The Passive Income Scam

passive income the Holy Grail of personal finance topics the ability to earn money without doing anything it quite literally doesn't get any better than that does it and it's something that you'll see video after video and add after ad talking about pushing the idea that millionaires earn seven different streams of income so so should you there's just one problem passive income doesn't exist not really anyway there are of course ways of making money that deviate from your standard nine to five where time spent working and compensation have a pretty linear relationship but the vast majority of these so-called passive income strategies that you see advertised online especially here on YouTube are at best misrepresented and at worst completely fabricated to prey on the financially desperate now it's not to say that some of these strategies don't have their merits well I don't like the term passive income some of these things might make you money over time but for the ones that sound too good to be true where you quite literally don't have to put in any effort you're often more likely to lose money when you consider the fees and registration costs that you're being charged to even try this thing so let's break down why passive income isn't all that promising but why you keep hearing about it on today's clean bagel passive income is usually used to reference an income stream that is somewhat self-sustaining in that once you set it up it doesn't necessarily require your active involvement meaning that you can have more time to yourself to hang by the pool side or play video games or do whatever you want but outside the lottery or a lucky inheritance there's not really such a thing as passive income at least in that truest sense instead when people say passive income they're really referring to one of two things investment income or entrepreneurial income now certainly there's nothing wrong with these approaches and they do change how your effort is rewarded but they don't eliminate that effort requirement and there's a very easy explanation as to why anything that promises a high reward without any effort is in most cases a gimmick but let's start by explaining these two streams of income starting with investment income the idea of owning assets that generates some sort of yield whether that be stocks bonds or I'll throw on rental properties here as well now obviously as an investment Focus Channel I have no problem with people making money from their Investments I would naturally hope that you do but as a passive income strategy it comes with a pretty big caveat it requires that you have money in the first place to purchase those income producing Assets in fact when people reference millionaires earning seven different streams of income which stems from a 2002 report from the IRS it's not often mentioned that four of those strategies dividend rental interest and capital gains income require money in the first place to achieve and a good amount of it if you really want to earn anything meaningful if you could reliably achieve a seven percent return on your money for example and you wanted to replace your annual active salary of forty two thousand dollars a year which is roughly the average personal income in the US you would need to accumulate 600 000 in net savings not an easy first step for passive income now there are some strategies that I've seen that do promise to earn you that passive income without needing that upfront capital or effort for example investment Bots that take whatever you have and grow it faster than the market using proprietary software or courses that promise to show you how to start building a real estate Empire by putting five percent down on several different properties when you're 19. the problem is that these products never represent the true risk reward trade-off that you face implementing them the idea for example that someone should take everything they have and put it into a down payment on a rental property is stupid it's bad financial advice because while real estate on average is a good investment category and is a legitimate strategy for Building Wealth given the rental income and the appreciation it also comes with large unexpected costs and risks like a broken water heater a hole in the roof that you need to repair that's a real thing my parents had to deal with that over the summer and I helped them cut a tree out of their roof there's also the risk of your payments increasing something that many are becoming painfully aware of as interest rates rise so clearly if you don't have a cash buffer to help absorb these extra costs or a couple months of unpaid tenant rent then it could be enough to sink any thinly run operation as for trading Bots they don't work I don't care what YouTuber told you that they made 20 this past month it's utter survivorship bias that may as well be advertising a roulette wheel because it'll give you the same odds so right away you can see why I struggle with people emphasizing the passive nature of investment income yes if you get to a point where you have enough Capital it can be a very powerful tool for freeing up your schedule if you end up relying on that type of income but it requires more savings from actively generated income than the average individual will likely ever achieve but what about other forms of passive income well going back to the seven streams of millionaire income which people like to focus on when you exclude the earned income since that's for losers there are two remaining Avenues royalties slash licensing and business profits AKA entrepreneurial income now the idea of an entrepreneur's income being passive should sound a little laughable according to a New York Enterprise report survey the average small business owner Works twice as hard as their employees with 25 percent working at least 60 hours a week so leaving your nine to five for a business venture to free up your schedule probably isn't going to work out still there are some Ventures advertised online that allegedly let you set up some sort of self-sustaining business that doesn't require any amount of effort something that you can set up and leave to its own devices to earn you money this includes your drop shipping stores at ad placement strategies selling digital products content creation and convoluted pyramid schemes that promise you Financial Freedom if you get three other suckers to pay for the program that you just sunk a few thousand dollars into yourself now as someone who makes money from YouTube obviously I'll concede that there's Merit to some of these strategies some of these strategies can make you money with digital products for example the idea is that once you create this thing of value and put it on the internet you can sell it and keep making money for it over time and there's some truth and validity to that strategy it doesn't require the same type of Maintenance as a traditional business but the idea is that to get to that point where you have this thing of value you oftentimes still require a good amount of effort among other things and there's a very easy explanation as to why the promise of high returns with low effort with some of these strategies doesn't hold any water take Drop Shipping for example the basic idea of Drop Shipping is that you build a storefront online that sells products manufactured and shipped by a third party so that you can earn a markup without dealing with any of the logistics a basic setup can take just a few hours and likely costs under 500 to get set up with a web domain or online storefront perhaps even less if you use a site like Amazon to sell your product or a service such as Teespring where you can design your own shirts and sell through their website after that you won't need to sit at a cash register or stock any shelves to make any type of sale and it's all pretty well automated for you awesome so what's the catch to this low effort and low-cost strategy well just that ironically because of how easy it is for an individual to set up a store and drop ship something as novel as a fancy coffee mug you can bet that there will be thousands of others doing the exact same thing possibly with the exact same product providing an insurmountable supply of Novelties when there are probably 10 people out there who actually want this thing but then Richard why are some people successful using these strategies why do we have any case example of Jimmy making 10 grand a week thanks to him signing up for so-and-so's course on YouTube well firstly I want to address that most case examples shown in these ads are incredibly biased and shouldn't be relied upon and the people who take the route of showing individual success stories rather than showing the strategy success rate at a high statistical level probably have thousands of other students who fail to break even using their approach even still some people do at times make money with these entrepreneurial Ventures and there are typically three reasons why the first is timing as with most Ventures there is some first mover advantage and the first drop shippers probably did make a good amount of money with their low effort storefronts at a time where online stores weren't as prevalent but returns from these Ventures quickly diminish over time as more and more people take advantage of it leading to that oversupply situation that quickly eliminates the opportunity for everyone else it's basic Arbitrage even those that make money from this Venture probably won't see sustainable cash flows a successful Drop Shipping Store for example might make money for a few months perhaps even a year but we'll eventually see activity die down if it's truly left to its own devices so by the time you see an ad for a course that someone spent a few months putting together after trying a passive income strategy themselves and getting three other success stories to back it you can bet that the opportunity has probably already passed now the second factor for success with these online strategies as you can probably guess is luck as someone who makes money on YouTube I would love to say that there's a Surefire way to get to this position but I don't believe there is there are over 720 000 hours of content uploaded every day on YouTube alone and nearly 90 of that will never pass the 1000 view Mark at which point you might make a few dollars luck plays a role in every entrepreneurial effort and the same applies to online courses ebooks blogs any digital product where you're fighting in a sea of content creators to stay afloat and be recognized and then that brings in the third factor of success effort nearly 90 of e-commerce stores fail within the first four months including companies with a unique product set but the ones that will do well are likely the ones where people put in more time and effort to customize their products work with suppliers to secure new drops before competitors Market their goods in other words actively earning their keep and true if you have a successful product there might be some recurring Revenue thereafter but oftentimes that Revenue will slow down over time sustained revenue on YouTube for example requires that you put in continual content as you use often trickle Out YouTube for me has been a second job one that I love and I'm definitely not complaining about it but between researching script writing filming and editing I wouldn't say there's anything passive about it but then why do we keep seeing others promote these different strategies well that's an easy one because truly one of the most successful and lucrative passive income strategies that I'll let you in on is selling passive income strategies the reason one of the most watched Finance videos on YouTube is nine passive income ideas how I make twenty seven thousand dollars a week is because there's quite literally nothing more financially appealing than making money without any effort and the reason you'll be served ads about how Drop Shipping is making people rich is not because Drop Shipping is actually making people money but because the person that is giving that ad makes money from selling that idea with the sign up fees for their course or their Academy even though you'll likely make less on an hourly basis using that type of strategy than you would driving for Uber for example so it's been a little negative so far but my intent here isn't actually to discourage you from pursuing one of these passive income strategies if that's what you want to do if you think there'd be demand for an online course or an ebook on a subject that you happen to be an expert in I actually say go for it you might just happen to make some money along the way of pursuing your passion in this Venture but my point is that you need to go into it eyes open passive income really just means front loading your work not eliminating it in the vast majority of strategies do require some form of continued effort to sustain the money that you're making you get out what you put in and your success will be a function of your application opportunity and most importantly your effort now none of this is to criticize people who use the term passive income or share ideas freely on how to make extra cash on the side and there is of course something to be said for trying your handed entrepreneurship to try and build some supplemental income so if you want to try out one of these strategies all the power to you but be aware of the time and the capital that you're spending to make this money to deem whether it's worth it and maybe don't add to your break even hurdle by buying a two thousand dollar course on Drop Shipping from someone who's just trying to fund their own passive income strategy if their strategy was still successful that it lets them make money poolside without any effort they wouldn't need to sell you an ad on YouTube thanks for watching I hope you found this video helpful if you did please do make sure to like And subscribe all that good stuff papa needs to earn his passive income and if you have any thoughts on these strategies that we've talked about today I would love to hear your thoughts especially if you've tried one of them and even especially if you disagree with me maybe you think there's opportunity here that I'm overlooking I'd love to hear your thoughts in the comments down below thanks for joining and be safe out there

Channel: The Plain Bagel

Views: 1,106,009

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Id: AqZbO8Ojhmw

Length: 14min 14sec (854 seconds)

Published: Fri Nov 04 2022