#8: Debunking the “Passive Income” Myth

You can find all my other episodes here– for some reason Spotify is taking its time to update the RSS feed, so skip the first 30 seconds of silence haha.

Passive Income. It’s the dream, right? The dream that you spend a bit of time on the weekend setting up your “side hustle” and then fly out to sip Pina Coladas on the beach as you watch money roll into your bank account every week.

My generation is plagued by this dream – because it’s exactly that, a dream. Passive income is, for the most part, a massive fucking myth sold to you by Instagram influences trying to sell you their fucking E-Book or video tutorial course. Coupled that with our glorification of entrepreneurship and you have yourself a disaster waiting to happen. I had a phase a few years ago where I was obsessively researching how I can “do some work now” and just watch the money roll in for the next few months, only to be met with a disappointing reality.

Let’s dive into it. Today we’re going to debunk the passive income myth. We’ll look at what the usual “passive income streams” are that people talk about, which ones are actually real and have merit and which ones don’t – and whether any of them are feasible in the Philippines.

Originally I wanted to make this episode about investing options, but after recording that episode twice I just couldn’t find myself getting excited about sharing it – it’s pretty dry. But this topic, now this is something I could talk about for days.

How I want to structure this episode is that I’ll bring up a particular type of “passive income” source, I’ll explain how it really works and what my thoughts are on it and whether you can actually make some money from this.

1: Being an “influencer” – also known as “affiliate marketing” or brand advertising

What it is: you build a following on social media, normally Instagram or Facebook, and use those channels to advertise products.

How people make money from it: Influencers make money from a variety of sources, but the most common ones are brand deals and affiliate deals. Brands will pay influencers that can reach the brand’s target audience to make sponsored content – posts or videos with the advertised product, normally. It’s the latest form of advertising.

Image by James Cole on Thought Catalog – Not sure how accurate the numbers are, but I’ve seen similar ones floated around.

How much work it entails: It’s supremely hard to make money doing this, because you need to be really damn good at what you do. People with “large” followings on Instagram are a dime a dozen. If you’re a hot girl and post a bunch of bikini pics on the regular, you’ll have a couple of thousand followers quick enough and a bunch of bikini brands will come knocking in your DMs for some affiliate marketing deals – that is, you promote their products using a referral link or discount code, and any of your followers that use those links or codes to buy from them will earn you some money. It’s easier if you’re into a specialized niche that you’re genuinely into, but it’s always competitive.

The time it takes to build a solid personal brand that you can leverage for these things is insane. Even girls who’re “just hot” have to put the work in by getting really good pictures every time they’re out and about. They have to spend money to hit up the beach in the first place. Fitness models constantly have to hit the gym to maintain their physique. You gotta build a community and interact with people online. It takes a lot of work.

My thoughts on it: This is probably the most common type of “passive income” that people will try to sell to you in their shitty courses and e-book guides. People talk a lot of shit about IG models and whatever, but I respect their hard work. If you think that paying a Kardashian $100k to make a post about your product on IG is insane, then think about the amount of work they put into being famous (aside from leaking a sex tape) – you don’t just get 100m followers on IG for looking good. Those are businesswomen and they’re the best at what they do

On the other hand, I always cringe so hard at most brand promotions I see on the big influencers. If you think Pia Wurtzbach actually uses the Huawei phones that she promotes or if Steph Curry actually uses a Vivo phone of all the things, then I got bad news for you. I know those deals pay well, but man does it feel like a scam sometimes.

2: Being a content creator (blogger, writer, selling courses online)

What it is: you create consumable content that you post online – whether it be a blog, a platform like Medium, YouTube or website like Udemy where people see it.

How people make money from it: Ads, membership subscriptions, downloads. If you run your own website, you can monetize it with ads. If you’re selling online courses, platforms like Udemy and Skillshare exist to make money from those. If you’re a vlogger, you make money by adding YouTube ads to your videos. 

This is breakdown from a YouTuber who showed his viewers how much money he’s made from YouTube back in 2016. At the time he had over 2 million views and made about $6,000 – getting 2m views on YouTube isn’t easy.

How much work it entails: An insane amount. You’re going to see a trend here. There are a lot of resources that explain how much money people earn from YouTube video ads, but for it to be worth talking about you need at LEAST 5 figures worth of views to live off of. There’s actually a really good breakdown over on Quora where a bunch of YouTubers chime in on the discussion. The same goes for blogs. This is not even considering how competitive those landscapes are.

I personally produce a weekly podcast and it’s a crazy amount of work. I have to research the topics and write the episode / blog post. I have to record the podcast and edit it, which can take half a day in itself. Then I have to film video to go with it, edit that, and then plan distribution across my channels – all of which content creators do, too. I don’t take my production super seriously and have no need to make money from any of this because it’s my hobby, but things are different when you need to get paid.

If you’re writing e-books or producing online courses on whatever topic you’re teaching, you need to first do all the pre-production work that I do, but scaled up even more. My podcast is like 30 minutes of audio. Writing a 100 page book is going to take significantly longer than what I spend in terms of time. Writing, filming and editing a video course takes weeks. Not to mention the money you have to spend on advertising to generate sales and such… which of these things seem passive to you?

None. Everything I mentioned takes a boatload of hours and hard work. You can write the best e-books in the world but it wouldn’t mean shit if no one wanted to buy them. You could produce the best video course in the world on marketing but it would mean nothing if you didn’t promote it properly to the right people.

My thoughts on it: When I was in school my peers dreamed of being actors, singers and similar things. Today, kids dream about being the next big YouTuber or streamer. Regardless of whether you want to be the next Beyonce or the next Pewdiepie, you’re going to be putting the same amount of insane hours into honing your craft to making any money.

3: Real Estate flipping & property management

What it is: Buy a piece of real estate, and sell it for more or rent it out.

How people make money from it: Most instances I’ve seen of this were people buying property for as cheap as possible, investing into fixing it up and then selling it for more. Others were about renting out as much of their property as possible and then managing it.

Photo by Lyman Gerona on Unsplash

How much work it entails: This depends on the type of return you want to generate and over what time period. Most of the time, real-estate is a long-term game unless you’re flipping within the same year, but real estate income is normally measured in months and years. Depending on the type of capital you’re working with, this has the potential to not be as time and work intensive as other passive income sources. You could outsource a lot of it, but you decrease profits and increase risk this way. There’s actually a good article over on MoneyMax that shows you the kind of work that goes into flipping Real Estate.

My thoughts on it: I have some experience in renting out properties and what I can tell you is that there are always hidden costs that come up. TV broke? Gotta fix that. Annual taxes. Broker fees and so and so on.

The biggest problem here is, of course, capital. Buying a piece of property, no matter how shitty, is going to cost you a significant chunk of money – money that most of us don’t have.

4: Dropshipping

What it is: Dropshipping means you list an item for sale on platforms like Amazon, Ebay and various other online platforms and when someone buys them, you get it sent straight from the manufacturer to the buyer without ever physically handling the product itself. You’re basically the middle-man in selling… anything, really.

How people make money from it: Most dropshipping information you’ll find on YouTube and online revolves around doing market research. Let’s say you notice that people on Amazon are buying the most popular bidets for $10.00. You find a bidet manufacturer in China who can make the same product for you at a $1.00 each. After logistic costs and other expenses, you decide you can sell these bidets for $8.00 now and make a good profit. So you make the listing, spend on some ads and people buy your bidet, which you’re paying the manufacturer to send directly to Amazon or the customers who bought it. You never physically handled the package, but you made money from it.

How much work it entails: Dropshopping blew up a few years ago when people realized that e-commerce is an imperfect system. If every manufacturer or supplier of products were on the same platforms, then this wouldn’t exist. I imagine it was very profitable and exciting when people started figuring these things out but today it’s highly competitive. To do drop-shipping well, you need to do a huge amount of research into a product niche and your competition. You need to understand the niche and what its customers are looking for. You need to negotiate and coordinate with Chinese suppliers. You need to keep an eye on Amazon daily to see the insights and trends. You need to risk losing some money upfront for inventory because most manufacturers won’t let you buy things one by one, you need to order them in batches of 100s.

My thoughts on it: It’s really hard to break into this successfully nowadays, but it’s not impossible. The amount of research required can be rather intimidating… which is why every “dropship guru” out there is trying to sell you their fucking e-book where they teach you the secrets that you could have learned for free on YouTube anyway. Or if you’re an economics major, a simple supply and demand study would do. The Philippines would be a terrible market for this, probably.

Conclusion:

If it was really so easy to make money passively, everyone would be doing it. There’s simply no short cut. There is no get-rich-quick scheme, which everyone is trying to sell you. Look at it this way: when someone’s trying to sell you an E-Book about passive income, then you buying their shit is exactly HOW they make their passive income.

There are many legitimate ways to diversify your income streams. You can invest in real estate, mutual funds and the stock market. You can put your money into a time deposit. You can buy government bonds. You could put your money into a high-interest savings account. All of those technically make money for you without you having to do any hard work – but they’re long-term investments that aren’t going to put you on a beach to watch money roll in on a weekly basis.

Don’t trust anyone that’ll tell you they know the way to get rich quick. Unless you inherited significant amounts of money / property or have sizable amounts of capital available to you, there’s no “fast” way to make money “passively.”

Further reading:

https://www.themoneyprofessors.com/passive-income-myth/ – this one’s very comprehensive and well-articulated on how “passive income” is a lot more of “running a business” than anything else.

https://www.businessinsider.com/how-to-make-passive-income-investments-real-estate-2018-8 – this guy makes $200k/year in “passive” income – note how he has millions worth of investments to reach that type of return on investment.

https://www.garyvaynerchuk.com/askgaryvee-episode-86-passive-income-foreign-languages-how-to-delegate/ – The GOAT himself chimes on the issue – it’s refreshing to watch one of his early episodes – skip to 2:45 for the meat.

https://www.thinrichhappy.com/2017/04/05/passive-income-myth-probably-wont-make-rich/ – loved the tone of this one. https://pjrvs.com/passive-income/ – this is more of a rant than anything else but it connected with me on a spiritual level.

https://financialmentor.com/wealth-building/wealth-program-system/the-passive-income-myth/5176 – even though this dude is trying to sell you his book, he’s hones about the grind and behind the scenes work it takes to make something like his ebooks profitable.

https://www.entrepreneur.com/article/313137 – I dislike a lot of shit on Entrepreneur.com but this one hits all the nails on the head. Very good summary of the myths around passive income and why they’re bullshit.

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