Passive Income Requires Active Income First (2024)

Passive income is probably one of the biggest reasons why so many people are starting niche sites or writing a blog these days. Just in the personal finance sphere alone, it seems like there are hundreds of new blogs popping up every year. Some have good information, some have bad, but they all have one thing in common. A lot of new bloggers see the opportunity that exists to write about something they love and get paid for it. Once you’ve established yourself, you can hire other people to do the work for you and sit back and reap the benefits: this is passive income at its finest.

There are personal finance blogs out there that started just like this one(but 5-10 years ago) that are now selling for millions of dollars. Although these blogs are definitely the exception and not the norm, it highlights the potential that exists in the online marketplace. If someone is willing to pay 3 million dollars for a personal finance blog, they must be pretty confident in that blog’s ability to produce consistent income.

Everyone Wants Passive Income

One of my favorite sites is actually called Smart Passive Income and the author, Pat Flynn always reminds his readers that passive income won’t come easy. He’s right.

My definition of passive income is an income stream that will pay you a weekly, monthly or even yearly sum with little to no work. More traditional definitions of passive income are things like CD’s and bonds since all you have to do is invest X amount of dollars and you’re guaranteed to get certain payouts. Obviously that type of investment sounds pretty appealing since who doesn’t want to make money for sitting around on their couch? But no matter what type of passive income you end up with, there’s always going to be an active portion first.

Active Income First

I have a couple passive income streams but the thing I’ve realized time and time again is that they all required active income first. People love to bring up real estate when they talk about passive income but real estate requires a huge amount of active income. Not only do you need to save up for a down payment for, but you also need to have consistent W2 income in order to prove that you’re a trustworthy borrower.

It’s smart to try and build your passive income streams when you’re young but your primary focus should really be on your active income. Think about diversifying your streams of active income and figuring out ways to make as much as possible. That way you can invest in more passive sources of income like real estate, business, CD’s and dividend stocks as you get older.

Active Investment of Time

There aren’t many business models out there that could literally pay you thousands of dollars for doing absolutely nothing. Online websites and blogs can do just that though. Once you’ve established yourself and everything on your site is up and running, you don’t even need to sell things to make a profit. You could write 20 amazing posts on How to Be a Magician with affiliate links and Adsense banners all over the place. Every time someone clicks on one of those links, you’ll see a small payment in your advertising account, it doesn’t get much easier than that.

And that’s why I think so many people are starting blogs and niche sites in the first place. Making money for doing nothing is something that appeals to everyone. One of the first things you’ll realize though is that starting an online business is A LOT of work. It gets easier the more sites you do, but everything from picking the name to hosting and figuring out what you’re going to write about will take a lot of time.

So while online passive income sources don’t require a lot of active income, they do require a lot of active investment of your time. Since time is money, even passive online income sources are going to require a lot of active income/time depending on how you look at it.

Why is Passive Income Important?

The reason why I’m working so hard on my passive income streams is because I don’t like depending on my day job income to survive. Right now, my day job income is close to 75% of my total income. If I were to lose that income, I’d be in big trouble. I have an emergency fund and lots of savings but it would definitely put a hamper on my retirement contributions and discretionary spending.

I’m not in any rush to invest but I’m definitely looking at all my options when it comes to passive income. I want a nice diversified portfolio of passive income producing assets so that if I wanted to leave my day job I could. I like writing and working online but I’m not sure if it’s my passion yet. While I search, I’m going to continue boosting my active income and sending the proceeds straight to my passive income investments.

Eventually it would be nice if my passive income equaled my active income but that day is probably very far away. More realistically, I’d like my passive income streams to equal about half of my day job income. That way I’d be free to pursue nearly any passion I want and probably still be able to just about come up with the difference.

A lot of people work the same boring job day in and day out because they need the money. Well I’ll admit it, I need the money too. But no one says you have to get it all from the same place.

Readers, what do you think about passive vs. active income? Do you think passive income is a good goal or should you try and maximize your active income to succeed in life?

-MR. 4HWD