Can You Really Earn Passive Income?

green leaf coconut trees on beach during daytime
by Advice Chaser
by Advice Chaser

It’s a common dream: imagine quitting your job, getting a house on the beach, and letting the money roll in while you perfect your golf swing. It’s undeniable that some people achieve this. But very often, the promise of a passive income is dangled in front of you for dishonest reasons. A lot of “passive income” ideas are really scams, encouraging you to spend money on something that won’t actually let you quit your job. While passive income does exist, it’s never handed out for nothing.

green leaf coconut trees on beach during daytime

Passive Income Courses

When you search for passive income, you may see links for courses that will teach you how to earn one. Usually the business model involves some type of easy-sounding work which later pays off with a steady income. One popular method is to hire ghostwriters to write you a book, hire narrators to create an audiobook, and then post the audiobook online and wait for the royalties to roll in. You don’t really do anything but pay people at the outset, and the profits could theoretically be much more than you put in. Or . . . they could be zero.

The question is, if it’s really so profitable, why is the person selling the course not still doing it? And sure enough, most people don’t make money on schemes like this—they lose thousands.

Let’s go back in time to the California Gold Rush. Thousands of hopeful gold miners flocked to California, even though the chance of finding any gold was low. But the chance that these prospectors would need supplies was about a hundred percent. So a few smart people realized the real money was in selling shovels to prospectors, not actually digging for gold.

People selling seminars, courses, and guides to starting your own passive-income business are playing a similar game. They know you might not earn money. But, if you buy their course, they will.

Why It Doesn’t Work

People pay money for things that have value—things that they want, but which are hard to get. You probably make money at your job because your labor has value. The time and effort of a person of your skills are rare enough that your employer is willing to pay your salary to get it.

But if you are putting in no time and no effort, it’s not very likely that you are providing something rare and valuable. In the audiobook example above, your ghostwriter provides some value, and the narrator provides some value, but all you really provide is the coordination among them. How valuable is that? Not very, unless you’re the only one to have the idea. And, considering someone is out there selling courses explaining how to do it, you’re definitely not. The market is flooded with cheap audiobooks that don’t sell very well. The same goes for most passive-income ideas that exist. The market becomes glutted with them, which is usually why the “coach” has abandoned the idea and switched to selling courses instead.

There’s also a concern here about exploitation. Very often these schemes only get close to profitability by paying someone much less than a living wage. Multi-level marketing has a similar issue. By the time you’re doing well enough to make significant money, you’ve got many underlings who are hustling for very little reward. When you see this type of imbalance in a business model, run for the hills. Even if your ethics aren’t bothered by it, common sense should tell you you’re far more likely to be on the bottom of the model than the top.

Real Passive Income

Real income generally comes from labor. Even if your job is unconventional, you’re probably hustling to make it work. If you write books, have a YouTube channel, or own a business, you might make a profit, but it will probably come from working twice as hard as you did as an employee.

But there is one other thing you can provide besides your labor, and that is capital. Money that you possess right now is valuable to almost everyone. By selling the time value of your money through loans or investments, you can provide value to others while also earning passive income. The only catch is obvious: you have to have money on hand already.

That said, you don’t need to have a whole trust fund to earn a little passive income. While you can’t quit your day job on a middle-class amount of wealth, there is no reason you can’t slowly increase your nest egg through careful investing. It’s far more likely to pay off than money you pay for a get-rich-quick course. Just remember: anything with an unusually high rate of return is necessarily risky. Stick with conventional investments that pay normal amounts for the majority of your investing.

Don’t Trust Gurus

Anybody can call themselves a business guru and sell their passive income scheme for more than it’s worth. But not everyone can call themselves a financial advisor. Advisors earn credentials proving both their knowledge and their ethics, so that you can be sure they’re giving advice for your benefit and not theirs. To learn how to start earning a little income on your savings, contact us today to connect with a qualified advisor.

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