Passive income - the dream of earning money while you sleep. It sounds too good to be true, and often, it is. Many financial experts describe certain endeavors like real estate, book royalties, or online sales as passive income, but the reality is that these require more work and consistent effort than the word “passive” suggests. In this blog post, we'll explore what passive income really means, why it's often misunderstood, and why the idea of earning money while you sleep is more myth than reality.
Firstly, let's define what passive income really is. Theoretically, passive income is money that flows into your bank account with little to no ongoing effort on your part. However, this is not entirely accurate. Building a system that automatically earns you money requires upfront time, effort, and money, which means it's not exactly a passive pursuit. Furthermore, most examples of passive income could be better described as "side hustles" since they usually require some sort of hustle to get them off the ground and to keep them running.
It's worth noting that what counts as passive income varies from person to person. For instance, entertainers or authors who earn royalties need to self-promote to keep their work relevant and in the public eye. Selling old clothes online, publishing online courses, creating an app, and playing the stock market may not be as active as a minimum-wage day job, but they're far from kicking your feet up and watching the money roll in.
While it's possible that truly passive income exists, it's more accurate to say that it's mainly reserved for the rich. Forbes breaks down the primary ways people generate passive income as investing, asset-building, and asset-sharing. Investing means using money you already have to make more money, while asset-building refers to acquiring an asset that earns money passively over time. Asset-sharing means selling or renting out assets that you already own. Money rolls in much easier if you already have it, and most forms of passive income require significant upfront investment or assets.
The most accessible example of passive income for the average person is earning interest in a savings account. It's a feasible way to invest an upfront asset, in this case, money, and then earn more from it without any active labor. However, most forms of so-called “passive” income take active maintenance. Therefore, it's essential not to believe the guru-led myths of getting rich quick off of zero-effort side hustles. A lot of those side hustle ideas are excellent, but they're going to be just that - a hustle.
For more great Side Hustle ideas, check out "101 Real World Side Hustles."
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