May 23, 2018 8 min read
Opinions expressed by Entrepreneur contributors are their own.
Wouldn’t it be great to earn money while you’re relaxing on the beach?
Few concepts are more appealing than passive income. After all, what could be better than making money without having to do any work? When you read headlines that Amazon founder Jeff Bezos currently earns over $230,000 per second, it’s only natural to start wondering how you too can earn money when you’re not working.
Even if you don’t generate as much passive income as Bezos, an additional source of revenue could allow you to leave the daily grind of the 9-to-5 workday so you could pursue entrepreneurial dreams or travel the world.
But, generating passive income isn’t as simple or straightforward as some of the world’s richest people can make it seem to be. Figuring out how to generate a steady flow of cash requires a fair amount of work. Even more importantly, it requires that you dedicate your own time and investments in the right areas.
If you’re serious about using passive income to increase your quality of life, you can’t afford to fall for these seven persistent myths.
1. You can “set and forget” your revenue streams.
This is perhaps the most dangerous myth associated with passive income.
We all like the idea of not needing to do any additional work after setting up a blog or online store. But, real life is never so simple. Blog visitors expect new content on a consistent basis. People who enroll in an online class expect personalized support when they encounter a problem. The internet itself is constantly changing.
If you aren’t doing your part to stay on top of industry changes, customer expectations and other responsibilities you’d find in any “active” business, your passive income will quickly dry up. Even when you delegate responsibilities, you’ll need to check in with your team to make sure tasks are being performed up to your standards. You’ll also probably need to continually fine-tune your idea to help it stay relevant.
Passive income still requires an active presence.
2. You only need a single weekend to get started.
It’s easy to assume that anyone can toss together a blog or another passive income source in a single weekend. In reality, creating a source of revenue that will deliver lasting results requires a lot of research and work before you even earn a single penny.
Even something as seemingly simple as starting a blog requires extensive research and planning.
According to R.L. Adams, bloggers need to find the right niche, choose a web hosting platform and buy a domain name just to get started. After that, they still need to learn about browser caching, SEO, permalinks and more — and don’t forget about writing good content and uploading quality images!
Needless to say, you probably won’t be able to do all this in a single weekend.
Be willing to take the time to learn the specific opportunities and challenges related to your idea, and put in the effort to get it right. This isn’t a race. Quality will win over speed every time.
3. One solid source of income is all you need.
Another dangerous myth of passive income is that you can generate all the money you need with a single source of revenue. This is like putting all your stock market investments into a single company. If that stock does great, you’ll be rich! But, if its prices fall, you could find yourself practically broke.
As with stock market investments, it’s better to diversify your income sources, especially if you’re planning on having these revenue streams replace your current job.
For example, bloggers with relatively low web traffic use everything from affiliate links and selling their own products to offering online courses and freelance writing services to generate extra income. By diversifying your revenue streams, you’ll have a greater likelihood of earning enough to support your needs.
4. Real estate is the safest form of passive income.
With home and property values increasing at a rapid rate across the country, many individuals are falling for the idea that property management and home flipping are straightforward methods of generating passive income.
In reality, successful property management is never truly “passive.” Property repairs and updates, dealing with bad tenants and other unexpected expenses are surprisingly common, eating away at the income you would hope to generate from such endeavors.
It quickly becomes clear that property management and other real estate investments rarely generate the ROI investors expect. In fact, an infographic by Max Cash Home Offers reports that, in a study conducted by the company, one-third of all property managers said they “would not buy their space again.”
Management expenses make even “basic” personal finance tips like paying off credit card debt and maxing out IRA contributions a better option for long-term financial stability. Selling a property, rather than attempting to manage it, is ultimately a safer (and easier) solution.
5. You need a business idea to earn good money.
When you read about passive income, it can be easy to get caught up in the idea that you need to become an entrepreneur or buy up property. But, this isn’t necessarily the case. Many individuals generate all the passive income they need simply by putting money in savings and retirement accounts.
While such accounts may not seem as lucrative as an exciting new business idea, they serve as a much lower-risk solution for those hoping to have enough to fund their future plans. Most investors say you should expect a 5 percent return on investment from your retirement accounts each year.
That may not sound like much, but as you consistently add to these accounts over time, the growth can prove significant. Saving a little extra each month can make a big difference in the long run.
6. You’ll naturally come up with great ideas.
“If you build it, they will come” may have worked great in Field of Dreams, but it’s rarely a recipe for success when launching a business that you hope will generate passive income.
Even when you’ve done your market research and know you’re creating something that people will be interested in, this doesn’t mean they’re going to find your blog or product on their own.
A website alone isn’t going to be enough for potential customers to find you. You’ll also need to take advantage of supporting marketing channels such as social media, email lists, SEO and PPC campaigns and even participation in industry groups and forums.
Ironically, ensuring that customers find your “passive revenue” source requires action.
Don’t be afraid to reach out to other successful blogs about guest posting opportunities so you can generate positive buzz related to your own brand. The more you do to get your name out there, the easier it will be for the right audience to find you.
7. You need money to start earning passive income.
From investing in the stock market to starting a small online business, many people assume that they need a lot of money to start earning passive income. This simply isn’t true. You can invest in the stock market with as little as $1,000. For those looking to start their own blog, web hosting is often available at less than $8 per month.
Having additional savings that you can devote toward getting your blog or business idea off the ground can certainly be beneficial. But, at the end of the day, what matters most is your willingness to put in the time to research your market idea or investment opportunity.
Doing the right background work will help you use your limited financial resources wisely so you can generate a great return on your initial investment.
Create passive income the right way.
Pursuing a dream of generating passive income isn’t always easy — but it’s far from impossible.
Whether you’re trying to bring stability to your business or find a better way of financing your retirement, avoiding these common pitfalls and misconceptions will go a long way in helping you reach your goals.
Success is closer than you think!