Passive income streams – do they really exist?

Recently, someone asked:

The thought of generating additional dollars through passive income streams is attractive. But do they really exist?

If the definition of “passive income” means positive cash flow through an online business that does not require any (or much) effort or commitment to maintain, then the answer is a resounding “Yes”.

I’ve done it before. But there is a caveat which I will explain later.

So, this definition of “passive income” rules out businesses such online gambling, online stock trading, eBay selling because they require constant attention and work to maintain the cash flow. You can work on them in the comforts of your home, but they are basically works that you have to do day in, day out. Once you stop working on them, the cash flow dries up.

But you have to note that even a real online passive income requires some amount of work to maintain. It’s just that the work is minimal and you have more freedom and flexibility to decide on the hours.

Examples of passive income:

  1. Royalties from a book that you sell online.
  2. Affiliate commissions from a product you promote on your website.
  3. Websites or forums that accept memberships for a fee.
  4. Advertising fees on your website.

In my experience, affiliate commissions earn me the highest passive income. But for that to work, you need to earn the trust of people in the first place. And that is not something that can happen overnight.

Also, when people think of passive income, they forget about the upfront investment in time and energy to create it in the first place. This is crucial. Take a look at the examples above. You will notice that in order for you to generate passive income in the first place, you need an asset (e.g. website, blog, book). Books need to be researched and written. Blogs need to be written and promoted. Websites need to popular and authoritative to attract advertising dollars. Membership websites requires valuable content to justify people paying money to join it.

Not only that, there are countless competitors on the Internet today, all wanting their own slice of the passive income pie. Even if you build an asset, people may not even come (see “If you build it, they wouldn’t come, unless…”). Even if they come, they may not even buy from you unless they trust you (see “Can you be an authority without titles and formal qualifications?” and Zero Moment of Truth). For all these happen, you need to build up your trust and authority over time.

So, what is the caveat?

You should see by now, passive income is merely a return on your investment of time, energy and even money. When you are at the phase of doing the investment, you have to be prepared to earn NOTHING or even lose money initially. In this phase, the hours are long and the work is hard—so hard that sometimes you will feel that working the minimum wage at McDonalds is a better deal. Worse still, there’s no guarantee that your return will come or at least come adequately—in other words, it’s a calculated risk.

And one more thing to add before I forget: it is very easy to earn a little money on the Internet. With Google AdSense advertising and Blogger, anybody can whip up a blog and earn a few miserly cents of advertising money per day. But what is insanely difficult is to scale up your online business to the point that you can quit your day job.

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