- Every business or investment requires continuous attention or improvement.
- Therefore the truth about passive income is: without work it doesn’t exist in its clear form.
- To reach a satisfactory regular income you need hard work. Or a lot of funds and high-level professional or business skills.
- You can make it, but get well prepared.
Dreaming about a World Without Working
“Passive income” has become a very popular topic in recent years. Countless websites, blog posts, and books are detailing the benefits of this method over other earning opportunities. In these times many people are dreaming of living in such wealth and not having to work at all – or working almost nothing. Young people often want to do things differently than their parents, and they don’t want to struggle with working through all their lives as elders did.
We all, not only older people, are dreaming of golden retirement years spent in peace. And, of course, living in a good financial position – thanks to our continuous income from some constant source. Many of us also imagine reaching this with little or no work at all.
But what is passive income in reality?
Let’s mention only two definitions on popular websites:
Passive income is earnings derived from a rental property, limited partnership or other enterprise in which a person is not actively involved. (Investopedia) – Passive income is income that requires little to no effort to earn and maintain. (Wikipedia)
The dangers of passivity
So does “passive” mean you don’t have to work? Not at all. In reality, if you try to use this strategy for making some extra money, it can be very dangerous. You can lose all your income or at least face a constant decrease in funds. Let’s see some real, practical examples to understand this:
1. You Are Renting Apartments
If they are in the same building and it burns down, or this district of the town gets abandoned, or the whole city decays, like Detroit, mostly a ghost town today… In each of these cases, your investment loses value considerably. (It does not matter whether you inherited, purchased or acquired the property in different/other ways.) If you have different real estate objects but a general recession begins and many tenants are unable to pay the rent, your expenses can exceed your incomes for years.
2. You Have Bought Different Stocks on the Stock Exchange
You are living from the dividends, but most shares lose value. This may happen due to a recession, or new, disruptive technologies that may cause companies to shrink. Your dividend income falls also to a fraction of what it was before.
3. You Write a Great Book
The book sells very well at the beginning, but later it goes out of fashion. People are interested in other works, sales fall to a fragment of their initial volume. You have barely any income from it.
4. You Make Your Own Successful Business
But competitors are also strong and your earnings shrink below the industry average over time. Maybe automation makes most of your efforts pointless. Your business and your income declines.
5. You Own a Limited Partnership in a Business
That means you are a silent money lender in the business without management rights. But your managing partners may steal your ideas and step down, transferring all your value to their own business. You have nothing or very little left.
6. You Have a Low-risk Bond Portfolio
You are living from the interests and yields of this investment package. But the government or the central bank generates high inflation and this way your investment diminishes. This is a common practice among governments, and not only in unstable developing countries. (The US used this practice after World War II, and also today. Many countries have a similar monetary policy after the economic crisis of 2008-2009, like Japan or most parts of the European Union. But more about this in another post soon.)
To avoid negative scenarios, you have to make efforts and put work into earning money all your life. No income source can be abandoned forever. You always have to do some control, supervision, management, development, improvement.
Need Money or Need Work?
Every solution that leads to passive income requires a lot of capital or a lot of time and knowledge, work, effort – especially, in the initial stages. In case you are not the heir of a rich family, you need to hoard a lot of capital in some way. The other option that many articles mention is that you can borrow or collect initial capital from other investors, which can lead to great success. But it can also lead to great failure if the business becomes unprofitable. (Since external borrowing constitutes leverage.) But without collateral (guarantee or assurance), without business experience or adequate financial history, it’s very hard to get money from investors.
You can write a book that doesn’t seem to need any resources. But first, you need to learn how to write books. This can take many years because this is also a profession that you must learn. Only a few exceptional writers have been successful with their very first book without any prior studies. Similarly, other online entrepreneurship also counts as a profession that has to be learned.
Can entrepreneurs be passive? I don’t think so. They have to work hard to keep up with the competition. It’s only a myth that rich people, entrepreneurs, capitalists, business owners, or property owners don’t have to work. Sure, some don’t. But much more of them spend more time at work than an average employee. (Maybe they also enjoy spending this time at work more than average employees but that’s another story.)
The difference is that entrepreneurs are doing other kinds of work. Business executives, owners of leased assets, or writers of bestseller/successful books, for example, may not get their hands dirty. They have to do a different job if they want to keep their positions on the market. Mostly intellectual, creative work. And sometimes they can do all this from their house in the Bahamas or Hawaii.
The Genuine Truth About Passive Income
Honestly, does passive income exist? As I listed above, no source of income can be completely abandoned. You always have to make some supervision, management. There is no passive income in the sense that you wouldn’t have to work at all. A certain amount of work is always recommended, even for the wealthiest people.
XX Ways To Make XX thousand dollars per year without working with passive income
– are claiming some other articles. That is a lie or a mistake. You have to work hard first to make a successful business, online income source later. Or you need basic knowledge and adequate financial skills to manage your wealth, your capital. Get a degree in business studies for example. Studying five years is also a hard work that pays off later in your business or wealth management activity (and in your job if you have any).
You can see many cases of lottery-winners, heirs, sports stars or media influencers who gained a big fortune but lost it all later. Everyone can win a fortune, but not everyone knows how to preserve and increase it. Learning basic, ageless financial fundamentals can prevent you from this end. The purpose of this blog, Agelessfinance.com is to teach you such essential basics.
More important readings for you:
I’m not a certified financial advisor nor a certified financial analyst, accountant, or a lawyer. The content on my site and in my posts is for informational and entertainment purposes and reflecting my collection of data, ideas, opinions. Please make your proper research, or consult your advisors before making any investment or financial or legal decisions.
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