Trying to increase your income is noble. Your budget has two sides: expenses and income. Managing just your expenses can only get you so far.
One way to increase your income is to incorporate passive income. Like the name suggests, passive income means earning money without your ongoing, active involvement. Or, as passive income proponents like to say, earning money while you sleep.
Who doesn’t want to earn money without the effort? Sign me up!
However, the perception of what passive income is, what it takes to get there, and why you need it is often different from reality.
Examples of passive income
What are ways you can generate income for yourself while you sleep? Here are a few examples:
- Long-term rentals
- Short-term rentals (Airbnb)
- Online businesses
- Dividends from stocks
These aren’t bad options. Anyone building a real estate portfolio, managing businesses, or watching dividends roll in will talk about how rewarding these ventures can be. But here’s the truth…
The truth about passive income
Passive income often requires a healthy amount of active income.
To get to the point where you can build a portfolio of passive income ventures, you first need to focus on your primary (or active) income. Buying income-producing assets like real estate and stocks requires money (although you can leverage your money to buy real estate through a mortgage).
Diligent savers can build up their other income streams without having high income—it just takes a lot of time. But there’s nothing wrong with building wealth slowly! A better approach might be to first increase your income in your primary career before worrying about how to maximize passive income opportunities.
Passive income is not passive—at least not for a while.
When you think of passive income, you might think of sitting on a beach somewhere while your business runs itself and your “hard earned” income is deposited to your bank account.
Is it possible to have a dependable income with little to no involvement? A successful business requires active involvement. Even if you get to the point where it’s running itself (or run by a team of great employees), the idea that your business can remain competitive without involvement is usually not realistic.
A business is all about creating value for your customers. What business can create value and stay ahead of the competition, all without the involvement of its owner?
At some point a business can run with less and less involvement from its owner, but this requires hard work, intentionality, and the development of a great team. Most business owners won’t get to this point for several years.
Passive income is often motivated by the wrong desires.
If you are trying to build passive income streams, that’s great! But what’s your motivation? Building wealth, including income-producing assets, is wise. But so is working. Work is a biblical way to worship God and love people.
Hyper-proponents of passive income often do so out of two motivations: to get wealthy and to not work. As a result, some people pursuing passive income haven’t learned how to create sustainable businesses that produce lasting value. They focus on schemes that can get them closer to their goal of wealth without the work.
The Bible is clear—don’t desire wealth (1 Timothy 6:6-10). This doesn’t mean that it’s bad to get wealthy. It does speak to our motivations. Often this biblical warning flies in the face of the motivation for seeking passive income in the first place.
Is passive income worth the hype?
I know a lot of wealthy individuals. I can’t think of one that gained their wealth through passive income. What do these wealthy people have in common?
- Healthy levels of “active” income
- Habit of saving, investing, and leveraging wisely
- Hard work
Part of my hard-earned income will go towards accumulating additional assets outside my business that will produce income and/or appreciate. I’ll continue to work hard, look for ways to create value for others, and find needs in my community that I can fill.
I believe in passive income, but I don’t believe the hype. That is, I won’t be paying someone $10,000 on the internet to teach me the secret to a six-figure income while I lay on the beach.