ESYB2 136 - Passive Income vs Residual Income vs Hourly Income
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[00:00:00] Let's define passive income. To define passive income we actually need to look at three types of income. Active income versus passive versus semi passive income. First let's take a look at what's active income. Most people are very familiar with it. Active income is when you trade your time for money.

An example would be a regular part time or full time job or project based work where more or less You're going to spend a certain amount of time, and you're going to get a certain amount of money, and that's it. Most people, that's what they know, that's what they start with, that's what they're taught growing up.

And, it's not just a 9 to 5 job, it also, if you have a business, some businesses are essentially active income businesses. For example, if you provide a cleaning service, or a home repair service, you know that you're going to spend a certain amount of time. And you're going to get a certain amount of money.

So you're essentially trading time for money. It's a little more complex than that, because obviously you can hire people to do the work for you, but at a basic level, it's active income. Although when you step away from a business and take a step [00:01:00] back and only manage it, it becomes a little more Passive income, but in the beginning it's active income where you're trading dollars for your time.

This is a good way to go. It's safe. It's the least risky. The only problem that arises is it feels like a constant inescapable cycle of working, working more time, more hours every week. It's the rat race. You want to get out of it. It can begin to feel unfulfilling because you don't have a lot of time left over for your own life.

So, after getting a little bit of savings, people look to supplement their income by saving money from their active income and investing in purely passive income streams. These are bank CDs. If you loan money out, you're just going to get some certain percentage back. If you invest in real estate, you know, it works for you.

You don't have to do too much work. If you invest in stocks that pay out dividends, all of these are considered passive income streams because you don't have to do. Any extra work [00:02:00] the asset does it for you your money works for you But the problem with these is that they have risk stock market has risk real estate has risk Loans have risk and the more money you can potentially make the more risk you have and it's one thing to say Oh, I can risk but it's a very different thing to actually lose the money.

So risk is very real We don't actually talk about active income or purely passive income in this course. I'm not going to show you how to invest in real estate or stocks or bank cds, nah. What we are going to talk about is semi passive online business ideas. Now why do I say semi passive? Because You actually have to keep on doing work, even though it feels passive.

Let me give you an example. If you wrote a book, like I wrote a book, several books, they're on Amazon. You would think a Kindle book just lives on Amazon. It doesn't need printing. It doesn't need shipping. Even if it did, which it does actually, Amazon does it for me. So even the paperbacks, I don't ever see the book.

I don't [00:03:00] ship the book. I don't print the book. I just wrote it once and upload it to Amazon, right? Little bit wrong, because you have to constantly improve the book. Do customer support, do marketing, and you constantly have to fend off competition and navigate new business changes. For example, today, Amazon works a little differently than two years ago or two years in the future.

So you kind of always have to stay on top of Amazon and you kind of actually have to make more products. Your second book, your third book. And of course, continue to do tech support and customer care for your existing clients. So all that work is actually. A lot of hours you'll be putting in. That's why it's semi passive.

It's not that promise that you'll write a book and sit on the beach all day. And the last thing I want to say about this business is that it's extra risky because let's say you invest two months of your life, write a book. That book may never sell more than 10 copies. We don't know what the future [00:04:00] holds.

Of course, the hope is that the book is extremely successful, but we don't know what the future holds. So you might work a long time and make nothing. Um, the benefit is that you are investing in yourself directly. You're not investing in a stock market. You're not investing in a job which is owned by a business that's owned by somebody else.

You're investing in yourself, which is the bet that you want to make, but it's also the riskiest bet because there's no one else that's going to help you. And Unlike active income where you get paid relatively quickly, bi weekly, monthly, sometimes you work now and you get paid like a year later. For example, there's some work that I did a year ago.

It's only starting to show results now, a whole year later. How are you going to pay rent? How are you going to live and eat? So, So a lot of people get frustrated and quit very early because the promise of a passive or semi passive business. Well, people think it's purely passive, but an online business ends up being semi [00:05:00] passive.

So the promise of such a semi passive business is beautiful. But the nuts and bolts of it, when you start working in it, it's hard. And there's a lot of people competing against you. Everybody's trying to take a dollar away from the next person online. It's all a big competition. And so you have to put a lot of work into it.

Often I work over 40 hours a week, even though I have what everybody wants, like passive income business, but I'm working 40 plus hours a week for many years already. So, yes, I do have the flexibility. I do have the freedom to do what I want, but I also know that I have to keep on competing and kind of run my own rat race, so to speak, because If I take a step back and go on a vacation for a year or something, you know, sit on the beach, everybody else who's working harder, they're going to jump over me and out compete me.

So my only option is to keep on out competing them. So that's really how to honestly look at a passive income or a semi passive [00:06:00] income so that now you understand the pros and cons on all of these.

