What you will learn
Many internet marketers dream of laying back in a hammock on a tropical island somewhere, sipping Piña Coladas with their phone in one hand watching the money roll in.
But is passive income even a real thing or has you been conned by Tim Ferriss and The 4 Hour Work Week?
In this week’s podcast, Perrin and Mark discuss the concept of passive income to show why it isn’t really a thing.
What is Passive Income?
The idea of passive income is earning money without doing anything.
With authority sites, this looks like setting up a site until it makes a couple of thousand dollars per month and then sitting back as the money comes in each month.
But, we find this doesn’t tend to be the case. For Mark and Perrin, there is no truly passive income.
Here are some examples:
- Earning Interest – You still need to be aware of the political climate and be ready to move your money if there happens to be a risk (as the people of Cyprus found out back in 2013).
- Dividends from Stocks – You need you to understand the market, keep an eye on performance, know if the stock is undervalued or overvalued and know when the right time to sell is/
- Renting Property – The property needs to be maintained, furnished, you need to find a tenant and collect rent every month.
None of these income streams are truly passive. The same goes for online marketing. There are varying degrees of passiveness but you will not find any income stream that is 100% passive.
In internet marketing, it is used as a sales tool. If you tell anyone that they can make a lot of money without doing very much work, they will be interested. It’s little wonder The 4 Hour Work Week has sold over 1.3m copies.
For Perrin, a more realistic definition of passive income is that you are no longer trading your time for money.
He built his first site to a point where it was making $1,300 per month and at this point he no longer needed to do any work on it. He could collect $1,300 at the end of each month.
This meant he no longer had to work but if he did do more work, he could make more money.
Like almost everyone we know, when Perrin had the opportunity to not do anything he chose to work on his site and grow it. That is because people tend to care about the things that they have built.
This is different to working a job for $15 per hour. To make more money, you simply work more hours. However, at some point you hit a ceiling where you cannot work anymore hours.
In order to increase your income, you need to leverage your time. This may be hiring people to do things so that you can focus on the higher value tasks that can create more income.
The book Rich Dad, Poor Dad talks about building assets that generate income rather than just generating income yourself as a means to get rich.
Why you Shouldn’t Chase the Passive Income Myth
Perrin has a vendetta on passive income and wants revenge on the internet marketing community as a whole for pushing these myths.
He feels like it is a lie. If you have an authority site and you stop working on it someone will eventually catch you and overtake you. You can’t expect not to work for five years and still come out on top.
You shouldn’t chase the myth if you want to do nothing as you will probably fizzle out and give up. It is ok if you are running from something you do not want to do but eventually you need to be working towards something that you do want to do.
Degrees Of Passive Income
On a basic level, you can boil passive income down to a formula;
Output = Input x Leverage
To get some output, you have to put something in. This is the input.
Leverage can look like this:
- Working a $15 per hour job – No leverage
- Hiring people to work and carry out day to day tasks – Some leverage
- CEO of huge company setting strategy that will increase the efficiency of thousands of workers – huge leverage
When you are starting your site, you need to hustle, work hard and all that Gary Vee stuff.
But after the site is making money, it makes sense to remove yourself from working in your business to working on your business.
It’s called the entrepreneur’s trap, where you struggle to give away tasks that you are working on yourself.
You can either hire people to do the work for you or pay an agency to do the work for you. After selling HerePup, Perrin recently launched a site and he wanted to have 100 articles at launch.
To do this, he managed to pay to get the 100 articles written by Word Agents in 6 weeks rather than spending years working on it himself.
Going back to the 4 Hour Work Week, one good piece of advice is to think of your time as an hourly rate. Work out how much you are paid per hour and only do tasks that will give a greater return than the hourly rate.
So, instead of spending two hours doing laundry, it might work out to be a smarter investment to pay someone $20 to do it for you and spend that time generating income.
Mark has spent a lot of time optimizing processes such as link building and content creation across Authority Hacker and our other authority sites. Rather than just hiring more people, he has focused on optmizing the processes to make them more effiecient. This is another way that you can leverage your time.
Is Passive Income a Con?
Yes, to sum things up, passive income is not really a thing in the way that most marketing blogs try to tell you it is.
Instead, it is just a way to leverage your time. When you think about it, this is just the same as building any other business.
Before you go, a final reminder that you until a few hours after this podcast went live to grab over beginner’s training course, TASS (The Authority Site System), for 45% off the usual price.