It also makes it possible to have a real “passive income” and to be financially independent.
The phrase “passive income” has become one of the most popular phrases in the field of personal finance in recent years. There is no shortage of internet marketers who want to sell you on the idea that if you simply listen to them (and buy their “program”), you too can kick back and start generating income with minimal effort. They want to sell you on this idea because they believe that it will increase their chances of making a sale.
The concept of earning money without actively working is a myth, and here’s why.
This does not imply that you are unable to launch a digital company and transform your life financially; on the contrary, you are more than capable of doing so and should do so.
In this post, I will show why what the majority of people refer to as “passive” money is really “scalable” income and how you can utilize it as a stepping stone to get you to a place where you are financially independent.
Why the concept of passive income is a fallacy
As I’ve mentioned in previous articles, bloggers and YouTubers have taken to calling all forms of online business “passive income prospects.”
- Affiliate marketing in a nutshell.
- Making a sale of digital items or software
- Making a living out of selling informational things like books and courses.
- Buying and selling tangible products on the internet.
- Putting advertisements on a blog, podcast, or YouTube channel is considered affiliate marketing.
- When you hear someone speak to “passive income,” what they most likely mean is that they have a company that generates revenue on a scalable level. Scalable income indicates that you are not certain of making any money, but that there is no limit on the amount you might potentially earn.
An illustration of how revenue may be scaled up or down
One facet of my company is the distribution of online training courses, which is an excellent illustration of scalable revenue.
If no one enrolls in my class, then I won’t earn any money from selling it.
Because it is a digital product, selling more courses does not result in any additional financial burden for me.
When compared to someone who sells real items, there is a striking difference.
If I were selling computers, I would rack up more expenses with each unit that I moved off the shelf. This concept is referred to as the “marginal cost of production” in the field of economics.
If I sell a digital product, particularly an information product such as a course, it indicates that my marginal cost of production is almost nil.
That indicates that my expenses would be the same regardless of whether I sold zero or one million dollars worth of courses.
This is what is meant by the term “scalable income,” and it is also what the majority of people mean when they talk about “passive income.”
Even if it is true that you need to put in fewer hours of labor to bring in an extra dollar from scalable revenue, it is not as though you can just put your feet up and stop working. Earning money via means other than active labor is referred to as passive income. If I were to cease working for my company, it would not be long before I would no longer have any money.
Investment income is the only source that can legitimately be considered passive income.
- Dividends from stocks.
Interest accrued from the holding of bonds.
The income is derived from the rental of real estate.
The only method to acquire a big quantity of passive income, other than receiving a large sum of money as a gift or inheritance, is to first generate a considerable amount of active revenue by working and then invest the difference between what you spend and what you earn.
- Do not put any stock in those who try to convince you otherwise. People who claim that it is possible to get money without really working are either attempting to sell you something or are suffering from some kind of delusion, or both.
A job that you go to from 9 to 5 or a company that you own that has scalable revenue are both viable options for active income generation. Or in my situation, both of the above
The straightforward way to amass wealth is to hold all of your costs steady, increase your income, and put the extra money you have into investments.
In the past, I’ve discussed “two levers” that may be pulled to improve our savings rate in the articles that I’ve published.
- putting aside a greater portion of the money that we currently possess.
- Increasing one’s financial wealth.
One of the most important things to do on the path to monetary autonomy is to acquire the ability to live a frugal lifestyle or, at the at least, to reach the point where one is content to live below their means. If you don’t learn how to save money while your income is relatively low, you’ll be more likely to let your lifestyle get out of control when it does grow, especially if you didn’t learn how to save money when your income was very low.
However, after you have established healthy spending patterns, the most direct route to amassing money is to continually seek for methods to raise your income while maintaining your current standard of living and investing the difference. This will allow you to grow wealth the quickest.
If you can earn $50,000 per year while only spending $25,000, this indicates that you have $25,000 available for investment.
If you can earn $75,000 a year while only spending $25,000, this leaves you with $50,000 that you may put toward investments.
If you can maintain your lifestyle on $25,000 per year while still bringing in $125,000, this implies you have $100,000 available for investment.
If you are able to discover a means to invest many times more than your yearly expenditure each year, you will see a significant increase in your personal wealth in a very short amount of time.
This is a straightforward idea that, when put into practice, presents a number of challenging obstacles.
It is improbable that you will be able to save 2–4 times your yearly costs each year on the salary from the 9–5 work you have unless you are willing to practice an extreme degree of frugality. If you are not prepared to do so, it is unlikely that you will be able to do so.
After your income is reduced by the amount of taxes and other deductions that are taken out of it, as well as the amount that you need to pay for your housing, transportation, food, and any other essential living expenses, the likelihood is high that you won’t have a lot of money left over at the end of the month to invest in something.
For this reason, establishing a side business that can provide a scalable income was a game-changer for me.
Increasing my income via scalable means allowed me to save my first $100,000.
I began writing as a kind of supplemental income around two years ago. My first month as a writer resulted in a shocking $15 in earnings for me.
I continued to write and expand my readership, and eventually, I started to see a rise in the amount of money I made from my writing. To increase the amount of money I make from my writing, I launched an online course at the beginning of 2020, and I’ve just recently begun to concentrate on developing a YouTube channel.
My side business brings me anything from $2,500 to $4,000 per month, which equates to between $30,000 and $54,000 per year overall. Every single cent of which is put into the stock market as an investment.
Because I am able to pay for all of my living costs, plus some more, with the revenue from my day job, I am in a position where I can invest every single cent of earnings I get from my side hustle in the stock market.
My income from my side business has allowed me to put away more than one hundred thousand dollars in my investing account many years sooner than I would have believed was feasible.
This is when the statistics start to get interesting; this is the path to one million dollars.
I am able to estimate how long it should take for me to have saved one million dollars by factoring in the growth of my existing assets, the extra savings I get from my main source of income, as well as the savings I receive from my side business.
Even if the revenue from my side gig does not increase at all, I will have one million dollars invested within the next ten years.
If I am successful in doubling the amount of money I make from my side hustle within the next year and it does not increase any further, I will have one million dollars invested within the following six years.
If I am successful in doubling the money from my side business over the next 12 months, and then doubling it again in 24 months from now, I will have invested one million dollars within four years.
This exemplifies the possibility of accumulating wealth by supplementing one’s primary source of income with additional scalable revenue.
Always in the back of my mind is the question of “why.”
To be quite clear, what I am doing is essentially the equivalent of working two jobs. A significant portion of my time during the nights and weekends is dedicated to focusing on expanding the revenue from my side venture.
It is not simple, and it is most definitely not a passive activity.
However, I believe that it is money well spent. Since I gave birth to my first child a year ago, the idea of amassing riches has taken on a whole new significance for me. Not only do I want to ensure financial stability for the rest of my life, but also for the remainder of my son’s life and the lives of any future children he may have.
I hope that my kid and the generations that follow him in our family will never have to worry about money. Freedom is the most important thing that money can purchase; the freedom to spend your days doing what you love is an example of this freedom.
One of two motivations leads a lot of individuals to settle for professions they don’t truly like.
They can’t afford to keep living like this without a job.
Nobody is going to provide them with their “dream job” for them to do.
As a direct consequence of this, they do not have the luxury of being able to fill their days with activities that bring them joy.
By devoting myself to the process of learning how to establish a side business that I enjoy (and I do love my side business) that also generates scalable revenue, I can provide that sense of independence to my kid in two different ways.
Increasing our financial worth to a point where it can cover our family’s ongoing living expenditures Because of this, he won’t have to settle for a job he dislikes just so he can pay the bills.
Obtaining knowledge and experience that I can teach to my kid so that he might discover how to make a life performing job that he is enthusiastic about is one of my goals. That implies that in the event that another party is unwilling to provide him with the work of his dreams, he will have the resources necessary to go out and create employment for himself.
The advantages of realizing that vision will far outweigh the costs I will have to bear over the next several years to make the sacrifices necessary to get there.
To put it another way, the “why” behind my actions is more important to me than the money I have to put up front.
The ability to scale one’s income in conjunction with a compelling “why” may be a game-changer. However, this is not an example of passivity in any way, shape, or form.