A concept that is likely as old as civilization itself is income – which can be defined simply as one individual’s money earned for a service that has been provided to another individual or entity. But did you know that there are actually two forms of income one can earn?
The way most people understand income to be is known as active income. This is when an individual is trading their time, work or skill to earn a lump sum of money or paycheck. In contrast, passive income is when an individual provides their time and or skill for money only once to create multiple returns on the work/time they’ve used to create the stream – for example, using time or money to create a product, service or investment one time that will yield profits many times over, without any additional work.
How to Define Passive Income
A few issues arise when it comes to defining passive income and what makes passive income truly passive. If we consider a more traditional definition, most bloggers or internet enthusiasts categorize passive income into a dual approach, where income is either active or passive – leaving lots of grey area to exist between the difference. This grey area usually leaves people shocked by what is truly involved in creating passive income – namely the time or money required – so much so, that newbies instantly become turned off by the idea altogether when they learn the truth.
To prevent people from becoming discouraged, I wrote this to squash the current perspective on passive income and offer my own take on how passive income should be categorized. And this would be by short-term or long-term passive income streams.
Can Passive Income Really be Passive?
Have you seen bloggers and YouTubers pass off tutorials, guides, strategies or even listing passive income streams as “quick” ways to make money? If so, I caution you to take their approaches with a grain of salt, unless their methods are fundamentally short-term in nature. At the very least, it would take not only time but also a tremendous effort to create these passive income vehicles which individuals are promoting – leaving you with a not so truly passive system and continuous effort to draw in consumers that can easily find and access your product or purchase it repeatedly. It is then not hard to see that what was once being promoted as a truly passive system is anything but.
Therefore, by the very definition of passive income– is there truly such a thing as earning money passively where you plug in and earn money while you kick your feet up? Yes, but it is not really what people expect when it comes to considering the return on investment (ROI).
One way or another, time is required for an investment or stream to thrive – That’s the way of the world people! And just one of the many reasons why we need to understand passive income in terms of short or long-term streams.
Please note that when we talk about short vs. long-term passive income streams – we aren’t referring to the length required to build the mechanics behind each method for each stream – although some people define it in those terms as well – I think a healthier way to look at it is the amount of time it would take to begin earning profit from the stream you’ve chosen.
Short Term Investments
Lending club is a platform where you can purchase short-term notes of other people’s debt which is paid back at quicker interval cycles (there are inherent risk and fees of course). Since Lending Club is set up in this manner, you will receive a smaller return on your investment than other passive income streams – But again, passive income is like a fruit-bearing tree. The longer it is being nurtured and allowed to grow, the higher chance there will be to reap fruit in the long-term.
If you are planning to buy stock for the high dividend yield, you would receive profit on your investment in a short amount of time and little to no effort on your part – making this another clear-cut example of a purely short-term passive income stream.
These websites vary in niche but are best explained as a place where users can visit to raise capital for just about anything ranging from business startups to real-estate and even Cannabis operations. Usually after placing funds into an investment, you would be paid in a trickle of dividends depending on the platform you choose. Like all investments, they bring with them risk and underlying fees which you need to always be aware of.
Long Term Passive Income Streams
With this method, you can make money by promoting other people’s products and guide them to buy said products via the use of images and personalized links which transfer consumers to a page where they make their purchase and you in turn receive a commission. It may seem short-term, especially if you’ve never built funnels before; however, there is constant tweaking of ads throughout the entire process and depending on the type of marketing you are using to promote your ads, it takes a tremendous amount of analysis and proper execution to start making your first dollar.
I got sucked into this one thinking it was a completely short-term investment with a quick ROI, but it is most definitely a long-term game. After creating a Shopify store, I was able to generate sales; yet it was only after setting up an appealing site, driving traffic to it and creating a following on Facebook, that I realized how much more active and up-front work was required to consider this stream passive. Eventually, this would certainly become a more passive income stream, but I would never dare to categorize this as a short-term passive income stream in any way.
Think buying a property or land and renting it to others or even rehabbing and flipping it is a quick process like you see on HGTV? If so, I say keep on dreaming homie. It takes a large amount of your time to build clientele and market these properties for resale or rent. Not to mention, if you’re dealing strictly with homes and rentals and are without a property management team – you will likely be forced to take on a more active role as a landlord – which remember, kind of defeats the point of passive income in the first place, doesn’t it?
Caution and Suggestions
Before we wrap up, I just wanted to mention that this post is not to discourage readers who are rookies looking to swing for the fences with passive income. The way in which I categorize passive income for newcomers, should allow for them to make more calculated decisions and minimize risk, waste less time and money trying to find a passive income stream that works for them, and might even help them to choose a single or multiple passive income streams which fit their life-style more appropriately – as another issue is that many passive income promoters tend to use a one-size fits all approach when making recommendations.
And please bear in mind, this is coming from a guy who has tried just about all these approaches himself. After losing and earning money, I can confidently say, the way in which I’ve outlined passive income thus far, is probably the best way one could think about passive income realistically.
You may ask yourself: How should I choose my passive income stream? My advice would be to search for the most attractive characteristics of short-term investments – which most people would call “turn key” or “plug and play” income streams. For example, you place your money into this type of stream, it begins dripping profits even when you can walk away from it and there is little cost or time needed to maintain it. As I’ve mentioned a few times before, these investments are not as sexy or valued as much of their long-term counter-parts, but they are consistent money makers over time.
A Final Thought
Those who are part of the Slanted community are family. We take exceptional care when it comes to helping our family members here. So, I want to keep it real with you guys and explain something you may not be aware of when it comes to bloggers, YouTubers, internet enthusiasts and marketers who are trying to pitch you on passive income.
They try to make passive income seem easy, but it’s not as simple as they make it out to be. Knowing this, these individuals will try to use this angle to sell you a “fix” to this “problem” you are having – whether it be by buying their tutorial, subscribing to their YouTube channel or mailing list etc. There are a select few, who may have your best interest in mind, but many are looking to sell you.
The truth of the matter is, most Passive Income streams are actually long-term investments that require money and/or time and most importantly, consistent action. There’s unfortunately no way around this – hard-work is likely in your future if you wish to use passive income streams as a vehicle to make you money.
This is not to say that you will have to keep up these long hours and money investments in the future to keep making the money. Eventually, you might not have to hustle at all. However, please recall my caveat on how we actually define passive income. If we have to work extensively to make our stream work at all, is it really passive? I think the best answer I can offer is: At first your stream will only be created through active work until a point when it will become a consistent stream of passive income. Only time will tell when that will be.
Regardless of which streams you choose, keep your goals in mind and try to tune out those who try hard to convince you that the majority of passive income streams are short-term ventures.
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And of course, if you would like to learn more about how I personally earn passive income or how you can be more productive in your business, feel free to contact me at www.proactivetrainer.com or schedule a 1-on-1 coaching session with me NOW to receive a FREE complimentary productivity analysis at no charge to. Until next time my friends!
– Alex Rodolitz –
The Proactive Trainer