Passive Income is a Myth

Passive Income Is a Myth

Yes, I said it. Passive income, like the unicorn and leprechaun, is a myth. It makes for great stories – and lots of sales, but it does not really exist.

Income comes from lots of hard work and hustle. It is not a result of pressing a button and relaxing on the beach.

Don’t misunderstand me. You can set up a great business to allow for a flexible work schedule – and maybe even reduce your total number of hours worked. But make no mistake, you are still working. With no disrespect to my colleagues, such as Pat Flynn at, he is one of the hardest working people on the Internet! Think about that – the guy who runs the website called Smart Passive Income is working really, really hard!

Think about any Internet guru (or any guru in any industry). They are everywhere – being interviewed in TV and radio, sending emails all the time, creating new products, training, coaching, and more. There is nothing passive about that stuff! It might be what they enjoy, but they are still performing these business and work related tasks all the time.

What is Passive Income? Really?

Perhaps the issue is how we define passive income. I have heard presentations where you see a picture of someone on vacation and they say, “And while I was playing pool basketball with my kids I made $5,000.” Great. But what makes it passive? The 100+ hours you logged before vacation to get the product sales page setup – without compensation? Now, earning $50 an hour is not bad… but the guy still put in the hours.

Guess what? I took a vacation last year, and I use vacation leave from my employer. So I made money while I was on vacation too! And it was passive income. I didn’t work for it. My employer just paid me! But nobody wants to consider that passive income. Yet it fits the same definition. I work all year and get paid for my efforts, but sometimes I can relax and not work yet I still get paid.

The point is that I had to work all year to earn the right to take leave and get paid for not working. That is all a passive income business is as well. Work really hard for a long time to set a system in place so that you can finally start getting rewarded for all the hard work you had been putting in without compensation.

Basically, passive income is really just deferred compensation. You get compensated well after you put in all the work. Imagine working for your boss for six months without getting paid, then she says, “Take some time off, you deserve it. And while you are away, we will pay you for the 6 months you already worked for us.” That is deferred compensation! And nobody would stand for it! The difference is that when you own your own business, that is what you must do.

Is Passive Income Possible?

Now, there are three ways to actually receive passive income.


The first is through investing. But that takes a lot of money up front (which you had to first earn) to get a decent amount of passive income. If you are already wealthy, you can invest your money and live off the dividends.


The second is from publishing a book through a traditional publisher (or another product sold in similar fashion). If the publisher puts a sales team behind the book, then they will do all the selling for you. Of course a book that retails for $19 will probably net the author about $1. That means if you are willing to give up about 95% of the retail cost of the item, you can collect on it passively. But to write a book – the kind that a reputable publisher will print and market – takes a lot of time to build your reputation, to research, to write, to edit and so on. All while taking the risk that the book will never sell and you will never receive any real compensation!


The third way is to outsource your whole business. Take a blog for example. If you can outsource the writing of the content, the website administration, the social media marketing, the product creation, the customer service, etc. then you essentially have established a passive income. But to get there, you have to do a lot of work up front, manage a lot of people, and give up about 95% of the profit – at least in the beginning.

I am not dispelling this myth to frustrate you or make you feel like you are chasing a dream. I am trying to help you see that all the hard work you are putting in means that you are on the right path! If you are working harder than you imagined, then you are doing it right!

How Do the Gurus Make Money Online?

The “Big Boys and Girls” of Internet marketing and blogging are working just as hard as you are – or maybe even harder! They are running a business, not a hobby. Yes, they make a lot more money, but they are not working less. And they are investing their money into their business. Many of them spend money on ads. They all spend money on hosting, website themes, plugins, software and other services. They invest in themselves through coaching, training and books. Basically, they run a business. And there is nothing passive about that.

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Bill Pratt

Bill is an Assistant Professor of Business at Piedmont Virginia Community College. He speaks on topics related to personal finance on college campuses across the country and is the author of multiple books on personal finance. He left the financial industry to focus on helping people become personally and financially successful. He lives in Charlottesville, VA with his wife and their three pets.

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