Financial Mentor

  • New Visitor? Start Here
  • Member Login
Member Login
×Close
  • Home
  • Calculators +
  • Resources +
  • Topics +
  • Products +
  • Coaching +
  • Podcast +
  • About +

Invest smart. Build wealth. Retire early. Live free.

FacebookTwitterPinterestLinkedIn

The Great Passive Income Hoax

By Todd Tresidder
Advertising Disclosure
Financial Mentor has commercial relationships with certain companies we reference on this website. Opinions are ours alone, and we take a good faith approach to maintaining objectivity. If we wouldn’t use a product ourselves, we won’t recommend it. We strive to keep information accurate and up-to-date, however, all products are presented without warranty.

Financial Mentor has partnered with CardRatings for our coverage of credit card products. Financial Mentor and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.

The Truth About Passive Income… Exposed!

Key Ideas

  1. Why there's no such thing as passive income.
  2. Discover how passive income is actually leveraged income and what that means for your business.
  3. Reveals how to leverage income the correct way so you succeed with your plans.

Business passive income is a lie.

It's one of those myths that has been perpetuated for so long by so many experts we no longer question its validity… even though we should.

After all, who wouldn't want an endless stream of cash flowing into their bank account without lifting a finger? That's the passive income promise, and it has wide appeal.

Network marketing companies are built on this dream, seminar promoters have gotten rich selling it, and neophytes love the concept.

In short, selling the passive income dream is big business. The only problem is… it's all a lie.

Get This Article Sent to Your Inbox as a PDF…

 

Business passive income isn't all it's cracked up to be. Most people have unrealistic ideas of what passive income is. Here's why it doesn't exist the way you think it does.

Let's Put This Nonsense To Bed And Set The Record Straight…

Unless the “passive income” comes from a truly passive investment source like a publicly traded stock, bond, or annuity, then there's no such thing as passive income.

It doesn't exist except through passive investing.

Related: The inconvenient truth about buy & hold

Take my ebooks as an example…

In the get-rich-quick world of internet marketing, they would be considered passive income.

I write it once, post it as available for download, and watch the cash roll in as people buy the book electronically and download it automatically.

I never lift a finger, and the cash just flows into my bank account.

Right?

Well, not exactly…

First, I have to spend months researching and writing the book. That's only after I have a valid product idea based on my extensive knowledge of my target market's needs, learned from years of directly working with them.

Then I have to spend even more time learning all the technology necessary to create the book and implement the automated sales system.

I have to invest in the cover, software, and monthly overhead to run the system.

I also have to spend more time learning how to market the book, which involves implementing all the marketing tasks so people who need the solution contained within the book can find it.

Then I have to answer customer inquiries when someone can't download the book, and answer questions from paying customers after they buy the book.

Oh, and don't forget, I still have to account for my sales by maintaining proper records, filing the company tax return, getting a government business license, satisfying trademark requirements, recording the ISBN number, battling copyright violators, and about 30 other things I failed to list here.

Hmmmm, that doesn't exactly sound like passive income to me. It sounds like a lot of work!

Related: Here’s a scientific system to build your wealth now

The truth is I had to put in a ton of work up front before I ever made my first dime on an ebook, and I still have to run the business once the product is selling.

The “experts” will argue with my example by claiming I could outsource the ebook research and writing to a virtual assistant in India or the Philippines.

I could also outsource all the other work related to the ebook business and recline on a hammock sipping umbrella drinks while the cash rolls in.

I've tried it and here's the problem: you either write it yourself or pay the price because you have to extensively edit a VA's writing.

You either do the work or you pay the price in training, research, and management of the VA. It's all work in the end. There's no getting around it.

One way or another, you pay the price.

Again, there's no such thing as passive income unless it comes from a passive investment like dividend stocks, bonds, or annuities. Business passive income is a lie.

The Difference Between Passive and Leveraged Income

Ebooks, membership sites, royalty income, and all the other models bantered about in the get-rich-quick / lifestyle-entrepreneur world are leveraged income models. They aren't passive income.

See My Related Book…

How Much Money Do I Need to Retire?
Amazon Kobo B&N iBooks

Leveraged income models are characterized by taking risk and paying a large price up-front in terms of time and/or money with the hope of reaping disproportionately large rewards down the road.

It's amortized income because you get paid down the road on an up-front investment. It's not passive income.

Going back to my ebook example, I spent an extraordinary amount of time up-front researching and writing.

I then spent more time marketing the ebooks to attract targeted buyers through the internet… before I ever made a dime.

Buyers get the benefit of $50,000 worth of my time and highly edited, specific knowledge efficiently delivered for just a few dollars.

(I've always said books are the greatest deal in financial education. Now you know why.)

The only reason it makes business sense for me to do this is because my up-front efforts will produce an income stream for decades into the future with minimal ongoing effort.

In addition, they provide an affordable entry-level product that builds relationship and trust with potential clients for my more expensive products and services.

However, it's not passive income.

I'm leveraging my time and knowledge through information technology to deliver a long-term income stream that amortizes the massive price paid up-front before the first dollar is ever earned. It's hard work.

That's how leveraged income works. It can be a good business model because it's scalable and offers many benefits, but it also involves various risks, an up-front investment of time and money, and plenty of good ol' fashioned work.

The Final Nail In The Coffin

Passive income implies something for nothing. Just sit back and watch the money roll in while you do nothing. After all, it's “passive”… isn't it?

Sorry, no such beast exists in the business world, so get over it and don't waste the mental space on such nonsense.

Related: Why you need a wealth plan, not a financial plan.

This isn't just a rant. It's important to get crystal clear on this issue because if you build your business model on a false premise, you'll get disappointing results.

I help people design their wealth plans every week as part of my wealth coaching practice, and there's a right and wrong way to apply leveraged income.

The wrong way is the passive income hoax (which also happens to be the most common way).

The right way is to design your plan with the up-front costs, time lag, and ongoing effort required relative to the income generated built into it.

You have to plan for the lack of cash flow while you pay the up-front costs. You have to get this stuff right or you won't succeed.

When applying leveraged income to build wealth, prepare for the lack of cash flow while you pay up-front costs.
Click To Tweet

Yes, you can work smarter instead of harder.

Yes, you can create more income with less effort through various forms of leverage.

But there's no such thing as passive income in business.

It's a lie.

Pyramid

"Discover The Comprehensive Wealth Planning Process Proven Through 20+ Years Of Coaching That Will Give You Complete Confidence In Your Financial Future"

  • Get a step-by-step action plan to achieve financial independence - completely personalized to you.
  • How to live for fulfilment now, while building wealth for the future.
  • No more procrastination. No more confusion. Just progress and clarity

Expectancy Wealth Planning will show you how to create a financial roadmap for the rest of your life and give you all of the tools you need to follow it.

Learn More...

Want a PDF of this article? We'll email it to you!

+ =

Related...

Multiple Streams Of Income - Truth Revealed
Reduce Your Risk by Increasing Leverage - 5 Uncommon Strategies
The Little-Known Factor That Determines Your Wealth
The One Thing Stopping You From Creating Wealth (It's Not What You Think!)
The Secret To Building Wealth (That Actually Works, But No One Wants To Hear)
The Ten Commandments Of Wealth Building
The Way To Wealth By Benjamin Franklin
Wealth Building Secrets Of The Forbes 400
What Big Wall Rock Climbing Can Teach Us About Wealth Building
What Endurance Athletes Can Teach Us About Building Wealth
Why Most Wealth Building Systems Fail
Compound Interest Calculator
Share:FacebookTwitterPinterestLinkedIn

Comments

  1. AvatarLarry Weber

    .Todd,

    This is a great article. I like that you called business passive income a “lie”. You’re right on the money with that comment.
    . The get rich guru’s are constantly selling passive income snake oil. Thanks for clearing up this myth (lie).

    • AvatarTodd Tresidder

      @Larry – Thanks Larry. Good to hear from you again.

  2. AvatarJeanna Gabellini

    HA! I learned this long ago in network marketing..if you don’t run it like a business then you won’t make money. And like you, Todd, all my fabulous downloadable products need to be constantly marketed or nobody will know they exist.

    I think the BIG fat lie we used to hear all the time about rental properties is the one that really cracks me up. Passive? Hmph!

    I love that you are such a straight shooter!

    Jeanna

    • AvatarTodd Tresidder

      @ Jeanna – Yes, I’ve chased all these myths including the passive rental property income myth. It is part business/part investment as well.

      You are 100% correct when you point out they must be run like a business or they won’t make money.

      It is all work. It is all a grand adventure.

      Thanks for your input.

  3. Avatarjeff

    wow..you really hit the nail on the head. it’s sort of like the myth of you get 2, and they get 2, and soon you’ll have 5000 people in your downline…

    the real problem is outside of this myth is how the top marketers in the internet marketing arena make all the money. you want to blow the lid off the industry…there’s your article. you may offend some, but the truth may set the industry free.

    • AvatarTodd Tresidder

      @Jeff – Thanks for your input.

      My goals are a little more modest than “blowing the lid off the industry.”

      I just want to help people achieve their financial goals and one way to do that is to avoid some of the more obvious potholes.

      When I write these articles it’s usually because I’ve fallen in the pothole and had to learn the hard way.

      Hopefully this article helps a few people in my community avoid a similar mistake.

  4. AvatarDustin

    Reading this article affirms alot of what I thought about business. There really isn’t a way to become wealthy passively unless you are really lucky or are very patient and thrifty. Lets get real though, even if it you could get rich doing very little what would it do for you? Make you lazy? Dumb? Destroy your ambition? Maybe this is a little too philosophical for finance but people define thier lives through pain not pleasure. I don’t remember near as much about my high school graduation day as I remember the 12 years I slaved to get a diploma. Infact if you go through everything important in your life it invariably involves difficulty, lots of time and of course pain. Trying to build something to be proud of without pain is kind of like trying to get around the nature of life. I think the sooner you make peace with it you’ll embrace life instead of trying to escape it. I’m no better than anyone else. I haven’t accepted it yet myself but thats because I really don’t know how. I suspect what most people need(myself included) is a little philosophical guidance and personal finance. The rest will come with time.

    • AvatarTodd Tresidder

      @ Dustin – Your comment made me think of this quote…

      “Perhaps the most valuable result of all education is the ability to make yourself do the the thing you have to do, when it ought to be done, whether you like it or not; it is the first lesson that ought to be learned; and however early a man’s training begins, it is probably the last lesson that he learns thoroughly.” Thomas Huxley 1825-1895

  5. AvatarSteve Farwig

    Hi Todd,

    Another winner!. I have recently had similar thoughts regarding my own business. We as business owners can at times marginalize our own results and think that what we may have is a passive income like business. Like you pointed out your business may take on passive income characteristics but the time, effort and capital to get it there was anything but passive. In my case my wife and I worked two to three jobs each for about five years with no debts or children in order to start our base of capital in real estate. Then with each new purchase we were completely tapped out only to work like dogs to get each property in the condition we expect to match our standards for vacation renters. It has become a business or a job but one we created and it is nice to know that we don’t have to rely on someone or something else to provide for us and our family. I can say that I am living my dreams now but the process to get here has not always been dreamy!

    Thanks again,

    Steve

    • AvatarTodd Tresidder

      @ Steve – Thanks for sharing. It is the honest reality that not enough people discuss.

      Years ago I thought I was all screwed up because all the gurus talked up passive income and made it sound so easy. I wondered what was wrong with me – why didn’t it come easily to me? Since then I’ve traveled similar journeys multiple times including with this business right now. I know how the game works based on experience so I don’t have to wonder anymore.

      The truth is it’s hard work. It can be a lot of fun. I’m not saying anything negative. I love building leveraged income models, but I also want to be clear about the up-front price that gets paid so that others aren’t deceived or think something is wrong with them. The process is easily misunderstood because all you see is the gravy train on the backend.

      Thanks for reinforcing the truth by sharing your own experience.

  6. AvatarBen

    I think people who say there is no such thing as passive income never experienced passive income.

    Yes, passive income system take work to set up, but once it’s done right, it can be passive. Nobody is suggesting you *never* have to do any work in the beginning.

    Affiliate marketing can be a form of true passive income when done correctly. I have one particular website that generate income for me month after month without skipping a beat. I could be kidnapped on a deserted island and my website would keep generating income for years and years. If I neglect if too long, yes, it will go to the wayside, but spending only a few hours a year on updates is passive enough for me!

    • AvatarTodd Tresidder

      You’re simply redefining the term “passive”. It changes nothing as stated in the article.

  7. AvatarVeronica

    When I think about passive income I think of many other things that don’t all include, or are transitioning into internet marketing. For example, Wal-Mart is truly passive is it not? Sam Walton started that business one time, and now it is passive income for himself, and his family. Now, Wal-Mart wants to go online like an Amazon, another completely passive income created by Jeff Bezos. When you say leveraged income for the purposes of writing, and selling your book, that is something different all together. People write books when they want to get hired as a consultant, or expert in a field. I’m sure retail isn’t the only examples of passive income created by entrepreneurs who created an income that pays them while they sleep. I was in a group with someone who created a supplement, started marketing it, and now makes six or seven figures per month. No book necessary. My point is that passive income isn’t only for retail, software, or MLM. Anyone can put together a simple system that will pay them over, and over again while they do something else.

    • AvatarTodd Tresidder

      Veronica, I don’t disagree with your basic conclusion, that anyone can create passive income. However, I do disagree with much of what you shared in your comment. The devil is in the details. For example, nobody is going to just give you money so the idea of “putting together a simple system that will pay you over and over again while you do something else” is a bit misleading. While the methodology might be simple in principle, it can be quite a bit of up-front work to create. You must figure out a way to give more value than you take so that people willingly give you money for that value, and you must structure it in a business system that doesn’t require you time. Yes, that’s simple in principle, but it may not be all that simple to create. Additionally, you have to be very careful with the word “passive”. Most “passive income streams” are characterized by one, or both, of the following characteristics – delayed gratification for work that was never compensated up front, or return on invested equity that was earned elsewhere over time. Those aren’t just meaningless distinctions, but in fact inform the actual strategy you’ll use to create them. My experience is that passive income isn’t really passive, but is just delayed gratification or manageable, compartmentalized work. For example, my books are an extraordinary amount of work up-front to create, and this site that drives many of the sales requires ongoing work that can be managed as I choose giving me freedom, but not passivity. The point is to get away from the word “passive” and clarify how the process works in practice so people can attain the real goal – freedom in lifestyle by not having a job own all your time just so can put food on the table. I hope those nuanced clarifications are helpful.

  8. AvatarMorgan L Smith

    Hello Todd, I have been researching different ways to take my life in a different financial direction for a few years now. I started a business where I sold stuff I made, that didn’t really take off, then started a business where I resold things I found in bulk that where worth reselling, that stayed slow, and then came across passive incomes, and eventually found this article. The common denominator in all of this seems to be marketing, I have such an impossible time trying to market anything that I think it is my biggest issue and I cannot seem to figure out what to do to fix it. My next idea is to start writing a book I have wanted to write for a while, I do not know if I will make it strictly an E-book or not but I wanted to ask you how you market your books and such or do you have resources to find maybe a business mentor. I badly want to work for myself and eventually spend free time inventing but I need to gain solo financial stability first but I feel so lost. Is there any chance you can help me?

    • AvatarTodd Tresidder

      I know this sounds self-serving, but my Expectancy Wealth Planning course https://www.financialmentor.com/educational-products/seven-steps-to-seven-figures/wealth-plan explains how you put all the pieces together. It shows you how to integrate all three asset classes into a comprehensive plan matching the specific characteristics of each asset class to your unique skills, resources, and interests. In addition, it shows you how to manage risk. The course tuition is much cheaper than continuing to make all those mistakes. It should accelerate your learning curve and more than pay for itself many times over. I hope that helps!

This article’s comments are closed.

Financial Freedom For Smart People
Book Series

the leverage equation
Amazon Kobo B&N iBooks
how much money do I need to retire
Amazon Kobo B&N iBooks
4 Rule Safe Withdrawal Rates In Retirement
Amazon Kobo B&N iBooks
Variable Annuity Pros and Cons
Amazon Kobo B&N iBooks
Investment Fraud
Amazon Kobo B&N iBooks
Don’t Hire a Financial Coach!
Amazon Kobo B&N iBooks
  • How Anyone Can Retire Early In 10 Years (Or Less!)
  • How To Build Wealth (It’s Ridiculously Simple)
  • The Ten Commandments Of Wealth Building
  • The Secret To Happiness… And Why It Has Nothing To Do With Money
  • 12 Tips To Build Wealth For Early Retirement
  • How To Get Out Of Debt – The Complete Guide
  • The Great Bond Bubble Is Now! What’s Next…
  • Pay Off Mortgage Early Or Invest: The Complete Guide
  • What Endurance Athletes Can Teach Us About Building Wealth
  • The Parable Of The Mexican Fisherman And Investment Banker
  • FM 026: Understanding What Todd Means By “Epochal Change”
  • When is the Right Time to Buy Life Insurance?
  • How To Consolidate Debt, The Smart Way
  • How Much Does Life Insurance Cost?
  • How Anyone Can Retire Early In 10 Years (Or Less!)
  • How To Build Wealth (It’s Ridiculously Simple)
  • How Does Life Insurance Work?
  • Do I Need Life Insurance? Why Is Life Insurance Important?
  • How Much Life Insurance Do You Need?
  • Optimize Your 401(k) Today [Includes Free 401(k) Analysis Tools]
  • Are Safe Withdrawal Rates Really Safe?
  • 7 Key Reasons Why Financial Education Is Your Best Investment
  • 10 Commandments of Investment Strategy
  • Andrew Carnegie “The Gospel Of Wealth”
  • Multiple Streams Of Income – Truth Revealed
  • Retirement Planning Checklist
  • The Smart Alternative To Retirement Planning
  • What Is A Good Investment?
  • Pay Off Debt Or Build Wealth? What To Do First…
  • The Minimalist Guide To Financial Planning
  • Retirement Planning
  • Investment Advice
  • Financial Advice
  • Wealth Building
  • True Wealth
  • How Much Do I Need to Retire?

Testimonials

My impression of your abilities as coach and mentor are that you are solid, capable, experienced and sincerely committed to the visions and goals of your clients. I feel strongly that I made the right decision in partnering with you as my coach.
Diane ButlerIndependent CoachRocklin, CA
See All Testimonials Legal Disclaimer

More from Financial Mentor

New Visitors Start Here
Financial Freedom Course
A Smarter Way To Invest
Todd’s Books

Click Below To Learn How To...

Invest smart. Build wealth. Retire early. Live free.

Financial Mentor

Get Your FREE Wealth Building Tooklit:

  • FREE COURSE: 52 Weeks To Financial Freedom
  • FREE BOOK: 18 Essential Lessons From A Millionaire
  • Tools and Tips Not Found On This Site
Free instant access

Calculators

Retirement
Mortgage
Credit Card
Debt Payoff
Auto Loan
Savings
Investment
Loan
Personal Finance
Compound Interest Calculator
Debt Snowball Calculator

Learn More

About Financial Mentor
About Financial Coaching
Our Books
7 Steps To 7 Figures
Podcast
Todd R. Tresidder
Press Room
Contact

Resources

How To Invest Your Money
Recommended Reading
Recommended Tools
New Visitors Start Here
Ask Todd
Courses
Books
Audio

Facebook Twitter Google Plus LinkedIn YouTube RSS Pinterest iTunes

Home   Privacy Statement   Terms of Use   Contact Us

Copyright © 2000–2023• Financial Mentor • All Rights Reserved Worldwide
The information contained on this web site is the opinion of the individual authors based on their personal observation, research, and years of experience. The publisher and its authors are not registered investment advisers, attorneys, CPA’s or other financial service professionals and do not render legal, tax, accounting, investment advice or other professional services. The information offered by this web site is general education only. Because each individual’s factual situation is different the reader should seek his or her own personal adviser. Neither the author nor the publisher assumes any liability or responsibility for any errors or omissions and shall have neither liability nor responsibility to any person or entity with respect to damage caused or alleged to be caused directly or indirectly by the information contained on this site. Use at your own risk. Additionally, this website may receive financial compensation from the companies mentioned through advertising, affiliate programs or otherwise. Rates and offers from advertisers shown on this website change frequently, sometimes without notice. While we strive to maintain timely and accurate information, offer details may be out of date. Visitors should thus verify the terms of any such offers prior to participating in them. The author and its publisher disclaim responsibility for updating information and disclaim responsibility for third-party content, products, and services including when accessed through hyperlinks and/or advertisements on this site.
×

Yes, Send My FREE Wealth Building Blueprint!

  • E-Course: “52 Weeks to Financial Freedom”
  • Audio: Get my top tips
  • E-Book: "18 Essential Lessons From A Self-Made Millionaire"


×

Yes, Send My FREE Wealth Building Blueprint!

  • E-Course: “52 Weeks to Financial Freedom”
  • Audio: Get my top tips
  • E-Book: "18 Essential Lessons From A Self-Made Millionaire"


×

Yes, email me a screenshot of my calculator results!

We’ll email you a screen print of the calculator you just completed, exactly as it appears on your screen. We don’t save any of your data: it’s just an image. You can unsubscribe whenever you want.


Calculator screenshot sample
Sample Screenshot
×



Learn the difference between leveraged income and passive income so that you can build a wealth plan that works.
×

Enter Your Email And We’ll Send You A Convenient PDF Of This Article!



Learn the difference between leveraged income and passive income so that you can build a wealth plan that works.
×

Tell us where to send your 2 video guide showing UNCOMMON strategies for ACCURATELY calculating how much you need to retire…



Free video tutorial
×

Tell Me When The Course Is Ready!

You’ll learn how to make more by risking less.


×

Tell Me When The Course Is Ready!

You’ll learn how to calculate your retirement number with confidence.


×

Hey, I understand that buying this course is an important decision. That’s why I let you…

Test Drive The Course – FREE!
Get 5 Sample Lessons Immediately

  • No cost or obligation.
  • No hooks or gimmicks.
  • The goal is to let you experience the quality for yourself.
  • I just need your email address to send them to you.
  • You can unsubscribe anytime.
Yes! Send me 5 sample lessons
No cost or obligation. Quit any time.
The only way you lose is by not trying.
×

Take your financial strategy to the next level…

Get 5 FREE Video Lessons With Uncommon Insights To Accelerate Your Financial Growth

  • No cost or obligation.
  • No hooks or gimmicks.
  • The goal is to let you experience the quality for yourself.
  • I just need your email address to send them to you.
  • You can unsubscribe anytime.
Yes! Send me 5 sample lessons
No cost or obligation. Quit any time.
The only way you lose is by not trying.