Update: 600 of your fellow adventurers have now enrolled in Submersion, our new 60-day Subjective Reality deep dive. What more becomes possible when you're living in a simulation? Join us for this epic journey!
Let’s talk about the reality of what it’s like to create streams of passive income and how it compares to working at a regular job. What I’ll share here may surprise you.
With a typical job, you’re more or less directly trading your working hours for dollars. You may receive an hourly wage, a salary, and/or bonuses for the time you put in at work. Your ongoing pay depends on your continued presence at work. If you stop working, your paycheck stops as well.
With passive income you’ll often get paid nothing at first. Initially you work to create and/or leverage a system that generates a flow of income long-term. Once your new income stream is launched and the passive phase begins, you may not have to work very much at all beyond that to maintain the stream.
Passive income is one strategy among many for earning money. It doesn’t necessarily dictate any particular choice of careers. You can do many different types of work and use passive income strategies to monetize your work.
Passive vs. Active Income
Suppose you’re a writer. One way to earn active income would be to get a job writing for a magazine or newspaper. You could get paid to write articles which your employer publishes and owns. You would receive a wage from your employer for the service you provide. If you stop writing in this scenario, you’ll stop getting paid.
Now suppose you offer your writing skills as an independent contractor. You market and sell your services to people and businesses. You do this on a “work for hire” basis, getting paid for each job you complete. This is also active income. If you stop working, your income ceases.
Now suppose you write a book and sign a publishing deal with a book publisher. The publisher gets your book into bookstores and also sells it online. They send you royalty checks twice a year based on sales of the book. You receive a percentage of what they receive for every copy sold. Five years later you’re still receiving checks from them. Your royalties are passive income. Even if you stop working after your book is published, you’ll continue to receive royalty payments for the book that did get published. You could potentially continue to receive these payments for the rest of your life. Your book may eventually be purchased by people who aren’t even born yet.
Notice that in each scenario, your underlying career is essentially the same. You’re still the same writer. You’re just using different strategies for earning income. You could even apply all three strategies simultaneously, working at a regular job, doing contract work on the side, and also writing a book and getting it published.
At any time you’re free to use active income, passive income, or hybrid strategies — or any combo of these you wish. You don’t have to quit your active income job to set up streams of passive income. For some people this is easier, however, since a regular job can chew up a lot of time, making it harder to find the time to create passive income.
Sometimes you can even get paid to create your streams of passive income. For instance, our writer may receive an advance for his/her book from the publisher. So not only does this writer earn long-term passive income, but s/he also gets paid to set it up.
Where Does Passive Income Lead?
I want you to start thinking about how your life would be impacted if you took the time to create some streams of passive income. Suppose you succeed. What then?
What would your life be like if you were receiving an extra $100 per month in passive income? What about an extra $500? $2500? $10K? 50K?
At what point do you shift from that wouldn’t make much difference to that would be nice? Then when do you think, That would really take off some pressure?
What amount nudges you into I could live off of that amount? Then when do you think, Wow… I could really upgrade my lifestyle with that?
And if you want to think beyond that, where do you start thinking, Hmmm… I wonder what I’d do if I earned that much without having to do anything? What would I actually do with my time then?
It may surprise you that one of the reasons people avoid earning passive income is the fear that arises from being confronted with that last question. People often spend so much of their lives distracted by the daily grind of work, bills, and social obligations that they rarely give much thought to the bigger questions. Suppose you actually do succeed here in a big way? Then what?
If your end game looks bleak, empty, and meaningless, that’s going to hold you back. You’ll sabotage yourself before you get very far.
Will Passive Income Make You a Bigger Success or a Bigger Failure?
If you didn’t have to work and money kept flowing to you month after month, what would you do with your time? Would you play video games all day or do drugs or sit around watching TV and eating?
I actually found it pretty difficult to succeed in creating passive income until I was able to answer these questions seriously. My answer changes from time to time, but the core is that I want to spend my life growing, creating, and sharing. I want to keep adding something of value to the substance of the universe. Whenever I keep doing that, regardless of how much money I’m making, I feel happy and fulfilled.
The irony is that if you answer this question honestly, you’ll probably come up with something that you could just as easily do when you’re broke, although perhaps not at the same level.
Because of my passive income streams, I can afford to be really lazy if I wanted to. I could sit around doing nothing for weeks on end, and my bills would still be covered. For some people this may sound like paradise, but it presents its own challenges. If you’re not careful, you could easily slide into a serious depression in this kind of situation. People receive a lot of fulfillment from work, but if you no longer have to work, will you still be able to motivate yourself to tackle new challenges, or will you do little or nothing because you can?
Many people have created passive income streams that cover all their expenses, and they ended up depressed and listless. Some try to keep the treadmill going by creating even more passive income streams, but their hearts just aren’t in it, and they eventually burn out.
What’s Your Motivation?
When I was broke and deep in debt and about to declare bankruptcy, I asked myself what I’d want to do with my life if I knew for certain that I’d always be broke. That was an interesting question because it helped me get past the momentary distractions of money and bills that always seemed to be at the urgent forefront of my reality. I realized that what I really wanted to do with my time was to create and share. I noticed this was something I could always do in some fashion regardless of how much money I had. This shift in mindset allowed me to increase my happiness and fulfillment, not to mention turning around my financial life, in less than a year.
This mindset also helped motivate me to create passive income streams because the more I did that, the more I got material distractions out of the way, and the more time I had for creative projects.
My life flows nicely when I remember to use my time for creative endeavors like writing, speaking, and creating workshops. It doesn’t flow so well when I allow myself to feel like I’m swimming in time with nothing meaningful to do.
It may seem premature to think about this now, but I think it’s pretty important. If deep down you know that the end game of creating passive income is going to be a bust for you — that you’ll just end up living like a big loser day after day — then will you really be motivated to get there? That would probably require a lot of pushing and force to get yourself to take action.
If, on the other hand, you can envision a pleasant and fulfilling end game scenario, I think it will be much easier to create passive income streams in a more peaceful and flowing way. There will still be work to do, but at least you won’t be internally fighting yourself along the way.
If anything stops you from earning passive income, what will it be? It’s undoubtedly going to be something inside you. The external action steps are certainly doable. You may screw things up in the beginning — I sure did! — but if you persist and learn from your mistakes, it’s largely a done deal that you’ll succeed. As I mentioned in a previous post, people were earning passive income thousands of years ago. Surely you can learn this as well. So the only thing that’s really capable of stopping you here is you.
Beyond the Hype
I know there’s a lot of hype around passive income. Yes, it’s cool. Yes, it can relieve a lot of financial pressure. Yes, it can make a big difference in your lifestyle. I must say that a lot of the hype is true. As Earl Nightingale said, “Nothing can take the place of money in the area in which money works.”
But suppose you really get there. Suppose you cover all your expenses and then some with passive income. Then what? What will you do with your time? And will you be truly happy doing that, year after year and decade after decade? Or will you feel even more lost than you do now?
Here’s what I suggest. Write down a little vision statement for yourself, perhaps a few sentences or a paragraph about how you’d choose to live if all of your expenses were covered by passive income, and you didn’t actually have to work to pay the bills.
Then set that statement aside, and look at it tomorrow fresh. Now ask yourself if you’d really be happy in this scenario. If you don’t think you’d be very happy there, rewrite your statement. Try to get clear about what your personal end game of passive income looks like. See if you can create a scenario in which you’re very happy.
Finally, if you aren’t already doing what you wrote in your vision statement now, then why not? Could you still do it in some capacity under your current conditions if you really wanted to?
Money is Fuel, Not a Cure
You see… if you’re holding yourself back now, then why wouldn’t you continue to hold yourself back even after you’ve created your abundant passive income streams? If you allow yourself to use lack of money as an excuse today, you’re just going to use a different excuse when you have more financial abundance. Money is no cure for the willingness to succumb to feeble excuses. So if you see this pattern in yourself, then I suggest you start working to overcome it today.
Money is more multiplicative than transformative in its effects. It makes you more of who you already are. So if you’re the kind of person who will excuse yourself from a bigger vision today, adding more money to this situation will only make things worse. Many people who have lots of money also have many more obligations to use as excuses. The excuse making doesn’t end with more money; it only magnifies.
It may seem like having lots of free time to play is a great thing, but a playboy/playgirl lifestyle probably won’t create much fulfillment. More people seem to find fulfillment in meaningful work. Yes, you can still play and travel and all that good stuff. But give some thought to what work you might wish to pursue if you didn’t have to work for money at all. This is an important question to answer. Equally important is to ask: Why aren’t you doing this work right now in some fashion?
I personally feel that the #1 benefit of having my expenses covered by passive income is that I get to keep doing a lot more of the kind of work I enjoy. I also get to work the way I want to work — where I want, when I want, how I want, and with whom I want. But in order to maintain those feelings of fulfillment and meaning in my life, the work must continue. I can’t just go into perpetual play mode and check out.
I think you’ll find that if you’re already living your bigger vision in some capacity, then creating streams of passive income will be a lot easier. These streams will help you expand your vision and overcome distractions.
But if you’re currently using feeble excuses like the lack of money, lack of time, or the obligations of your day job to distract you from a bigger vision — even as you somehow still have time for Facebook, texting, email, reading blogs, watching TV, etc. — then I’d bet that you’re not going to succeed in creating much passive income; you’re the type who will come up with an excuse to quit, and even reading this series is just another distraction for you.
So whatever it is that you think you might start doing once you’re already living the dream of total financial abundance, start doing that now in some fashion. Insert it into your life, even if it’s just for a couple hours a week to start. If you don’t have time for it, quit Facebook, give up TV, and cancel your texting plan.