What is Passive Income, and How Does it Help Build Wealth?

By Rachel Puryear

Previously on this blog, we’ve explored what differentiates the poor, the wealthy, and the middle class – beyond just the numbers. We’ve also talked about why it’s much easier to build more wealth when you already have some, and the how frustration over decreasing class mobility is driving people to stop trying so hard. We’ve discussed why forcing people to work isn’t the answer to poverty, and things all kids should get to learn about finances while they’re young, but many don’t.

In this post, we’ll explore what passive income or semi-passive income is (for simplicity sake, we’ll just say “passive income” in this post), and why it’s essential for building wealth. This builds upon the themes developed in the previous posts linked above.

We’re conditioned by the Protestant work ethic culture with the notion that we must work hard for our money. That we must sacrifice, and truly “earn” it.

However, not only is that ethos NOT true, but in fact; trying to become well off solely by working more and earning more will likely leave you a lot less than you could otherwise have. Unless you’re a rarified Hollywood celebrity, or something along those lines (but you’re probably not).

One of the keys to becoming wealthier than your earnings alone will allow is to build sources of passive income.

Passive income is money that you make with no or little effort, which is also stackable and scalable (we’ll go over these terms below). Often, you might have to invest some money/time/effort up front, but then only do occasional maintenance after that. Passive income can include investment income, or income from endeavors which meet the criteria.

By the way, you can learn more about specific passive income streams from other posts by following this blog. 🙂

Here’s why you need passive income, what characterizes it, and why you should focus on it for wealth building:

Stack of cash laying on a chair under a beach umbrella.

Time is Limited, as is Your Energy

If you want to make more money, why not work three jobs, for 20+ hours a day?

Because, of course, doing so would leave you horrendously tired all the time – as well as destroy your quality of life. And it would put you into an early grave. And that’s definitely not what I want for you.

However, what if you had three or more “jobs”, but the total of all of them combined didn’t require you to work more than a few hours a day, or maybe even a few hours a week? And you still got paid from all of them? Would you “work” that many jobs then?

Sure! Right?

That is the beauty of passive income. You are very unlikely to earn your way to wealth, but passive income can make you far more than working for it could.

Which brings me to the next point – stackability.

Stackability of Income Streams

Part of what makes income passive income is stackability.

When you have passive income sources and you only need to put a little bit of time and effort into them, you can take on multiple such efforts, and still preserve your time and energy and life.

Once you get a passive income stream going, you can add another, and then keep going from there. This is a huge difference, compared with jobs where you have to actually work for every dollar, and cannot earn more without working more.

By not having to work full-time hours on each income stream, you are enabled to stack on more and more streams of passive income over time, without having to work much harder to do so. That is the beauty of stackability.

Which brings me to the next point – scalability of earnings.

Scalability of Earnings

Part of what makes income passive income is also scalability.

To earn say, $100,000.00 a year at a regular job, you’d need to make around $50 an hour working 40 hours a week, all year. Most jobs don’t pay that much.

Let’s say you make $25 an hour, which is more common for many skilled jobs. Earning $100K would require you to work around 65-80 hours a week (depending upon whether you have overtime pay) all year round. That will tire you out and leave you with no life.

But again, if you’ve got five passive income streams that each earn you an average of $20K per year; and they each require an average of three hours per week of work from you; then you can earn that $100K in a year working only 15 hours a week. That’s a lot more free time. That’s just one example.

In all honesty, it’ll take most people a while to get to that point, unless they have lots of money and time to invest upfront. It’s a long haul for most, done while still working a job to pay the bills, and throwing what you can into investing and saving and developing passive income streams. If you can get there, though, it’s a very worthwhile effort.

Scalability allows you to grow exponentially over time, without necessarily having to work harder. For instance; if you blog, have a podcast, make online courses, or sell goods online, or make videos on YouTube; if you keep growing your audience, you can make a lot more money through affiliate marketing, without necessarily having to work any harder on your actual product. It takes as much time and effort to create media for an audience of 100, as it does for an audience of a million.

By contrast, if you work in a factory are hustle so hard that you’re producing more widgets per hour than your co-workers, that isn’t putting any extra money in your pockets.

And that is the power of income scalability.

It Doesn’t Need to Be Your Passion – It Just Needs to Fund Them

I’m going to go culturally sacrilegious here, and tell you not to necessarily pursue your passion to make money. Why?! Shouldn’t you do what you love, to never work a day in your life?! That’s what we’re all told, anyway.

Actually, no, you often really should not – unless you really happen to love something that also happens to pay well, and you enjoy doing it all day, and everything that comes with it, and you’re sure of that.

But in reality, trying to monetize your passion will often ruin your passion more than it’ll make you wealthy.

Instead, think of passive income (or even earned income) streams as a way to fund the things you really want to do in life.

We’re told that we should make money from our passions, but this is not realistic for a great many people. Often, the things we enjoy doing in life are not things people will routinely pay us good money to do.

Furthermore, more often than you might think, people who do manage to make money doing what they love, often find that their dream job isn’t all it’s cracked up to be. That’s because the business side of any pursuit is typically much different than the passion itself.

As just one example, many crafty people have been told by many people that they should sell their creations on sites like Etsy (that’s not passive income, by the way, not even close), only to find that they hate the business side of making crafts (and there’s a lot to hate about that).

I’ve known gifted teachers who loved to teach, but hated their teachings jobs – because of the notoriously toxic culture of academia.

Even many handsomely paid Hollywood celebrities become jaded – and it’s not from the acting, it’s from the business.

Don’t make the mistake of trying to get rich doing what you love, with rare exceptions. Often, you will end up not making much, and losing your passion.

Think of making money, and doing what you love, as two separate things.

Instead, find a truly passive income stream that you can put up with doing for a small number of hours in a day or week, and work on scaling up your income from that.

Then, you can use passive income you make to fund the things you really do enjoy doing in life. And that is how you combine income with decent quality of life.

If you do happen to love your passive income source, that’s awesome, and it can happen – just realize you are not required to.

How Feasible is This?

That’s the million dollar question.

In all honesty, it really depends on where you’re starting from. And I would be highly suspicious of folks who tell you that everyone can get rich quick doing a simple, vague system for five easy payments of $19.99, regardless of your present circumstances.

How much money you currently have to invest in developing a passive income stream is a big factor. So is how much free time you have after work, child and caregiving responsibilities, household work, and other obligations. The skills and knowledge you currently have also play a huge role in your options for income streams.

At the same time, these factors will be the case in any venture, and opportunities in life in general. I wish I could tell you more of a way around that.

As with all good things in life, though, it’s worth it to at least try, and give yourself a chance.

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Thank you, dear readers, for reading, following, and sharing. Here’s to enjoying more passive income.

Check out my other blog, too – World Class Hugs, at https://worldclasshugs.com. It’s about celebrating empathic people, balanced relationships, spirituality with a curious mind and open heart, and visiting gorgeous natural places.

Got a question you want answered through this blog? Submit your question to me here – and if you don’t already, please request to subscribe to the Free Range Life newsletter while you’re there!

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