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passive income the Holy Grail of
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personal finance topics the ability to
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earn money without doing
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anything it quite literally doesn't get
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any better than that does it and it's
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something that you'll see video after
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video and add after ad talking about
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pushing the idea that millionaires earn
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seven different streams of income so so
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should you there's just one problem
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passive income doesn't exist not really
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anyway there are of course ways of
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making money that deviate from your
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standard nine to five where time spent
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working and compensation have a pretty
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linear relationship but the vast
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majority of these so-called passive
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income strategies that you see
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advertised online especially here on
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YouTube are at best misrepresented and
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at worst completely fabricated to prey
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on the financially desperate now it's
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not to say that some of these strategies
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don't have their merits well I don't
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like the term passive income some of
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these things might make you money over
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time but for the ones that sound too
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good to be true where you quite
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literally don't have to put in any
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effort you're often more likely to lose
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money when you consider the fees and
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registration costs that you're being
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charged to even try this thing so let's
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break down why passive income isn't all
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that promising but why you keep hearing
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about it on today's clean bagel
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passive income is usually used to
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reference an income stream that is
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somewhat self-sustaining in that once
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you set it up it doesn't necessarily
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require your active involvement meaning
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that you can have more time to yourself
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to hang by the pool side or play video
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games or do whatever you want but
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outside the lottery or a lucky
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inheritance there's not really such a
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thing as passive income at least in that
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truest sense instead when people say
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passive income they're really referring
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to one of two things investment income
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or entrepreneurial income now certainly
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there's nothing wrong with these
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approaches and they do change how your
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effort is rewarded but they don't
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eliminate that effort requirement and
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there's a very easy explanation as to
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why anything that promises a high reward
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without any effort is in most cases a
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gimmick but let's start by explaining
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these two streams of income starting
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with investment income the idea of
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owning assets that generates some sort
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of yield whether that be stocks bonds or
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I'll throw on rental properties here as
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well now obviously as an investment
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Focus Channel I have no problem with
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people making money from their
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Investments
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I would naturally hope that you do but
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as a passive income strategy it comes
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with a pretty big caveat
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it requires that you have money in the
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first place to purchase those income
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producing Assets in fact when people
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reference millionaires earning seven
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different streams of income which stems
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from a 2002 report from the IRS it's not
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often mentioned that four of those
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strategies dividend rental interest and
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capital gains income require money in
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the first place to achieve and a good
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amount of it if you really want to earn
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anything meaningful if you could
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reliably achieve a seven percent return
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on your money for example and you wanted
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to replace your annual active salary of
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forty two thousand dollars a year which
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is roughly the average personal income
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in the US you would need to accumulate
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600 000 in net savings
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not an easy first step for passive
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income now there are some strategies
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that I've seen that do promise to earn
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you that passive income without needing
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that upfront capital or effort for
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example investment Bots that take
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whatever you have and grow it faster
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than the market using proprietary
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software or courses that promise to show
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you how to start building a real estate
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Empire by putting five percent down on
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several different properties when you're
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19. the problem is that these products
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never represent the true risk reward
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trade-off that you face implementing
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them the idea for example that someone
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should take everything they have and put
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it into a down payment on a rental
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property
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is stupid it's bad financial advice
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because while real estate on average is
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a good investment category and is a
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legitimate strategy for Building Wealth
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given the rental income and the
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appreciation it also comes with large
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unexpected costs and risks like a broken
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water heater a hole in the roof that you
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need to repair
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that's a real thing my parents had to
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deal with that over the summer and I
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helped them cut a tree out of their roof
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there's also the risk of your payments
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increasing something that many are
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becoming painfully aware of as interest
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rates rise so clearly if you don't have
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a cash buffer to help absorb these extra
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costs or a couple months of unpaid
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tenant rent then it could be enough to
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sink any thinly run operation as for
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trading Bots they don't work I don't
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care what YouTuber told you that they
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made 20 this past month it's utter
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survivorship bias that may as well be
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advertising a roulette wheel because
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it'll give you the same odds so right
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away you can see why I struggle with
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people emphasizing the passive nature of
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investment income yes if you get to a
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point where you have enough Capital it
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can be a very powerful tool for freeing
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up your schedule if you end up relying
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on that type of income but it requires
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more savings from actively generated
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income than the average individual will
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likely ever achieve but what about other
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forms of passive income well going back
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to the seven streams of millionaire
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income which people like to focus on
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when you exclude the earned income since
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that's for losers there are two
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remaining Avenues royalties slash
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licensing and business profits AKA
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entrepreneurial income now the idea of
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an entrepreneur's income being passive
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should sound a little laughable
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according to a New York Enterprise
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report survey the average small business
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owner Works twice as hard as their
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employees with 25 percent working at
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least 60 hours a week so leaving your
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nine to five for a business venture to
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free up your schedule
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probably isn't going to work out still
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there are some Ventures advertised
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online that allegedly let you set up
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some sort of self-sustaining business
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that doesn't require any amount of
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effort something that you can set up and
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leave to its own devices to earn you
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money this includes your drop shipping
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stores at ad placement strategies
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selling digital products content
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creation and convoluted pyramid schemes
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that promise you Financial Freedom if
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you get three other suckers to pay for
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the program that you just sunk a few
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thousand dollars into yourself now as
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someone who makes money from YouTube
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obviously I'll concede that there's
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Merit to some of these strategies some
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of these strategies can make you money
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with digital products for example the
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idea is that once you create this thing
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of value and put it on the internet you
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can sell it and keep making money for it
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over time and there's some truth and
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validity to that strategy it doesn't
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require the same type of Maintenance as
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a traditional business but the idea is
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that to get to that point where you have
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this thing of value you oftentimes still
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require a good amount of effort among
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other things and there's a very easy
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explanation as to why the promise of
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high returns with low effort with some
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of these strategies
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doesn't hold any water take Drop
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Shipping for example the basic idea of
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Drop Shipping is that you build a
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storefront online that sells products
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manufactured and shipped by a third
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party so that you can earn a markup
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without dealing with any of the
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logistics a basic setup can take just a
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few hours and likely costs under 500 to
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get set up with a web domain or online
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storefront perhaps even less if you use
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a site like Amazon to sell your product
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or a service such as Teespring where you
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can design your own shirts and sell
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through their website after that you
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won't need to sit at a cash register or
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stock any shelves to make any type of
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sale and it's all pretty well automated
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for you awesome so what's the catch to
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this low effort and low-cost strategy
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well just that ironically because of how
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easy it is for an individual to set up a
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store and drop ship something as novel
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as a fancy coffee mug you can bet that
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there will be thousands of others doing
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the exact same thing possibly with the
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exact same product providing an
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insurmountable supply of Novelties when
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there are probably 10 people out there
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who actually want this thing but then
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Richard why are some people successful
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using these strategies why do we have
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any case example of Jimmy making 10
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grand a week thanks to him signing up
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for so-and-so's course on YouTube
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well firstly I want to address that most
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case examples shown in these ads are
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incredibly biased and shouldn't be
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relied upon and the people who take the
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route of showing individual success
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stories rather than showing the strategy
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success rate at a high statistical level
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probably have thousands of other
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students who fail to break even using
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their approach even still some people do
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at times make money with these
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entrepreneurial Ventures and there are
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typically three reasons why the first is
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timing as with most Ventures there is
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some first mover advantage and the first
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drop shippers probably did make a good
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amount of money with their low effort
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storefronts at a time where online
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stores weren't as prevalent but returns
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from these Ventures quickly diminish
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over time as more and more people take
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advantage of it leading to that
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oversupply situation that quickly
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eliminates the opportunity for everyone
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else
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it's basic Arbitrage even those that
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make money from this Venture probably
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won't see sustainable cash flows a
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successful Drop Shipping Store for
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example might make money for a few
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months perhaps even a year but we'll
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eventually see activity die down if it's
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truly left to its own devices so by the
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time you see an ad for a course that
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someone spent a few months putting
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together after trying a passive income
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strategy themselves and getting three
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other success stories to back it
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you can bet that the opportunity has
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probably already passed now the second
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factor for success with these online
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strategies as you can probably guess is
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luck as someone who makes money on
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YouTube I would love to say that there's
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a Surefire way to get to this position
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but I don't believe there is there are
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over 720 000 hours of content uploaded
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every day on YouTube alone and nearly 90
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of that will never pass the 1000 view
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Mark at which point you might make a few
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dollars luck plays a role in every
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entrepreneurial effort and the same
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applies to online courses ebooks blogs
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any digital product where you're
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fighting in a sea of content creators to
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stay afloat and be recognized and then
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that brings in the third factor of
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success effort nearly 90 of e-commerce
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stores fail within the first four months
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including companies with a unique
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product set but the ones that will do
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well are likely the ones where people
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put in more time and effort to customize
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their products work with suppliers to
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secure new drops before competitors
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Market their goods in other words
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actively earning their keep and true if
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you have a successful product there
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might be some recurring Revenue
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thereafter but oftentimes that Revenue
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will slow down over time sustained
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revenue on YouTube for example requires
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that you put in continual content as you
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use often trickle Out YouTube for me has
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been a second job one that I love and
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I'm definitely not complaining about it
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but between researching script writing
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filming and editing I wouldn't say
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there's anything passive about it but
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then why do we keep seeing others
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promote these different strategies
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well that's an easy one because truly
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one of the most successful and lucrative
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passive income strategies that I'll let
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you in on
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is selling passive income strategies the
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reason one of the most watched Finance
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videos on YouTube is nine passive income
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ideas how I make twenty seven thousand
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dollars a week is because there's quite
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literally nothing more financially
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appealing than making money without any
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effort and the reason you'll be served
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ads about how Drop Shipping is making
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people rich is not because Drop Shipping
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is actually making people money but
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because the person that is giving that
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ad makes money from selling that idea
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with the sign up fees for their course
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or their Academy even though you'll
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likely make less on an hourly basis
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using that type of strategy than you
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would driving for Uber for example
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so it's been a little negative so far
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but my intent here isn't actually to
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discourage you from pursuing one of
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these passive income strategies if
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that's what you want to do if you think
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there'd be demand for an online course
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or an ebook on a subject that you happen
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to be an expert in I actually say go for
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it you might just happen to make some
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money along the way of pursuing your
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passion in this Venture but my point is
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that you need to go into it eyes open
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passive income really just means front
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loading your work not eliminating it in
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the vast majority of strategies do
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require some form of continued effort to
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sustain the money that you're making you
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get out what you put in and your success
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will be a function of your application
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opportunity and most importantly your
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effort now none of this is to criticize
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people who use the term passive income
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or share ideas freely on how to make
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extra cash on the side and there is of
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course something to be said for trying
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your handed entrepreneurship to try and
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build some supplemental income so if you
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want to try out one of these strategies
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all the power to you but be aware of the
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time and the capital that you're
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spending to make this money to deem
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whether it's worth it
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and maybe don't add to your break even
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hurdle by buying a two thousand dollar
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course on Drop Shipping from someone
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who's just trying to fund their own
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passive income strategy if their
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strategy was still successful that it
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lets them make money poolside without
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any effort they wouldn't need to sell
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you an ad on YouTube thanks for watching
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I hope you found this video helpful if
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you did please do make sure to like And
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subscribe all that good stuff papa needs
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to earn his passive income and if you
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have any thoughts on these strategies
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that we've talked about today I would
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love to hear your thoughts especially if
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you've tried one of them and even
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especially if you disagree with me maybe
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you think there's opportunity here that
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I'm overlooking I'd love to hear your
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thoughts in the comments down below
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thanks for joining and be safe out there
