How do I earn passive income?

Today’s question comes from Stephanie. She asks:

“How do I create the “passive income streams” everyone always recommends to get to financial freedom? From what I’ve seen, the people recommending the multi-stream approach have many of those streams just based on conveying that message.”

I saw an ad in the back of a magazine once for how the government was practically giving away cars seized from drug dealers. Like any other teenager I wanted my own car so I imagined buying some old-school Cadillac with 20 inch rims (like my favorite rappers had).

I mailed in my $99 and got back a list of where all the government auctions were held. None of them were anywhere near me, so what was I supposed to do with this? I didn’t even have a car to go to an auction to get a car. Plus, I didn’t know how to inspect one, determine a value, bid, and so on.

I felt scammed, and learned an important lesson: If it’s too good to be true, it probably is.

The same can be said for passive income. You’ve seen the late-night infomercials about how if you just buy some product about, I don’t know, how to build a real estate empire, then you’re definitely going to get rich earning passive income while you sip margaritas on a beach somewhere.

Sound too good to be true? Ding ding ding, because what these marketers don’t tell you is passive income is really two things combined: Information (or knowing how to do something, which is what their product gives you) + a massive amount of your time and effort that you don’t get paid for.

Think about passive income like an iceberg. You never see all the work someone puts into creating passive income (the huge chunk below the water). You only see the tip, which is someone making money without doing anything.

Take writing a book. Do you see Stephen King sitting in a room by himself staring at a blank sheet of paper? No, but he’s said that writing a book, “Takes at least a year.” The only part you see is him selling 350 million copies and you say to yourself, “Oh, must be nice.” (Btw, royalties are an excellent type of passive income.)

Here, let’s take a look at a few other examples.

Pat Flynn. He earns $100,000+ a month in passive income from his website where he writes about passive income. The part you didn’t see was the 8+ years he spent writing 1,000+ posts, recording a daily and weekly podcast, building a brand, and running a business.

Ramit Sethi. He created a $2,000 online course on how to create and sell online courses. When it launched he made $5 million, and he’ll earn passive income for years selling it to new leads. The part you didn’t see was the 10+ years he spent building his platform, and learning how to successfully create and sell digital products.

I saved up enough money to earn $40,000 a year in passive income. (And you can do the same thing I did with stocks, or by investing in real estate, building a business, etc.) But if I pull back the curtain you’ll see 10+ years I spent improving my business skills to climb the corporate ladder, learning how to align my spending with my financial goals, and mastering the stock market.

You can earn passive income. Even multiple streams. But what you can’t do is earn money while you sleep without putting in massive amounts of work for free, because no one can.