lose money investing in different investment techniques. Those who are in the workforce and planning their finances may have limited investment options. In contrast, people near retirement have more wealth, but not enough time to build returns.

Passive Income in an Online Business?

When you’re selling products, you’re also putting money into marketing and promotion. If you’re selling on Amazon or eBay, you need to watch your product listings. Who is your competition? What prices are they selling at and what keywords are they using to get their listings to show up in searches? You constantly need to watch where your products are placing in searches. Too far down the list and you’re not likely to sell anything. 

The fantasy of having your products sell online while you sit back and passively watch your sales is just a fantasy.

Passive Income in Real Estate?

About a third of people who buy real estate as an investment say they wouldn’t do it again. Say you were able to purchase a piece of real estate. Next, you need to be on top of rent collection. Waiting to collect your rent can affect your cash flow. You also want to regularly check maintenance. Are utility fees going up for the place? Is there a water leak or is the tenant wastefully using water? How long has the problem been going on? All of those factors can affect your maintenance costs and cut into your cash flow.  

Many passive income ideas aren’t as passive as they seem. But, somehow, in business and in finance, passive income is what everybody talks about. In what other areas, if you think about it, does that work?

It doesn’t, because “passive” implies you want something for nothing. You want to do nothing and somehow, results and income just fall on your lap without doing any work. It doesn’t exist.

If this worked so well, I would challenge you to think about Richard Branson, Bill Gates, Warren Buffett, and Elon Musk, the wealthiest people on the planet. How many of them created or kept their wealth passively?

They are all still working. They are all very active in their investments. They’re very active in their business. Richard Branson, for example, is 65, starts his day at 5:30am, ends at 11pm, and has no plans to retire. In 2018 Elon Musk worked 120 hours a week, but “pulled back” to 80 or 90 hours a week.

Even writers and singers who make royalties from their books and album sales had to work hard to create the products that give the passive income. For example, Michael Jackson died in 2009 but he still makes millions in royalties.

With a linear income, you trade time for money. When you have a residual income, money works for you, even while you sleep.

Leveraged Income

If you want to learn how to make passive income, consider a different concept. Instead of using the word “passive”, which is very dangerous, here’s a better word to use: leveraged income.

Instead of saying passive income, which is very dangerous, here’s a better word to use: leveraged income. Click To Tweet

Leveraging is when you borrow something, such as money, to increase your return in something, such as an investment. Maybe you can’t afford some new equipment for your office. You ask for a loan from the bank and then you buy the equipment you need. That is an example of leverage. Here are other things you can leverage:

Time 

What tasks do you find repetitive or a drain on your time? You can empower employees, contractors, or outsourced help to complete some of these routine tasks, such as replying to emails, answering the phone, or maintaining the website server. At home, you can hire someone to do your housework or run errands.

You can also hire someone to do tasks which you find challenging or beyond your expertise. For example, if you struggle to complete your taxes, hire someone to do it. If managing your rental property is too time consuming and stressful, hire a professional management company.

When you first become an entrepreneur, it may be difficult to trust other people to do some of the tasks that you used to do yourself. You might be concerned that they don’t answer an email the way that you would. But if you delegate these types of tasks to other people, and allow them the chance to grow or make mistakes, you have more time to work on making more money, work on your business, or have time to relax.

People and Connections

Networking and building relationships is another way to leverage people. Connections can tell you about available jobs that may not be advertised. They can get you past gatekeepers, saving you hours of research, emails, or phone calls. Your network can also provide you with expertise on a particular subject. For example, you can get reliable and trustworthy legal or financial advice. This can save you money and time if you aren’t doing the research or if you don’t have to hire someone.

Money

You can also leverage money to make money. One way is by borrowing money to make an investment and using your profits to pay off loans or invest in other aspects of your business. For example, you can buy and start a business without investing a dime of your own money by using leverage.

When you leverage money in this way, you are not limited to your own wealth or financial resources.

Technology and Systems

You can use technology and existing systems to save you time and money. For example, using project management software to track projects, software to manage social media accounts, and chatbots to answer customer questions.

Technology can eliminate some repetitive tasks, such as scheduling social media posts several times a day, or answering the same questions from online customers over and over again.

For my organization, I think about how I can leverage other people, or technology, or systems to create money. I have a lot of active income that I involve and create.  I also have a lot of leveraged income which I create through my team, through my businesses, through technology. There are several ways to create leverage, which I talk about  in this article.

The irony is that people who use leverage are people who don’t want passive income. They love to work and continue working after they retire. Those who want passive income the most are those who can’t wait to retire from their jobs.

Job Mentality Versus Business Mentality

If you understand the two types of people in business, you will understand why some people want to know how to make passive income, while others seek to make active income.

People with a job mentality are always thinking about passive income.

They want effortless success and something for nothing. That’s like wanting to go to the beach and sitting around and doing nothing and hoping their investments went up in value when they get home.

People with a job mentality also have this type of thinking:

  • To increase your income, get a second job.
  • To achieve wealth, get higher paying jobs.
  • Feel uncomfortable at the thought of taking risks to make more wealth.
  • Rely on retirement plans for their financial future.
  • Look forward to holidays and weekends and getting away from work.
  • Look forward to their paycheck.

People with abundance mindset and business mentality are not looking for passive income.

They’re looking for active income. They want meaning, legacy, and success.

People with a business mentality have these beliefs:

  • Getting uncomfortable and taking risks is the path to riches.
  • Wealth is made from multiple sources of income.
  • Don’t rely on a boss or employer for your financial future.
  • Learning new skills is a continuous process. Your skills are not defined by a job description.
  • Work 24/7, thinking about your business and how you can take it to the next level.

These people have retired from their jobs but they are still actively doing things to keep themselves fulfilled. They have retired to their next business venture.

It could be supporting a charity, working on their next business idea, or investing in their next business. For them, that’s what living is about. That’s what being a human being is about. It’s about happiness from growth and contribution.

When you start to think about how you can contribute more, that is when the wealth finds you. You’re asking questions like, “How can I be more? Create more? Do more? Give more?”

With this mentality, you’re not only going to get the money, you’ll get satisfaction, and fulfillment. You get it all.

Leveraging Your Skills

Maybe you’re not interested in starting a business. What can you leverage to increase your wealth? People with a business mentality are constantly developing their high income skills. A high income skill is a skill that can earn you six figures a year.

Examples of high income skills include high ticket closing (closing deals for premium packages worth $3000 or more), high income copywriting, digital marketing, as well as high end careers that are in high demand. These careers may or may not require a degree.

There are many high income skills that are in demand in many industries. Some of these are high income, full time jobs. Others are highly paid gigs for freelancers who work from home, or anywhere in the world where they have an internet connection. High income copywriting, for example, can be a highly paid gig for digital nomads.

Summary

Stop looking for passive income. It does not exist. You can’t invest some money in something, like an e-commerce business or stocks, and expect it to grow while you sit back and do nothing. The most common passive income ideas, such as real estate, stocks, and an e-commerce business, all require some effort if you want your investment to grow.

Instead, strive for excellence, and strive to create leveraged, active income. Leverage other people’s time, money, and systems. When you leverage other people’s time, you don’t waste your time on repetitive tasks, or tasks that you don’t have the expertise to do. If you leverage other people’s money, you will be able to invest in a business or other investment that you couldn’t afford on your own. When you leverage systems, you become more efficient at getting tasks done.

In business, there are two types of people: those with a job mentality, and those with a business mentality. People with a job mentality are always thinking about passive income. They are focused on their next weekend, their next holiday, and other ways to get away from work. They see a job as their main path to wealth.

People with a business mentality are always thinking about active income, and even after they retire from a job, they are still working. They will always work on investing in themselves and developing their high income skills. They are looking for their next business idea as a way to find fulfillment. This is how wealth finds them, how they find satisfaction, and how they get it all.

 

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