Becoming a Financial Coach has been eye-opening. As part of my research, I follow some other coaches on Instagram, and boy – are they into “Passive Income.” What is passive income, and is it possible to live off of it? First, let’s define a few terms.
Passive income is income derived from assets that don’t require any work or maintenance. Examples can include rental income, dividends, or limited partnerships.
Many of the “passive income” gurus talk a lot about reaching “financial freedom” and getting there in their mid to early thirties. What exactly is financial freedom? For me, it was when I felt like I could do the F You scene from Half Baked. For others, it might be not working at all or somewhere in between.
Let’s take a look at a few alleged types of passive income and see how realistic it really is.
Real Estate
Yes, people can and do make money owning and renting homes and apartments. To do so they need capital or access to capital. That requires a W2 in order to get a mortgage and a downpayment. Once you own the property, you have to maintain it, market it, collect rent, draw up contracts and do the job of a landlord. To make money doing this you need to have scale, which requires more capital, more management, and more work – hardly passive.
Stock Market
I have seen Financial Coaches talk about dividend-paying stocks and living off that income. Ok, I like it. I guess you will take the earnings from the apartments and use that money to invest, to begin with? How will you know what stocks to pick or should you do a bond fund? I suppose you can hire someone to guide you, or you can spend the time doing all the research. People go to school for that and get paid to do it – it’s a job. Not passive.
In addition to just stocks, I see coaches talk about things like covered calls and other more sophisticated ways to invest. Sophistication does not always mean less risk – often the opposite. Sophistication is usually pretty expensive. Nothing ruins your rate of return like expensive investments! You have to know A LOT to do this. Not passive.
Side Hustles
The third most common way to have “passive” income I see is to write blogs and articles for other people. Unless you use AI to do it for you, then you working. You also need to get into sales so that you can sell your writing service. Not Passive.
At the end of the day, there is no getting around work to make money and live your desired lifestyle. Having 7 side hustles and calling them “streams of income” is not living off passive income, it is doing 7 jobs you don’t hate instead of 1 you do.
Though each of those things – owning property, investing, and earning some extra cash are all awesome they are not easy. The “easiest” thing you can do is find a career you love, live beneath your means, and pay yourself first. If you do those 3 things, you will find financial freedom and have fun along the way.