The Truth About Passive Income

Hey, this is Leo for Actualized.org, and in this video I want to talk about the truth about passive income.

Passive income is a really interesting thing. If you’re studying material and products on how to start your own business, whether it’s an online or offline business, you will often hear about passive income.

There is this ideal or Holy Grail that everyone talks about, which is passive income. Now that I’ve been in my own business for five years, I primarily live off passive income. I used to live more off it than I do now. I have more active income now, because I do one—on—one coaching.

I have earned quite a bit of money with passive income. I have a couple of ideas that you should understand about passive income, because some of the materials out there can be a little bit misleading.

There are three main points that I am going to make about passive income. The first point is – it’s awesome. The second point is – it’s not really as passive as you are told. The third point is – it’s dangerous. I am really going to cover this third point. I want to go over some of its traps and pitfalls.

It’s Awesome

If you are working a salary or 9—to—5 job the way that I was before I started my business, you are probably thinking – “Wow, passive income! Does that mean that I get to sit at home in my underwear and do nothing, and still get income?”

That’s basically what it means. It means that you are still getting income if you’re on a vacation. It means that you’re still getting income even if it’s Christmas or Labor Day. It means that you are still getting income if you go on a vacation somewhere far away.

This is a cool thing. What could be the downside of something like this? I will go into detail about it. Firstly, it is awesome and I love the feeling when you get that first passive income, even if it’s something small. I remember when I was getting just five, ten or twenty dollars a day. It already feels like a lot to you.

This feels especially good if it’s an addition to the salary income you already have. Ten or twenty dollars a day feel like a free meal. If I get twenty extra dollars a day, this means I can go and get myself some nice sushi every day. I don’t have to work for it, it’s just coming in. that’s awesome.

What if you can ratchet that up to a hundred dollars a day? For a hundred dollars a day, I could be buying cool stuff every single day, or using it to pay my bills. Maybe you can get it up to 200 or 300 dollars a day.

That’s the point where people start thinking – “If I had that much, I would quit my job and go travel the world. I wouldn’t have a single worry in the world anymore.” This is the magic number where all of your expenses are covered and you have a little extra for the luxuries of life.

That feels sweet. It’s awesome. Another cool thing is the freedom of schedule that you get. The whole point of passive income is to get it without having to sit there and punch a keyboard all day or whatever other type of work you’re doing. It just comes into you.

It’s a guaranteed string of income every single day. For me, it was owning websites that get traffic. When they get traffic, it’s usually fairly consistent throughout the day, week, month or year. This is a pretty reliable source of income.

You can also have statistics that track all of it. You can know exactly how much you’re earning per a thousand viewers or more. After I started, I was able to build a business where I was making a six figure passive income in just a year. Ultimately, I probably generated over a million dollars of passive income over the last three to five years.

It just comes in. This allowed me a freedom of schedule. It allowed me some really awesome stuff. This is what allowed me to do a lot of personal development work that other people aren’t able to do because they are so busy with their 9—to—5 job. A scheduled job really drains you.

It’s a very fixed schedule and you can’t work around it. For example – when I wanted to go date and get better at dating and relationships, I would literally take months off my work. I would be working, but I would take a little bit from here and there. I was able to spend an entire year really pursuing the mastery of relationships to the point where I wasn’t working that much.

This really built me up fast. I was able to really focus on this one thing. It got me to the point where I was really satisfied and I could go back to work. It allows you to swing your pendulum from one thing to the next one without having to do ten different things at once or stretching yourself too thin.

The other cool thing about passive income is that it’s very scalable. You can’t scale something like manual labor. You can only do nine hours of that per day. With passive income, there is really no limit at all. If you are getting 100 dollars a day, there is no reason why you couldn’t be getting 200 or 500 a day.

This is where your mind runs wild. “Oh, man! Look at the possibilities!” If I’m already earning 100 dollars a day, I can picture how to turn that into 200 or 300 dollars a day. This really opens up the doors for anything. This is why it’s awesome.

It’s Not As Passive As You’re Told

This is the other point I want to make. When we say passive, we assume that we can go and do whatever we want and the income will keep coming in. The reality of it is a little bit different. The way passive income is generated is that you initially spend a lot of time building it up without any income at all.

You are basically paying it forward. You might sit there for a year or two, building up your business and not having anything. Then, the passive income starts rolling in. You have to take into account that the passive income is paying for all the hard work you did months earlier.

You have to get paid for that. In addition to that, once you have the passive income, there’s always maintenance work required. This is an interesting phenomenon because it’s not the Holy Grail it’s made out to be.

The Holy Grail of it is to have a business or product and customers just keep coming to you. In reality, it doesn’t work that way. Markets are evolving quickly, especially if you’re running an online business. Online things evolve very quickly.

In six months, the entire landscape of your industry can change. Even if you’re doing an offline business, the landscape can change quickly as well. This is why many businesses go out of business. This is why some big corporations fail and go into bankruptcy.

They aren’t proactive enough and looking at the horizon of where the landscape is going. It’s like going a 100 miles an hour in a car and you aren’t looking too far ahead. You get lost. You make bad turns and bad decisions. This is the thing I discovered about passive income.

Even when I was making six figures of passive income, I always had to be on my feet. I was actually working. I wasn’t doing the 4 hour work week. I was doing the 60 hour work week. Why? Because I am always looking at the horizon to see how I can adjust my business to preserve the passive income.

You might say – “Maybe that was just your business.” I don’t know about that. I think that this is the case in any business where you’re earning decent money. If you’re earning decent money fairly easily, you’re going to have more competition creeping in there. This is just by the way the market system works.

This is how the free market system works. Business is about finding areas and imbalances in the market and then exploiting those imbalances. The imbalances are like a gold rush. You’re the first to spot a bunch of gold hills. You go there and dig it out. The first person who spots it becomes a billionaire.

The next person might become a millionaire. The next person might only get 100 thousand dollars. The more people come, the gold resource gets exhausted. Five years later, there’s nothing left of this mountain of gold. It’s just a plain old mountain. It’s been sucked dry.

Naturally, there are evergreen businesses that will never be sucked dry. I still find that you have to be engaged with development. You have to keep bettering your product, service or business. I’m not even talking about the very basic maintenance work required.

For example – if you’re running an online business, the very minimum you need is some sort of customer support. If you sell 100 products, at least 2 to 5% of your customers will come back with some sort of problem or technical issue. You’re going to have some manual labor just for that.

You’re probably asking yourself – “Why don’t we just outsource that?” You can outsource some of this stuff. You can hire someone to do it for you. You still have to oversee that person. You can’t literally outsource your entire business. If you do that, your business will collapse.

It would be just a matter of time. It might take 2, 5 or 10 years. It’s going to collapse. I’ve seen this in my business. The more I’m looking at it and into the future, the more I’m spotting cool trends and working towards improving my products. Stuff is then growing.

As soon as I stop doing that, it starts to die. Sometimes, that death can be really quick. It can also be more drawn out. I find that with online businesses, only one or two years are enough to kill your entire business if you’re not on top of the ball.

Because you’re under the pressure to always look at the future, it becomes very stressful. Passive income is also very addictive. It’s like a drug. You start to get it. People usually ratchet it up to their lifestyle to match the passive income. You now feel nice. What happens if your passive income is threatened and your lifestyle has been improved?

You might say – “I’ll just go back to my old lifestyle.” You say that now because you haven’t ratcheted it up yet. Once you do, your opinion about this will be different. You’re going to be very worried and afraid. It will put you in “fear mode”.

You’ll be in a mode where you will always be protecting yourself from other people who are trying to take your income away from you. You depend on it, it’s your lifeline. This creates a constant source of stress. Entrepreneurs and business people always have to deal with this kind of stress.

It’s even worse when you’re dealing with passive income streams and basing your lifestyle on it. This is a really popular idea nowadays, especially online. It’s not all peaches and cream. You do have this problem.

This stress gets to you. This goes especially if you’re only doing maintenance on your business, without growing it. This means you sort of doomed yourself to the death of your business. You’re just going to be waiting and watching it draw out. You will see the end coming for you.

The way to deal with this is to put all your time, resources and energy into growing the business. That takes a lot of time. Growing the business is like a full time job and plus. It can be a 60 hour a week job.

In reality, most entrepreneurs aren’t sitting on the beach and sipping Pina Coladas. Most of them are actually looking for the next thing. They are doing research and development. They are testing stuff out, building new products or creating new services. They are polishing everything up and improving the quality of what they’re doing. They are aware of the competition and are very mindful of that.

Also, if you didn’t do this, you would feel very bad psychologically. You would admit to yourself that this is the best you could do. You’ve already reached your peak. This is the best business you could do. This is the most income you could generate. Now, you’re just going to maintain it.

When you go into this maintenance mode, it’s really hard to motivate yourself to get out of the bed in the morning. Nobody likes to do maintenance work. That’s not work you can get passionate about. Keep this in mind.

The Dangers Of Passive Income

This is the last point I am going to make. This is where I can really see people screwing up their lives. The problem with passive income is that it makes you lazy and complacent. You don’t have that thirst or fight to go out there, grow the business and look for new opportunities.

I’ve really noticed this in myself. You even lose the drive to do good and quality maintenance work. You’ll start to shrug off the maintenance work. You won’t want to do it and you will procrastinate on it. Even if your business performs decently, your mind space will become screwed up and toxic.

It will put you into a rut. This rut will grow larger and rob you of the extraordinary life that you want. The reason why you went out there and got that passive income is because you’re probably an A Type person. You want to go out there and accomplish big things with your life.

When you get a six figure passive income every single year, it completely robs you of all your motivation. This will happen even if you didn’t go into the business for money. Someone throws a lot of money at you and that big and ambitious goal you had suddenly isn’t that important.

The impact you wanted to have in your community isn’t important anymore. That awesome product you wanted to create which would make a great impact in your industry – you suddenly feel like you’ll leave it for next year. You keep on procrastinating.

Another negative thing is that passive income keeps you in the wrong niches within your business. It also encourages you to pursue the wrong niches. Your business should be self-actualizing with you. Maybe you started a business just for the cash because you needed it.

After you get the cash, you should evolve your goals. Your business isn’t just about earning cash. Your business is about helping people or living out your passion. Maybe it’s about doing something really meaningful for society or the world. This is your life purpose.

What I find is that the stuff that is your life purpose isn’t always the lucrative and profitable thing. It’s also not a guaranteed passive income source. I am going to give you an example. Let’s say I have my online business and I then discover that I’m really passionate about art.

I want to become a painter. It will be very difficult for me to make that transition, even if I’m really dead set on becoming a painter and I know that’s really what I want. It will be very difficult because I have this source of income coming in and it’s incentivizing me to stay in my online business.

There are probably going to be new opportunities within this online business where I could grow it even more. I could also increase the income. In practice, you will find that you’re going to have a very difficult choice.

The first choice is – you can keep on doing the thing you know isn’t really your passion. However, you can grow it and earn even more money. The second choice is – you can go and become a painter. Becoming a painter seems risky, they don’t make that much money and there is a high failure rate. There are all sorts of risks involved.

Why would you give up the opportunity with your income? You might never get this opportunity again. If a couple of years go by, this opportunity might go away. Why don’t I capitalize on it now? This is how your mind tends to think.

The next thing that happens is – you decide that this painter thing can wait. You will put it off until two or five years down the road. This inevitably leads to putting it off forever. You’re wasting a lot of time and energy into this passive income thing.

What I found interesting is that it isn’t even the best thing. Even if you earn lots of money, the passive income thing will make you think so small. You’re ultimately not going to put yourself in the position to earn the most money you can.

If you were really passionate about become a painter and you were really sure that was your life purpose, then you should go and do that. This is the proper strategy. If you go and do that, you might be able to make money selling your paintings.

If you go and do the passive income thing, you might be earning six figures or more. The problem here is that it’s going to be your maximum, even if you constantly grow the business. You aren’t passionate about it. You know the passion is over there, but you’re looking over here.

This will suddenly undermine every action that you take. It will rob you of your motivation. You won’t be as engaged with this business as you used to be. All of this is from personal experience. I think I was better equipped than most people to have this infusion of cash.

I was stuck in a whirlpool of chasing money, even though I was never a materialistic person. I knew the dangers of that. Still, it trapped me for a couple of years. It was very difficult to say no. This is why I think passive income can be very dangerous. It can keep you from pursuing your life purpose.

It can keep you from even looking for it. If you don’t know what your life purpose is and you’re getting passive income, there’s a 95% chance you’ll never even go looking for your life purpose. You’re not feeling the pain of it. You feel more and more comfortable where you are.

Passive Income Robs You Of the Willingness To Do Real Work

This is another thing regarding passive income. It really kills your work ethic. This also connects with life purpose. For example – if you’re getting this passive income, you’re probably not working too hard for it after you’ve established your business.

Maybe you’re putting in 5 hours of maintenance work per week. You’re getting back six figures. This seems like an amazing ratio of effort versus reward. It seems so sweet that you feel you can’t beat that.

If you now want to go and become an artist, you might need some classes. You have to go and put on galleries and exhibits. You might have to go and travel the country. You have to practice your technique. You have to sit up for hours, drawing and painting. You have to get a studio going.

All of these things would be so much work. This would feel like real work to you. This passive income thing that you’re doing – you’re phoning it in. it’s not very challenging work. Now that you’re trying to do the artist thing, it will suddenly become very challenging work.

It will push your comfort zone. It makes you uncomfortable. Because you haven’t been doing this kind of work in years and you’ve been coasting with your passive income, you will never want to go and consciously do that kind of work anymore.

You’re going to quit and come back. This creates the whirlpool effect where you leave, and then come back. You leave and come back. It’s almost like getting addicted to drugs. Just when you thought you were out, it pulls you back in.

This is because the rewards are too high. This is why criminals get sucked back into criminal activity. The rewards are also very high. You don’t have to do a lot of labor to get a high reward. Naturally, there’s a risk here, so it isn’t very smart.

What’s the takeaway here? Passive income is great. In fact, I think if you want to become a self-actualized person, you have to develop passive income sources. I think it’s a really important thing for people.

If you value freedom, independence and want to be in control of your life, then go for passive income. The thing is to beware of all of these pitfalls. The takeaway and most important thing is the more passive income you get, the more you should balance it out with personal development work.

One of the reasons I managed to handle my passive income and can still do it today is because I’ve been doing lots of personal development work. That gave me the wisdom I needed to see these pitfalls and to avoid falling into them.

I actually did fall into them. However, it gave me the tools to pull myself out. Take an ordinary person on the street that doesn’t have any personal development training. They don’t know the right mindsets or dangers of passive income. They will just fall into it and probably never recover.

Watch out for that. I think you really need to balance it out. Make some goals for yourself. For instance – if you’re making 100 dollars a day through passive income, then you’re going to read one personal development book per week.

If you increase that to 200 dollars a day, you’re going to take one paid and live seminar about personal development somewhere around the country. If it increases beyond that, then maybe you will go and do some sort of a training program or something else.

You will be getting that higher value wisdom, rather than getting that lower value wisdom of just pursuing money and running a successful business. In the end, having lots of money and running a successful business is very low value. You want the high value.
Self-actualization is found in doing high value stuff like pursuing beauty, excellence, truth, justice, contribution to others, or making some other kind of meaningful impact. This is high value stuff. This is the stuff you want to be aiming towards.

This is why passive income is so powerful. It can actually enable you to do this high value stuff. However, most people cannot be trusted to use the money for that. Most people use the money for stupid and low value stuff. Be careful about that.

Wrap Up

This is Leo, I’m signing off. Go ahead and post me your comments down below. Click the like button to like this video. Share it through Facebook or with a friend. Come and sign up to my newsletter. The Actualized.org newsletter is free.

I release new videos about self-actualization topics every single week. I cover a lot of deep mindset stuff. I have a lot more stuff coming about business and money. I also talk about relationships, health and fitness, how to work with mindsets, how to be more positive and stop depression, anger and all of these things.

There is so much information to cover and to give you the wisdom you need to know how to master your life. You can avoid all of these pitfalls that will inevitably be on your journey if you really want to do something extraordinary with your life.