The Truth (And Myth) About Passive Income

By Nacie Carson
45 Comments

There are few words in an online entrepreneur’s vocabulary that are more seductive than Passive Income. The term is widely used by multilevel marketers and savvy entrepreneurs across the web to close sales on eBooks and training programs for one simple reason: the vision (of sitting under a palm tree while your bank account effortlessly collects money) sells.

Wikipedia describes passive income as “income received on a regular basis, with little effort required to maintain it.” But is passive income really that passive, or is effortless earning a myth hyped up by really good spin doctors?

Learning the truth (and debunking the myths) of passive income has been a personal quest of mine since I started blogging in 2008. Over the years, I’ve watched so many friends and colleagues (including myself! ) set out with an entrepreneurial spirit only to experience frustration and demotivation when their passive plans yield no fruit.

It’s time we set the record straight and get to the bottom of what passive income is really all about. Let’s examine the evidence together.

A Crash Course In Passive Income

I was first introduced to the idea of passive income by Tim Ferriss in his book The 4 Hour Workweek. Tim’s position is that a smart entrepreneur will build a business that requires the least amount of time and effort for the most possible profit (hence the title). He spends many pages of his book discussing business models that rely heavily on automation so you can pursue other interests while money gets deposited into your account. Sitting in my corporate cubicle reading the book on lunch breaks, this strategy sounded pretty fantastic, so I started doing my homework.

When I Googled automated income, I was introduced to a host of new terms: affiliate sales, Adsense, eBook sales, and yes – passive income. I started reading about the success people like Yaro, Steve Pavlina, and Darren Rowse had making money – seemingly effortlessly – on their blogs through “passive income streams.” The possibilities started to dawn on me, and I realized that escaping the corporate grind to freelance alone was a recipe for chump change. If I really wanted to strike it rich, I needed to get on the passive income bandwagon.

Fast forward two months: my blog is set up, my eBook is written and available for purchase, my Adsense modules are in place, and I have several ads on my sidebar for affiliate products. I’m netting $0.01 per day in ad views, had one eBook sale (thanks, Mom), and average less than three clicks a day on my affiliate ads. What gives? I set it all up…now isn’t the point of passive income that I just get to sit back and watch the dough roll in?

Clearly I must have missed some nuance of this revenue strategy, so I re-examine the work of Yaro, Steve, and Darren for clues to their success.

Seeing What We Want To See

What shocked me when I revisited their sites was that they were perfectly clear about the work that they did – and had to continue to do – to cultivate their passive revenue channels. But I was too blinded by the possibility of retiring before age 25 to see beyond those two little words: passive income.

To get to a point where “passive” income was flowing into their accounts, these online entrepreneurs had to build and maintain blogs, develop relationships with other bloggers, create and manage email lists, and grow their traffic over time. And that doesn’t even count the work they had to do fine tuning ad placements, revising and polishing sales page text, or writing and editing affiliate product reviews.

I didn’t notice any of those pesky points the first time around when I ravenously consumed their informational posts on setting up passive income streams, and I certainly didn’t pay attention to the number one factor all of them pointed to: time. Growing a trustworthy online brand, developing report with your readers, and earning enough traffic to make passive income possible doesn’t happen overnight.

The first time I read through their information, I interpreted their material as “passive income is easy and effortless, all you have to do is set it and forget it.” When I revisited their material, I understood that their actual message is “passive income is a great revenue source that is earned from persistent, ongoing cultivation.”

As a stressed corporate worker hungering for freedom and the entrepreneur’s life, I saw what I wanted to see – that there was such a thing as free money, and in fact it was so easy to get I could justify quitting my job to get my fair share. Thank goodness my first passive income trial came before I took the big leap…

But I’m not alone in my self-deception.

The internet is full of websites developed by eager entrepreneurs who – like me – can’t see the forest for the trees when it comes to these effortless revenue streams. The result is hundreds, maybe thousands, of abandoned sites that never earn out.

The Truth About Passive Income

So what’s the truth about passive income – is there such a thing, or is passive income a myth that marketers tell to line their own pockets?

From my own experience, I say there is such a thing, but it’s a nuanced thing. Over the years, I’ve developed several successful “passive income” channels that slowly built up and now earn hundreds of dollars a month for just a few tweaks here and there on my part (The CLEAN Program affiliate sales have done particularly well over the last few months). But these passive income triumphs required a significant up-front investment of time, effort, and tinkering on my part, and in many ways I see them more as delayed payment or ongoing dividends.

I’m still learning and perfecting my passive strategies, and as my website and audience continues to grow so does the “passive” profit – who knows, a year or two with consistent and increasing earnings might make these streams truly feel passive.

But today, I still feel conscious of the work required to develop them, and would tell any fledging entrepreneur that the simple truth of passive income is this: passive doesn’t mean effortless.

Here’s to your Entrepreneur’s Journey,

Nacie

About Nacie Carson

Nacie Carson is a freelance writer and founder of The Life Uncommon, a career evolution and entrepreneurship community.
Her work on careers and authenticity have been featured in over 200 media outlets, including Portfolio.com, WalletPop, and two editions of Chicken Soup for the Soul. Nacie's first book on career "fitness" will be in stores in April 2012. You can contact her via nacie(@)TheLifeUncommon.Net

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45 Comments

  • I wish it was that easy to set passive income streams. The closest thing I’ve seen is investing in a stock that is growing in value and paying dividends every quarter. Other than that, it’s working hard towards building assets and then at some point reach a tipping point where passive income can be a reality. But still, it requires a lot of time, energy and work to get to that tipping point that is not really mentioned.

    • Hmm… that sounds interesting. Growing stocks that pay dividends quarterly, how come? Never heard of such, at least not here in Romania. I know the payout is yearly. I guess money doesn’t grow on trees, but we can all build our own tree (e.g. assets: lists, blogs, audiences) as Yaro often teaches on the blog.

  • Hi Nacie,

    I love reading your story and perception of passive income you have written here. Thank you for sharing! I totally agree when you said, “passive income triumphs required a significant up-front investment of time, effort, and tinkering on my part, and in many ways I see them more as delayed payment or ongoing dividends.”

    To add to that, I strongly believe that we first need to actively earn assorted wealth e.i knowledge, time, health, & loves before we want to commit into such investments you mentioned in the article. Besides motivating & encouraging us, the kind of wealth also has a great impact on your positive mental attitude such as perseverance & persistence which will finally take us closer to our passive income goal.

    I wish you all the best in your effort to develop your passive income streams! Thank you again for sharing.

    Cheers!

  • Joy

    Well said Nacie,

    I too fell into the passive income trap only months ago. I am one of your “fledging entrepreneurs”, my journey is still extremely young and I am learning this lesson well. Passive doesn’t mean effortless.

    I had no idea just how much work was involved in setting up and building this new business venture of mine.

    I don’t want to be one of those ” abandoned sites” either, so I will take my time, learn all I can from others, work hard on building my site and one day I too may enjoy a passive income stream.

    Thanks for a great post

    Cheers

    Joy

  • Coming into Internet Marketing, I had already built a moderately successful, scalable business online for selling a physical product that I created. While I was working a 9-5 (and still do), my primary goal wasn’t to retire and get rich within a few months, but to build a business that did not solely rely on my working every day to get a paycheck.

    I think it was Pat Flynn who struck the chord with me first – my stated goal came to be “I have to find a way to stop trading time for money”. My business at the time, making and selling vinyl decals, was better than my day job – but it was still a job. Only with it, had I taken it full-time, I was trading having a boss for the insecurity of managing my own income without the possibility of growing it in anything other than a linear way.

    I started IM in November 2010 – I should get my first $100 payout from Adsense next month, and I have an active affiliate site that’s earned me $50-$110 for just putting it out and posting on some forums. No, I’m not going to get rich this month, but those payouts shouldn’t diminish appreciably when I go on to work on other projects.

    It may well take me 3 or 4 (or more) years to get a full-time, comfortable income from this, but I believe it *is* possible. It’s just going to take determining and developing a skillset completely different from that which I possessed this time last year.

    • Hey, Pat is a guy I follow too. I think a decent way to make a living online quite fast is not with adsense or get paid for sale affiliate programs, but with pay per leads type of programs.

      Reason #1 – it pays faster than Google
      Reason #2 – it pays if/when your visitors register with an email/name, etc. on the form
      Reason #3 – it’s easier to make money that way instead of sales, don’t you think? :)

    • That is a great start. I hope you end up building a steady online income. I took a look at your site and I really like the aesthetics. Having a visually appealing site is one of the many important aspects of building that following. Following Yaro and Pay Flynn is definitely a solid choice. I have seen Yaro’s hard work really pay off for him over the past few years.

      Suggestion: Include an image and or a call to action for your newsletter that includes some benefit for the reader. It might help you get more sign ups. Best of luck, or opportunity meeting preparation as I like to call it.

      - Andrew

    • It is definitely possible; it depends on how much value you bring to the table that matters, the greater value you bring, the more your clients are willing to pay you for your solution. It was kinda cool when I recently drafted a $100,000.00 package solution for one of our clients, and when presented to her, she didn’t even bat an eyelid for our price (as we deliver an estimated average of 354% returns on investment – service line). That’s in the physical world.

      I am doing the same thing on my blog as well, doing my best to deliver the most value for my clients online.

      You can do it, Lyndsy. Scale it up, keep it up! =D

  • Once passive income it setup then it works on autopilot..I’m still getting paid monthly from things I did back in 2002..so its worth the effort to make it happen..

    “Black Seo Guy “Signing Off”

  • The allure of passive income for me is not retirement. I have no desire to retire, per se. The reason I want passive income is so that I can start more businesses, do more good, and make decisions based only on the merit of that decision, not based on my bills.

    I’m also in the learning process, and one of the things I learned is that, early on, learning trumps successes every time.

    learning last forever, a quick success and fade just as fast.

  • Great post, and I look forward to trying to create a passive income over the next year from our blog and other niche site. Look forward to reading more and I hopw you can help us in the future when we need to tweak things

  • I remember reading on Steve Pavlina’s blog that he only made $54 in the first six months. A year later though he was enjoying a five figure salary, and now he earns six figures.

    It’s all about the initial investment of time and energy. If you can do that you will begin to experience earning passive income.

    • I believe it. I know that the skills and knowledge that I’ve gained in my first 4 months are far more valuable than the trickle of income I’ve received from it.

      If I had to start from scratch today, and could devote myself to it full-time, I really think I could generate $1,000 in my first month.

      • Hi Lyndsy

        I super agree with you. I forayed into the arena of internet marketing about 2 years ago, and like what Narcie said, it was both an eye opening and a sizzling but short moment of loss of money in a hyped-up-suit. I spent thousands of dollars on “gurus” that would make me rich, or teach me something that would make me rich.

        After spending close to SGD 10,000 (or more), I decided that it was enough from these gurus, who sounds more like assholes who wanted my money, and started to learn their business models, their business approaches. Over time, what I learnt I began to tweak, try and tested on my own business (I have a physical one; with a publishing one in the works), and have grown my own business from a 5 figures to a comfortable 6 figure range after 3 years.

        So far, no regrets, and it’s been fun too! Though the low moments can be rather low… =p

        • I’ve not spent a thin dime on someone telling me how to make money – too much is available for free these days.

          That said, I’ve also found that it is better to take what people say with a grain of salt, and pay close attention to what they do. Maybe my introduction to IM, Pat Flynn’s Smart Passive Income, has spoiled me – but I prefer looking at case studies to having someone teach me directly.

  • For the most part, you definitely have to put in a real effort in order to earn passive income. There are all sorts of passive income for sure, there are even stocks in the stock market that you can earn passive income from but requires you to have ownership in the stock offcourse. Even house owners who rent their houses out for passive income still have to put forth an effort of maintenance and the usual costs that come along with that. So yeah passive income isn’t 100 percent as everyone makes out to be but in the long run it definitely should get easier.

    -Jean

  • Right you are! :O

    Passive income definitely does not mean effortless. After a period of time, you may achieve a massive passive income, but it takes a lot of work to reach that stage. :)

    Of course, it takes time too but the effort is worth it.

  • Good points here on the topic of passive income. Passive income is very doable. The trick is to stay persistent and being “in it” for the long-haul. The further along you go on the journey, you realize small tweaks here and there is what opens up the flood gates of passive income to flow in.
    Nicely done post.

  • Great article Nacie! I think building a long term passive income helps a lot. Affiliate marketing can help you achieve just that!

  • “Passive does not mean effortless.”
    Love this.
    And, I am really enjoying this new wave of authenticity happening on the Internet.
    People are finally starting to tell it like it is.
    And, that reality is that running a profitable business is hard work.
    It is rewarding and fulfilling, OMG yes!
    Yet there is NOTHING passive about it.
    I like to say that “just because it is hard doesn’t make it impossible.”

  • There is definitely nothing effortless about making a passive income online. I hope you did not get that impression from Yaro or Darren’s blogs. I now see that after further reading you realized the opposite, but I do suppose that initially one can become swept up in all the talk of big money with minimal effort.

    Blogging in the way that Yaro and Darren do it does require consistent upkeep and new content, because they are blogs which by definition are supposed to be updated. However, theirs is not the only way to create true (i.e. build it once and leave it) passive income.

    Niche websites can be built once and left to collect ongoing income. These are not blogs, so therefore they do not need to be updated. In addition, all of the SEO work is done up front, without any need to go back and improve upon the SEO. I have seen niche sites take as little as two to three months to go from launch to making a passive income. The amount of money these sites makes depends on the niche and your revenue stream.

    I do agree with you about the general myth surrounding blogs and passive incomes.

    - Andrew

  • Great article! Good to see some balance to the get-rich-quick stuff out there. I think this is the reason passion is important; to keep going in the initial start-up phase. Otherwise, working hard at producing little income initially is just frustrating. Cheers, Graham

  • Nacie,

    You certainly got it right. It does take some learning and effort and most of all persistence.

    I think it’s also very important to write down exactly what we want in terms of dollars in passive income a month. Our subconscious mind can then go to work to create that in our lives when it knows what kind of numbers we are looking to make.

    I loved hearing your story and your honesty. Keep up the great work!!!

    Karen

  • Passive income does take effort to set things in place. I have a couple of websites that I have done nothing to and every year they generate over two thousand dollars.

    I have other sites that require minimum effort to keep them generating money.

    I also have sites I am working passionately on to get the passive income stream started. Once the flow begins, the well is primed and the income flow becomes effortless.

    I once heard Joel Comm say that the beauty of making money online is that the funds are limitless.

    The truth of the matter is that we sacrifice now to enjoy effortless gains later.

  • I don’t believe there is a free ride anywhere. Passive income is possible but comes after plenty of long and hard work. And, of course, it has to be maintained so the “passive” part continues.

  • For me, passive income is the best. It’s earning with the least effort. :)

  • Spot on, Nacie.
    I work in a MLM business and I’m often frustrated when people join thinking that they won’t ever have to do any work.
    Passive income does require a lot of initial groundwork, but once the foundation is laid, the rewards are definitely worth it.
    Thanks for the good article.
    ~ Rory

    • I think MLM is a field as hyped up as the IM niche. So you have to set realistic expectations and debunk the myths in your industry, up front. This way you sound and feel authentic, different than most in your digital area.

      How does MLM work for you if you don’t mind, are you using landing pages and SEO as most of us doing? :)

  • Tim ferris also got me into the online world.

    I try to entirely focus on building passive income streams now and automate everything as much as possible.

    When i had just started online, it was hard but when your income streams start bringing in some buck you can outsource the system.

  • [...] The Truth (And Myth) About Passive Income — Knowing that many of our readers own and run sites with passive income as the goal, this post is a must read for putting things in perspective, especially if you’ve been feeling a little frustrated with it lately. [...]

  • o_0 And what a journey it is to actually get any passive income at all, you wind up spending thousands in cash and in preciouse tikme just to find out that 95 % percent of things that are presented to you online to leran how to get passive income is just a deseperate way of earning it by the person trying to sell you a broken idea..

  • Hi Nacie, thank you very much for your story, I really love the concept of passive income. especially when reading 4hour work week.

  • Passive income is possible but comes after plenty of long and hard work. And, of course, it has to be maintained so the “passive” part continues.

  • I remember falling into that trap :-)

    What I found though is that passive income IS relatively easy to set up IF you’re bringing something of value to the table. I find that most online entreprenuer’s just don’t do that, however. They bring nothing new, unique, genuine or useful to the party and wonder why no one wants to buy. Whoops!

    Concentrate on being useful and contributing to the niche or market that you’re in and passive income becomes suprisingly easy, actually. And grows pretty quickly, as well.

  • Passive income requires research and homework upfront. Also, it requires knowing your customers and having good relationships with them.

  • I like the last statement… “Passive doesn’t mean effortless”. So many people get into internet marketing for the passive income only to realize that it actually requires work. The true benefit comes when that work is done consistently and correctly. Then you have a chance to make “passive” income

    brandon

  • Great post Nacie,

    Passive income…ahhh…the thing that draws most of us in to internet marketing.

    I too was “blinded by the light” when I first discovered the world of IM…it all looked sooo easy…a few months and i’ll be giving up my day job…just gotta get a couple of thousand people on my list and I’ll be making $2000 per month…that’s what they say $1 per month per subscriber

    Easy Peasy Lemon Squeeezy :-)

    I know different now…hard graft and a plan to stick to…you never know…this time next year?

    Now where was I? Oh Yeah…

    Passive income…aahhhh

  • Post’s like this keep me going, I know there will be a light at the end of the tunnel with lots of money on it :-)

  • Passive income is not that effortless. The income later, when you put up your all the best effort to work for it and achieve it.

  • [...] founder of The Life Uncommon, a career transition and entrepreneurship community has written an insightful article examining the truth and myths of passive income. Carson draws on her own experience to highlight [...]

  • Its a nice and informative post to go through and i am sure it has cleared many doubts in our minds about Passive income and now we can look in to those reliable places where we can earn some money.

  • About time someone else wrote honestly about an industry that is getting a bad name due to failed entrepreneurial pursuits! Passive income is accelerated by building a strong personal brand like you and Yaro have done. I have been taking this approach for some time now and is has created a passive income around my network marketing business. To rely soley on NM is dangerous indeed.
    Thanks Nacie

  • Passive income is my kind of subject! I already have set up a few sources of that, and I’m working as an internet marketer in the self help and getting people started on their on line businesses.
    Passive income takes some work, but it is worth it. Great article and thanks for explaining this subject to others. It is beneficial for people to know about this.
    Donna

  • [...] Read how to make passive income a realistic goal [...]

  • Dilshad

    This article is interesting, however, I disagree with Nacie. I agree of the things that you do need time, investment, but that is only in the process of beginning, after that you deploy your product and that is it. All the rest of the stuff can be taken care of by marketing professionals for your business. You do work hard in beginning but then after that it is IT. You don’t do anything else. I learned this after 10 years! Yes! 10 YEARS I learned that since I kept on thinking what EXACTLY is MJ Demarco talking about The author of The FastLane Millionaire. I am very happy I read his message. My email: dilshad40@hotmail.com

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