4 Hidden Ways Passive Income is A Big Myth

In this post, we will look at several myths about passive income, but first, here is our disclosure.

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What is Passive Income?

When looking online or using AI apps, passive income is often described as making money with little effort or involvement. It is marketed as an easy way to create extra streams of income and a way to achieve financial freedom.

Social media apps and websites love to paint the picture that if you are successful enough, you may even be able to quit your day job.

Sounds great!

Who doesn’t daydream of quitting their day job?

Who doesn’t want to earn more money with minimum effort while sleeping in bed or relaxing at a café in Paris?

Unfortunately, it sounds a little too good to be true. From my experience, if something sounds too good to be true, it usually is.

This is the very reason why I started Crash Test Money. I want Crast Test Money to provide informative and trustworthy content on money through first-hand experience.

With our mission in hand, I am rolling up my sleeves, diving into passive income, and getting dirty.

Passive Income Through Experience

My goal for Crash Test Money is to provide valuable insights into personal finance. This includes digging into money-making opportunities and investment strategies, including passive income. I am not a financial professional. Instead, I am like many others trying to understand the complex world of personal finance. Through my experiences, I want to empower others to make better money decisions.

I can assure you that I have direct experience with many passive income ideas you will find out there.

This is why I have a problem with how passive income is marketed and sold to us. The idea of effortless money can create unrealistic expectations. The end result is wasted time without much progress. This is very frustrating and precisely what I plan to challenge in this post.

Don’t get me wrong. I am a big proponent of passive income and the need for people to have income streams beyond their day job. In fact, I am working on establishing reliable passive income streams for myself. However, I have come to realize that passive income is not as effortless as people make it out to be.

I have learned not to be swayed by those who promote it as an easy way to earn extra money. If you do fall for it, this can lead you to see passive income through rose-colored glasses. It will cause you to overlook the realistic potential and effort you need to earn passive income.

Passive Income Through Rose Colored Glasses

The people promoting passive income create the illusion that it is a quick and easy way to make money. Many sites pitch it as a get-rich-quick opportunity. They will have you believe passive income is a cure-all for your financial problems. The popular passive income streams they like to list include:

I encourage you to do a quick search for passive income and see for yourself. You will discover how passive income is made out to be the greatest thing since sliced bread.

What stands out is how effortless they make passive income seem. They often begin with a paragraph or two extolling its virtues, making it seem as easy as riding a bike. Then they provide lists of “simple” passive income ideas, like the ones in the list above.

All this will have you daydreaming about what you’ll do with all your extra money. But amidst all the fluff, there will be a brief mention of the need for upfront work. After that “little” upfront work, it is easy money from there on out.

It sounds so good, but it is one of the biggest passive income myths.

So, are you ready to take off the rose-colored glasses and learn what it takes to earn passive income?

If so, it is time to discover the hidden ways passive income is a big myth.

It all starts with effort.

Myth #1: Passive Income is Effortless

The biggest myth is that passive income requires little effort and active involvement. That could not be further from the truth. Sure, you will earn money while you sleep, but you are working your butt off while awake to make that happen.

Money doesn’t grow on trees, and passive income doesn’t generate itself without effort. Even something as simple as opening a high-yield savings account requires hard work.

Opening and maintaining a high-yield savings account requires effort beyond what you may expect. It’s not as simple as waking up to find a pile of cash by your bed waiting to be invested. Also, you have to come up with the funds from somewhere, and that somewhere is through hard work. Even after you open an account, you need to keep an eye on the interest rates and be ready to move your funds to another account if the rates drop.

The reality is that each passive income stream only gets harder from this point forward. Creating passive income from blogs, e-books, and online course is a lot of work. I know the effort because I am involved in it daily through this website you are currently reading.

Creating content is not passive Income

Creating content is hard, very hard. I know because I spend many hours outside my normal full-time job creating content for Crash Test Money. Without content, there is no passive income, and you need a lot of content to make money with a blog. So, I wake up at 5 am to write until I go to work, then use any free moment, including weekends, to create content.

That’s why having a strong passion for the subject matter is important. I love personal finance and investing. This blog provides me with a platform to share my experiences and passion. My ultimate goal is to help others reach financial freedom. That keeps me motivated because building content is a lot of hard work.

This leads us to our next myth.

Myth #2: Passive Income Is Guaranteed Money

If you follow social media and blogs, you may believe it is impossible not to earn money with passive income. Unfortunately, this is not true. Putting all your effort and devotion into a passive income stream does not guarantee it will pay off. You need to be comfortable with the possibility of failure before starting.

When starting Crash Test Money, I knew it would take time to create passive income. Creating a lot of quality content requires hard work. Further, there is no guarantee I will make much money from my efforts. This is the reality of many passive income ideas.

You can spend hours creating amazing e-books and online classes but have little to show for it. The same applies to affiliate marketing, dropshipping, and most other passive income streams. Even the most straightforward passive income streams do not guarantee you will make money.

For instance, the most reliable sources of passive income are investments that offer interest and dividends. These are things like high-yield savings accounts, stocks, REITs, and bonds. However, economic conditions may cause you to derive much less income from these investments.

During low inflation, your returns on a high-yield savings account may evaporate. Dividends from struggling companies may be cut or suspended. Bonds may default. I know this can happen. I have experienced this with my own savings accounts and dividend-paying stocks.

In life, there are no guarantees, even when it comes to generating passive income. Pursuing a passive income idea requires the ability to overcome setbacks.

You must also overcome the costs of establishing a passive income stream. This leads us to our third myth about passive income.

Myth #3: Passive Income Has Minimum Costs

We all know the adage: It takes money to make money. Passive income is no exception to the rule.

Running this blog costs money. I must pay for my domain name, hosting, and other expenses. I admit running a blog is nowhere near the cost of starting a business like a restaurant. Yet, it costs more money than those pitching the idea as an easy form of passive income would lead you to believe. Trust me. You will discover that the free versions of things are quite limited.

No matter how much it costs to start and maintain a blog, it pales in comparison to owning rental properties.

The Costs of Rental Properties

I am convinced the people promoting rental property as a great form of passive income have never owned a home, let alone rental property. Unless someone gives you a house, you must buy a rental property before you can start collecting rent. Buying real estate is anything but cheap. Instead, it is one of the most expensive purchases you will ever make.

Then, there are all the ongoing expenses for upkeep on the property. If something breaks, you have to fix it. It all costs money. A lot of money. Every form of passive income has expenses and investment costs.

For example, you will need the proper equipment to start a YouTube channel or earn passive income through photography. Cameras and microphones are expensive. Your smartphone won’t cut it for producing high-quality content. You will also need to pay for video and photo editing software, as free versions have limits.

Even passive income from investments that offer interest and dividends costs money. Some have actual fees and expenses associated with them, but all require money to invest. These include savings accounts, dividend stocks, and real estate crowding funding.

Savings Have Costs Too

You will not earn much passive income if you have no money to invest. So, the dollars you put toward these passive income streams act like a cost. They may not be a cost in the true sense of the word. But, you must put substantial dollars toward these passive income streams if you hope to make solid returns.

For instance, a 5% interest or dividend yield on $100 is $5 per year, while on $1,000, it is $50; on $10,000, it is $500; on $100,000, it is $5,000. Although not insignificant, it won’t be enough to quit your day job.

In the case of dividend-paying stocks, you can lose money if the companies you invest in do not perform well. The same is true with bonds. If a company or government cannot service the debt, they default on the bonds, costing you money. This can also apply to peer-to-peer lending and crowdfunding investments.

The truth is it is possible to lose money with any passive income stream.

Losing money is a cost.

Never forget that.

Myth #4: Passive Income is Easy

This is the final myth that I will cover in this post. It may be the last, but it is not the least.

Don’t believe the hype that passive income is easy. Nothing can be further from the truth. Generating passive income can be very challenging. No matter which passive income idea you attempt, there will be a steep learning curve. Even something as simple as a high-yield savings account has a learning curve.

Research is the only way you know you are getting a good rate with a safe and reliable bank. Then, you must learn the specific signup process and transfer money with your chosen bank. It may not be the hardest thing in the world, but it still requires learning and research. It gets more difficult once you start investing for passive income.

The market offers thousands of options when investing in dividend stocks or funds. It can be a daunting task to make a choice. You will need extensive research to pick the right ones when choosing the brokerage company you want to invest with.

The same is true for peer-to-peer lending and real estate crowdfunding sites. You have to spend time deciding which one to choose and even more time learning how to use each platform.

Then there are passive income streams that require creating content, like blogging.

Blogging, The Ultimate Challenge

This is my first website and blog. Every step has seen a steep learning curve requiring extensive research. With so many choices and platforms, getting started can seem almost impossible. First, you need to figure out where to register your domain name and then decide where to host your website.

From there, you need to choose a blogging platform and website theme. You’ll explore analytics, content delivery systems, plugins, and more. Each one is a complex ecosystem to learn, making the process very challenging. This does not even take into account creating the content.

Seeing how hard blogging is, I can only imagine how challenging creating video content, ebooks, or online courses must be. I do not even want to think about the complexity of buying and running rental properties.

So, earning passive income is challenging. It is important to understand this from the start. If you don’t, you might give up too soon and miss out on the opportunity to earn passive income or hold on too long without making a dime.

Closing Thoughts On Passive Income

Congratulations on reaching the end. My goal is not to scare you when it comes to passive income. Rather, I aim to give you a realistic understanding of what it takes to earn passive income.

If you are interested, Bankrate has a great article on 23 passive income ideas describing both the opportunity and risk of each.

Contrary to what you may read or see, passive income requires hard work and continual effort. It is not as effortless as many sites, videos, and social media posts will have you believe. It may not be the same level of effort as a full-time job, but it still takes a lot of work.

Generating passive income requires dedication and effort. Do not let this prevent you from trying.

Passive income is a worthwhile endeavor despite not always being easy. Having several income streams is a great goal and can provide financial flexibility. There will be times it will not work out as planned, and odds are you will need to keep your day job.

So, do not believe the hype. It is important to be patient and persistent in pursuing passive income. Hope for the best but be ready to fail from time to time. As such, you must be prepared to accept defeat, dust yourself off, and try again. Remember that failure is an opportunity to learn and grow.

I wish you the best of luck in your pursuit of passive income. May it be an awarding endeavor.

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