Before diving into the blog and learning more about the different levers that can increase your income, I wanted to put something out there first about my philosophy on how to create passive income streams and “passive income” in general.
Passive Income DOES NOT EXIST.
There I said it.
Everyone has seen advertisements of the guy on the beach with a drink, the boat parked in front of his mansion, selling something that is the “key” to how to create passive income streams.
That is complete BS.
The reason that you can’t find how to create passive income streams and need all of the secrets that people are selling is that passive income doesn’t exist. Read my article on protecting yourself from scams and running away from people marketing with Porsches.
Passive income is a myth; there is no such thing. There is always work involved in making money. BUT, and this is a big “BUT”; you can “Leverage” how much return your work generates. Notice the first sentence of the Levered Income website and why it was created:
To show you how to create RESIDUAL income streams.
(not how to create PASSIVE income streams.)
The internet is littered with blogs on what is the best way to make passive income and how to create passive income streams. After reading them, I realized that the passive income sources listed weren’t passive at all. I read a lot of articles about supposed “passive income streams” that I happen to work at daily that didn’t seem passive to me. Actually, in the majority of cases, you can replace “passive income” with “residual income” or “work a lot for income.”
Four “How to Create Passive Income Streams” Myths
Here are four passive income stream myths that I have seen over the years:
Royalty Income is Passive Income.
This is completely false.
Book royalties, for example, require you to actually write a book – which was work the last time I checked. (Not to mention market the book and also build an audience that reads your books – also very tough). Royalty Income is, however, residual income. You have levered a certain amount of time and effort into creating something that continues to pay you in the future.
The only time I received royalty income for an intellectual property creation was for a series of shows I created. Of course, this was only possible based on a lifetime of work in the entertainment industry, and my reputation developed over 25+ years. (Oh yeah, also don’t forget about the years I spent developing the licensed product.)
Stock Market Dividends (or other securities investments) are Passive Income.
Again this is false.
You need to get capital to invest in the first place. Making money to have to invest requires work. You also need to research your investments (or investment advisor) and monitor their performance.
I believe you also have to be actively involved in managing your investments (there is a whole industry out there that is working against you, trying to separate you from your money). Investing in companies allows you to leverage the output of that company’s entire workforce, marketing, products, patents, and all of their assets – generating more income.
There are a lot of free tools out there that you can use to monitor your investments (Seeking Alpha is a great example). Leverage that technology and take control of your investments!
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Real Estate Generates Passive Income.
I currently own commercial, multi-family, short-term rental, and industrial real estate. “Passive” is probably the furthest thing away from an accurate description of the owner’s experience.
There are repairs, maintenance, tenant relations, guest relations (in the short-term rental world), taxes, insurance, legal issues, and the list goes on and on. Yes, you can hire a management company, but you need to watch them to ensure that your properties are managed properly.
You can leverage your property ownership by charging rent and making reoccurring income, but it is a far cry from passive income.
Online Businesses Generate Passive Income.
I have always been a geek and love computers and the internet.
I had one of the first IBM desktops (remember the big floppy disks!), as well as one of the first Apple Computers. Over the years, I have created eCommerce stores, SaaS (software as a service) applications, digital marketing businesses, domain sales businesses, affiliate websites, and cryptocurrency mining operations.
I think that the internet and computers are hands down the biggest lever (see a pattern here about the levers?) to help you create RESIDUAL income streams. Generating income online takes a lot of work, but it is absolutely amazing when it works.
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How to Create Passive Income Streams? Ultimately, You need to work.
You have to work to make money, make it work for you, and really work hard to keep it. (But you can work smart.) The above faux ways of creating passive income streams are great opportunities to leverage income, but they are definitely not passive.
You need to focus on the levers that deliver the maximum reward for the least amount of “pull and repeat.”
This article was very informative, I’m sure it will save time for people who are looking for ways to get passive income and avoid getting the wrong information.
Glad you enjoyed the article – check back often as I update it with new information.
Yeah, I think we should use the term “residual income” more because that is what it actually is versus “passive income.” Earning income will always need a bit of work to make it happen.
Agreed. Earning money takes work. Thanks for the comment.
Passive income can really help a person. Unfortunately, you really need to strive and gamble in order to achieve what you really want.
I would say “take risks” versus “gamble”. Risk can be calculated and if you view your failures as learning events, they become part of the process of your journey to success.
We need to be aware of various online business scams on the internet with the lure of passive income. I believe that an online business is not much different from an offline business, where everything still requires skill, effort and time.
Thanks for the comment Suzy.
Agreed, there are a lot of scams out there – both online and offline. Remember – if it sounds too good to be true, it probably is.
Passive income is a life changer for good. While trying to make money online, you should also be aware of various scams online too. This article is so educative and lifeguarding in nature. Thanks for posting this.
You are welcome – thanks for reading and taking the time to comment.
Indeed, it should be called residual income stream and not passive income. I agree with you that passive income simply doesn’t exist.
Unless you know of someone that just puts money in your bank account. (If so, please introduce me). Thanks for reading and the comment Roy.
Thanks for covering the notorious passive income myths. I wish more people could read this before believing in such myths.
Marketers have made that connection in people’s minds that passive income equals free income – it is much easier to sell something when the prospect wants to believe what you are saying. Conversely, it is more difficult to convince someone that it is not true when they want to believe that it is true.
Thanks for reading and taking the time to comment.
All income a person gets had to have been worked for at some point. That basically makes all income a type of active income.
However, by using tools and concepts that lever the work effort and pay residuals long into the future, you can reduce the amount of effort and risk need to generate that “active income.”
I have to admit I was one of the people that believed in royalties being a passive income. Thanks a lot for the eye opener!
Nope – royalties are not passive income.
You either have to work at making the product and then sell it to get the royalties or make the money to buy a royalty income-producing product (like in the case of oil well royalties).
Finally someone who isn’t afraid to debunk the myth of passive income! This has been such a refreshing read. Thanks for sharing 🙂
Thanks for comment!
I have tried the so called passive income streams and I must say it’s all a lie. You have to work your ass off for anything!
You have to work, but by leveraging that work using the right tools and focusing on the right business models, you can build significant residual income. Thanks for reading and the comment.
The bottom line is that nothing comes on a silver platter. Even for passive income you have to put in some effort first. Great article indeed.
Generating online income is one of those things everyone longs for but isn’t willing to put in the required effort. It’s really amazing when it works out though.
Focus on leveraging your efforts and on the right types of businesses and you will get there. Thanks for the comment.
The stock market can be a source of a lot of headache if you don’t know what you’re doing. It needs a lot of research to get right.
Very few people and “beat” the indexes.
Follow Warren Buffett’s advice and buy index funds. You are leveraging the technology that mirrors the index, freeing your time up for other endeavors.
The real passive income is when you are able to invest millions in the bank and live on the interest. But even that requires a lot of initial capital.
But it is not passive income – it is residual income.
You have to work really hard to build up the millions in the first place.
Inasmuch as this write up may discourage some, it is absolutely true. It’s better to know the truth than to live in delusion.
If you lie to yourself, you will never get anywhere. You need to “own it” – own your successes and failures. It is the only way to get better.
Amazing article as always! I really hated “HOW TO CREATE PASSIVE INCOME STREAMS” myths since sadly, a lot of people believe in them because they thought they would become rich in an instant. I will definitely share this article around! Thank you for this,
Thanks for reading and taking the time to comment.