Let’s talk personal finance today. I am not a professional in this realm, but I have come to a state of play in which I can say that I have healthy financial habits. And you know what? I am sick and tired of people wanting to “get rich fast”. Of course, it is possible, and I am not saying the contrary. However, you will put in the effort if you want it to happen, and in most circumstances, people who get rich ‘fast’ have been working or investing long before this ‘seemingly fast’ growth. If you were raised in a poor family or in the middle class, then it is important you understand that a lot of what you think you know about finances is not true. It has been said to you either to put you away from so-called ‘risk’ or, sadly, to keep you poor. I would like to be the big sister who was raised in a rather poor household myself, can speak to you from experience and maybe help you a little bit see the world a bit differently.
I would like us to take a moment to debunk quickly the notion of ‘passive income’ so that, hopefully, this opens your eyes to a new way of thinking about your financial future and objectives. I am one to think that all of us should have financial objectives, whether it is getting out of debt, building our own emergency fund, or basically anything else that gets your fancy. Money is here to buy us a more fulfilling life, so let’s use it and have it work for us. First, we need to work on limiting money beliefs, thus today’s post. Ready?
No revenue is really passive. The following items of ‘passive income’, among others, illustrate this notion:
Royalties
How many times have we heard that celebrities had ‘passive income’ from royalties? It is indeed passive income in the sense that they do not actively produce work in the now to get them, but either you earn royalties from your previous work (a book you wrote and published 10 years ago) or from a relative’s previous work. The truth is that your passive income through royalties is the fruit of previously made work, and is thus passive in the now because it has been active in the past.
Delayed success
The most common example here is YouTube videos. You would think that YouTubers have been building straight fortunes from nothing. First, please bear in mind that being a YouTube is a real job and a tough one. However, this activity is a bit of a two-sided one as you may have immediate income (just like for your regular job) once you have built an audience, and also delayed income (from previous videos).
First, you need to understand that YouTubers take, for the most part, a lot of time working for basically no financial results for a while before they earn anything. This is quite an example of delayed financial success. Thus, please notice that even this ‘passive revenue’ they get from past videos is actually coming from the work they have done before in such a smart way that it can benefit them for years after it has been produced.
Key principle: to build ‘passive income’ and grow richer, you first need to be willing to put in the work for (possible) delayed gratification. You do not know if your book will sell when you write it, but you put in the work anyway. This is where most people are mistaken and live a basic life with no passive income: they want to put in the work to see the results. However, the greatest assets (built through ‘passive income’) come from work which has been made for the sake of it and not for immediate gratification. Otherwise, your only source of revenue would be your income, but not assets.
Real estate
I could not write about passive income and not talk about real estate, right? This is probably the most common form of passive income and the one you hear about in almost every YouTube advert depending on your algorithm. 😉 Am I allowed to tell you this is not passive at all? First, you (or your relatives; it can be passive for you now but has been a hassle for someone else before anyway) need to learn about real estate, work for the initial deposit to be ready, and actually buy the house. Then, a lot of time goes into finding tenants and taking care of the house, not to take about taxes you may pay on the said house.
I do not say real estate is not a smart investment, but it is quite a tough one, and I would not recommend jumping straight into it if there are other venues you may explore first. And please, do not think it is ‘passive’; to be honest, for me writing that book and making those royalties would be more ‘passive’ on the scale of passiveness, than caring for the home I am renting for such a long time. You choose what works for you, but always with the understanding that there are many more options than you would think naturally.
Stock market
Last example but not least: investment. I write ‘stock market’ here, but really investing in your pension or any high-interest place is also at hand. There is no ‘passive income’ here in the sense that the effort is made first to both understand the value of investing (especially if you were never told about it when you were younger) and most importantly, learn how to do it right. And if you do it all alone (which I do not recommend), work on your investments regularly to keep them fruitful. Investing your money is not passive at all, it requires lots of learning upfront and housekeeping in the long run, though I would encourage anyone to at least learn about it. Investing is one of these things we are told early on not to touch, while really, this is not that dramatic and can really get you money in a way that is not at all more dangerous than keeping your physical money at home.
In any case, you need not “passive” income, it is being active in developing your financial literacy.If this is a topic you’re interested in, please let me know. Once more, I am not a professional, but I have been through a lot myself and have learned so much from very knowledgeable people. If I can help a little, it will be my pleasure.
The English-speaking Frenchie 