Passive Income Online Myth

Passive income is the Holy Grail of the lazy. The idea is certainly tantalizing. Earn money, without doing anything. However, passive income is pretty rare, and usually the result of circumstance.

Passive Income vs Residual Income

passive income graphicOne of the problems with the idea of passive income is that it is misunderstood. Passive income is income that you receive without doing anything for it. Residual income is income you receive for having done work earlier. This may sound like semantics, but the difference hides how much work goes into building an online income.

Truly passive income often comes in the form of royalties. For example, your great-great grandpa bought (or homesteaded) some land in the middle of nowhere and it has stayed in the family because it was never worth selling. Then, one day, an oil company shows up and starts pumping out oil. You get a check every quarter. That is passive income.

Notice that in this scenario, you did absolutely nothing. The oil company did the exploration, they did the digging, they pump out the oil. You do nothing. One might argue that you did something by owning the land, but that only works if you bought the land for the purpose of collecting the royalties. Otherwise, the money is a byproduct of another decision and, therefore, truly passive.

Contrast the situation above with one where you buy a domain, build a website, write lots of quality content, and then start earning a few thousand dollars every month from Google ads. This is NOT passive income. You made the investment, you did the work to build up the online property, and now you earn money off of that effort. This is residual income, you are continuing to be paid for something you did work for.

Theoretically, if you never work on the website again, and it continues to earn money forever, you might be able to make the argument someday that the income is now passive. You heirs certainly can make that argument, when and if your website ever passes on to them. However, therein lies the rub, as they say.

It is highly unlikely that your hard work will end up developing a web property that is so amazing, so well linked, so well ranked, and so well optimized that it will continue to earn money forever with no further effort from you. In reality, any site that you build that has continued success does so because you make continued effort.

Ongoing Work vs Passive Income

Just because no one is paying you an hourly wage for your work does not make your income passive. That, actually, just makes you a business owner. Businesses of all kinds make investments in labor, materials and money that does not pay off immediately. Microsoft spends years developing a new operating system (like Windows 2012 Server) or a new version of Microsoft Office. When they start selling the product, that is when they get paid, but each copy of Office sold is not residual income.

And, just like Microsoft, you can’t just put your product out there and then disappear. In Microsoft’s case, there are patches to be written, technical support, and various licensing activities, and so on. In the case of making money online by writing, or building websites, there is writing new content, updating old content, answering comments, building links, and so on. Every hour of effort is work. Work that you will be paid for later, but work nonetheless.

The key is to understand that if you want to make money writing online or via any other internet pursuit, don’t search fruitlessly for the path to passive income. Rather, find something you like, or are good at, and start building. Don’t make extra work, and never skip over a time saving idea, but don’t assume the money will just start coming in. The oil companies never show up and start pumping out from under your online websites.

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