A Passive Income Hacker's View on Wealth
x.myles.io
x.myles.io
1) The passive income these people generate is from selling suckers who want to believe in free money a book for $9.95.
2) Their definition of a good passive income is at or near the poverty line in the U.S (That mustache guy?). That's fine, there's nothing wrong with that, but it's not the life most people want to live.
3) The person got massively lucky with a startup (lots of hours invested there) or real estate and think that idea is easily translatable into a few blog posts. These stories are all survivorship bias and don't account the 1,000 people who failed.
Everyone wants to believe that there's a free lunch out there. That's why scams like stock trading apps, time shares, ponzi home marketing schemes, etc. are so prevalent.
On the "all the stories" part, there are a couple of things here worth teasoing out. First, it is worth separating out the information marketers, affiliate marketers and SaaS, etc. They're different businesses. Second, the public success stories go through a spin cycle, but there are many more quiet successes that never get above the radar. Why? Niches are small and take a single human's effort to capture. No need to publicize that you're pulling in $300k/yr doing this specific thing in this specific way 1000 other people here could do. Many are a winner take all and you'd have to be a complete idiot to share. That's like posting your credit card number on the web. I am not going to tell anyone here what I do, but I will be happy to share how it impacts my life.
So that's why it feels that way. The actual reality is very different.
One example is a personal friend of mine. He developed a B2C software product for a particular niche that you wouldn't think was very large or profitable. He doesn't talk about what he does publicly or even read entrepreneur sites like Hacker News. If someone were to show me his app and ask me how long it would take for me to develop it I would say "three weeks: two to code it and one more to make it that ugly". And yet this guy makes a ton of money (much more than a typical software engineer) essentially for just handling the occasional support or billing issue.
Another example was a guy I worked for in college in the early 2000s. He got in early in the business sending out e-mail newsletters for professional organizations. He bought a license of a high-end e-mail program for about $15k, bought about $5k in server hardware and spent about $750/mo. in co-location fees. Then he hired me and another college student to work remotely part-time at $15-$20/hr. to handle the server administration and support. Add all that up and his total costs were about $20k up front and $2500/mo. The only work he would do is go to conferences a couple times a year and do a couple of sales calls a month. He generally kept the details of his financials hidden from me, but I know that at least a couple of his clients were paying over $5000/mo. each. When you consider he had a couple dozen organizations as customers, that is very impressive for something that is almost completely passive with no technical skills required.
I have been doing this the past few years and while initially my "passive income" was around $50 each month it grows each month and at some point in the future (years away) it will be larger than my current expenses. I would be okay with writing it up, but I am guessing that the story of maxing out my 401k, installed insulation to reduce my heating costs and taking the time to read a company's 10-K and learn that I do or (usually) do not want to invest in is no where near as exciting as the 22 year old that made 30K a month for the last three months on an iOS game and spent it all on a new car before he remembered to pay off his credit card and student loans.
You're right that there's no free lunch out there, but compounding is pretty close.
But a chunk of it is indeed in stocks. I have spent the past few years learning and very much lean to the Benjamin Graham / Warren Buffett teachings. Under the assumption that I plan on retiring some day that means at some point between now and then I will either want to be able to handle my own finances or pay someone to. As it isn't that much right now and I wanted to learn anyway I started hitting the books, reading corporate finance reports, etc and have been selectively choosing boring, safe and undervalued companies (much easier the last few years compared to now) that I would like to hold for several years at least to not keep giving the profit away in taxes.
As long as I don't overspend having a buffer of extra cash means I can take advantage of deals when buying larger items be it a new car at Christmas or a $5K tool that I was planning on getting some day that suddenly shows up on craigslist for only a few hundred or even small things like stocking up on basic supplies when they are sale at the grocery store. This isn't directly "passive income", but if I was living paycheck to paycheck on my passive income it would have to be larger because you would miss out on the deals. Being able to max out my 401k as early in the year as possible is another long term strategy to get a little more that you can only do if you can afford to put down that money right away each year.
At the end of the day it is about total personal net return. I would put down a number of other "investments" that generate long term net returns, but perhaps not in cash to me, but smaller bills. First paying off credit cards or school loans (or really any loans) means that future earned income will go to generating income for me and not for the owner of the loan so at the end of the year I will have more left over each year. Same goes for simple fixes around my house to improve my heating and cooling (oh and for the curious from the article the other day yeah my solar panels help keep my house cooler in the summer)
So pretty boring wouldn't you say? "Guy saves some money each paycheck!" It isn't exactly headline grabbing. Spending less than I earn, saving and re-investing when the right opportunity comes around combined with some time and you should be able to become financially independent, not overnight, but not that long either.
You've hit the nail on the head with how the rich can get richer (or conversely, how low cash can make you have less cash). If you have spare cash you can buy things that you need when they are cheap, you can buy in bulk and get economies of scale. It's similar to the "Samuel Vimes 'Boots' theory of socioeconomic unfairness." http://www.goodreads.com/quotes/72745-the-reason-that-the-ri...
Your list misses:
4) Build a quality product that serves and established need for a niche market and market it directly, using scalable methods
[1] http://www.kalzumeus.com/2012/12/29/bingo-card-creator-and-o...
which of course is your prerogative, although I fail too see how it's scammy if you're actually making money following his advice, which his clients reportedly do
*Of course, it's not perfectly passive, but it's pretty darn close: ~2 hrs per week (for customer service) plus ~3 months full-time every 15–18 months (to make a new edition).
There are lots of opportunities to make product businesses like mine. It's not a startup in the traditional sense; I think of it as a medium risk, medium reward business. It can also free you up to take bigger risks, such as starting a full-blown startup, which is what I'm doing now. In particular, I'm working on a publishing platform to allow technical authors to make profitable information-product businesses. (I love meta.)
I recommend reading Amy Hoy's blog [Unicornfree](http://unicornfree.com/) for ideas and suggestions, and maybe take her 30x500 course some time. You may find yourself surprised that it's not snake oil or Ponzi schemes—you can earn an honest, healthy living while still having a huge amount of time and freedom.
I do think there are some aspects of MMM's success that are not generalizable, mostly the carpentry/contracting skills and the rental property income that are a direct result of them. But the idea that on a 100K salary (say 70K after taxes), you live on 30K and save 40K for 10 years gives you a very comfortable nest egg that will compound and generate income for you is very real.
Another part of MMM's message, if I may, is that a non-consumer, active lifestyle (during both the savings phase or the "retirement" phase) is more rewarding personally and more sustainable socially. You say "it's not the life most people want to live," but one argument is that they haven't tried it because they are steeped in the mass-media consumer culture.
Personally, the OP ("a passive income hacker's view on wealth") is a no brainer (of course we all want time, and maybe a meaningful task in life), and I was really surprised he didn't tell us how to obtain that time. Because there's the difficulty, and I agree that most people peddling passive income solutions are your 1 and 3. #2 might not be for everyone, but I see it as an honest, viable alternative to the swindles and luck stories.
These opportunities are everywhere if you're willing to solve important niche problems that companies don't go after effectively.
I hope so too. Preschool is expensive :-S
To be fair to your actual point though, he is in your third category considering some great luck on cashing in startup options and other investments. Although he lost a lot on real estate too.
I agree passive income has much more of a luck/hard to define or acquire skill element than its proponents are letting on.
(1) Prior to 'retiring' they were making upwards of $200k combined (IIRC), and this is probably what allowed them to purchase the house. So they weren't always near or at poverty.
(2) The house was renovated by hand, every single meal is cooked by hand, and in general they are so tight with money that the wife wrote an extremely anxious post once about the crazy expensive experience she had when her father took her and her son out to get ice cream one day. Having to be super anxious about very minor expenses is pushing you close to poverty in terms of income.
It's also worth noting that he only says the home is presently worth $400k, not that they gave $400k for it. They may have purchased it for half that or less and did significant personal renovation to raise its value.
The other thing he's really hot for is self control. He spends like a drunken sailor; its just he only spends like a drunken sailor on things that are worth spending like a drunken sailor on. There's a lot of insight in the old unsourced W C Fields quote "I spent half my money on gambling, alcohol, and wild women. The other half I wasted." Ice cream just shows up on the "wasted" list.
The saga of the ice cream is a perfect example of sophistry as an attack mode. He was using it as a great individual example about philosophy. The folks attacking him piled onto the tree and completely missed the forest. For our educated HN readers, imagine a modern Plato telling the "allegory of the cave" and a bunch of people declaring Plato an idiot because they personally don't live in a cave and they use lightbulbs not camp fires, therefore the whole story and everything it implies is completely useless to everyone. That's a pretty good summary of the negative reaction to the ice cream saga.
I don't think that flexible creative thinking, and self control, fit in very well with the modern mass media advertising narrative; Its an existential threat to them. Can predict he would get intense pushback from the drones, and in practice, he does.
There's an old saying about Americans would rather die than think. Well, if you make fun of them for doing something stupid, the loud ones get belligerent.
> By working the system and thinking really hard (well, by median american standards) his personal poverty line is probably a quarter of mine. That's how both of us live pretty well, despite him getting only about 1/4 what I do. He travels around the world about as much as I do, we both have similar goal of eating high quality food.
This sounds unreasonable and incorrect. I've read a lot of his blog and I don't think he has discovered some obscure loopholes or anything like that. He just lives very frugally.
I trust that you're a smart fellow, so I believe that if you were given the same base amount of money as MMM you could easily replicate his lifestyle. You know how to cook your own food. I'm sure you could figure out how to maintain your home and renovate it, especially with all the extra time you'd have to focus on that. If you quit your job, you wouldn't have to live wherever you're currently at, so if it's an expensive area you could move to a cheap area.
The only thing holding you back is desire. Your "poverty line" isn't at the same place as his because you don't actually desire the life he leads.
> He spends like a drunken sailor
I have to disagree with this as well. I don't think I could ever regard somebody living on at most $27k for a family of three in a medium COL city in the United States as spending like a drunken sailor. You'd have to change the usual meaning of that phrase. To me, this is just simply not true. It doesn't matter if he spends most of that money on just a small number of things important to him. The set of medium COL cities in the US is sufficiently well-defined that $27k for a family of three is under no circumstances spending like a drunken sailor.
> "I spent half my money on gambling, alcohol, and wild women. The other half I wasted."
This is a funny quote, but I disagree with you that it's actually practically useful. If you take it too literally, you'll realize it's just a tautology. This justifies any and all spending and therefore cannot possibly be a discriminating strategy for personal finance that applies to multiple people. But the exploration of such strategies is exactly the purpose of MMM's blog, so I think there's a bit of irony in relating MMM to a quote which, if taken too literally, undermines his own blog.
> The saga of the ice cream is a perfect example of sophistry as an attack mode.
Except it's not, because I wasn't attacking anybody. The ice cream "saga" comes up often because it shows a lot of people that they don't actually desire the lifestyle he and his family lead. It takes all the persuasive rhetoric of the site and really brings it down to reality, showing the reader what the lifestyle is really like.
People reacting strongly to that "saga" are, in general, not being judgmental at all, not on a personal level anyway. They're simply having the epiphany that this isn't the lifestyle they want.
> Plato telling the "allegory of the cave" and a bunch of people declaring Plato an idiot because they personally don't live in a cave and they use lightbulbs not camp fires, therefore the whole story and everything it implies is completely useless to everyone. That's a pretty good summary of the negative reaction to the ice cream saga.
This is all overly dramatized and, as I explained above, I don't think it's a good summary either. I for one have gained a lot of benefit from MMM's blog and regard it as having very high value, but I still don't covet his actual lifestyle. I've also never declared MMM an idiot. I wouldn't even consider myself a detractor, but I imagine that even among his true detractors very few would go so far as to call him an idiot or not appreciate any of the personal finance lessons he has to teach.
"Except it's not, because I wasn't attacking anybody."
And in that case I was wrong not to point out he got huge heat from many people way back when that issue was new, like a year or two ago; was not trying to imply its solely you. This also applies to the Plato's cave dramatization where of his zillions of detractors, your particular example was not as severe as the majority of those who disagree with him. At least intended to comment more on the history and social phenomena of the relatively sever backlash as actually originally happened at that time rather than on your comments at this time.
(1) I think this is a basic terms/mindset issue. Income is not wealth. Most things you own are liabities (costing you to keep them), instead of assets (earning you money by keeping them.) The point is, they aren't and never were near poverty. But now they invested enough of their income so that they don't need to work to live comfortably, they are pretty much rich. For example, they purchased their house. They actually own it, so they are never going to get kicked out of it, even if they never work again. What proportion of people you know with >$20-30K incomes own their home outright? Still sure your measure of poverty is correct?
(2) The return on doing those kinds of things is great, and as MMM says, you learn useful skills, get fit, and most people find the activities enjoyable. You can always subcontract some of it without really changing the thesis, just not all of it [1].
On the ice cream, I got the impression she was anxious because it was super weird to waste all that money on extremely fleeting and pointless pleasures, but I'll give you that attitude might be unpleasant and socially awkward. Still don't think I'd call it poverty though; more like extreme thrift/being a tight bastard.
$400k - so? What relevance does its market value have? I think it makes much more sense to see a house as a useful liability (everyone's got to live somewhere, and you've got to pay taxes and upkeep even when you own it, so its costing you, not making you money), instead of pretending it's an asset (and it's a shitty one due to lack of diversification even if you were happy to sell it tomorrow and live under a bridge).
Genuine point: do you really think this? What's your financial education/understanding like? MMM being rich just seemed obvious to me, which is why I'm arguing so hard. Thanks for joining in!
[1] http://www.ribbonfarm.com/2011/12/08/acting-dead-trading-up-... for an interesting take on the collapse of the middle class and trick of mixing fancy with not.
Do you actually believe he is rich or are you just saying this to be contradictory?
You make a big deal of owning his home outright, but it's actually not that much money when you think about it. A $320k mortgage for a $400k home is $1,200 in interest a month at 4.5%. That's an extra $15k a year and that's not nothing, but even adding that to his $27k puts him below the U.S. median family income. And that's why things like ice cream freak them out. $27k/year, even with a paid for home, is not a lot of money.
Another way to think about this is seniors. Social security isn't too far off his income level. A lot seniors own their home outright. If that's your only source of income then sure you can live a simple life in Florida, but no one would call this "rich".
Lower class people in the USA think being rich is high spending.
Middle class people in the USA (a shrinking breed...) think being rich is having a high income.
Upper class people in the USA think being rich is owning nice assets.
Its funny how if you look at an economics equation like "assets" = "sum of income" - "sum of spending" each social class thinks success for everyone (although actually only valid within their own class) is maxing out a different variable.
Its no great surprise they're confused as heck when they talk to and with each other.
For example this is the legendary tightwad rich dude trope. Poor dude doesn't understand why rich dude doesn't spend constantly like a drunken sailor because thats how he defines success. On the other hand, rich dude doesn't care about spending, it doesn't show up on his cultural radar, all that matters to him is nice assets. And thats why all of us have to sit thru the tiring stereotype whenever hollywood wants. Boring!
Look at attitudes toward higher ed. Lower class doesn't see poor starving students spending bling, therefore its a negative to be avoided. Middle class fixates in it as a high income jobs program, all that matters is getting the credential for the job. Upper class sees an education as a lifetime asset, gives you something to think about for the rest of your life, if you do it right. The three usually don't understand each other or their desires at all.
So, my definition: being rich is having enough assets that I can comfortably provide for myself and my family without needing to work ever again. To me, being rich is about freedom, not about having lots of expensive toys or habits.
In my definition, income level is entirely irrelevant, which is why we are talking past each other, because that appears to be the focus of your definition.
As to seniors: exactly – don't most people look forward to retirement? Except he's getting to do it with his children as well as grandchildren, with his youthful health, 30 years earlier and for 330%† more of his life (never mind that he also manages his money a lot better than the average person so it provides more than a simple life in Florida.)
† Life expectancy (LE): 78 years. Retirement age (RA): 65. MMM retirement age (MA): 35. (LE-MA) / (LE-RA) = 43 / 13 ≈ 3.3 = 330%
This is why discussions regarding MMM are unnecessarily controversial. While I can sympathize with and appreciate your view of "rich," I don't think that the typical usage of the word is in agreement with you. You're waxing philosophical here, and even if I might agree with you on this definition (I do) this just doesn't chime with the everyday usage of "rich."
I think an article like this much more closely captures what is normally meant by a word like rich, at least in the US: http://en.wikipedia.org/wiki/American_upper_class
For me, that number is amassed wealth sufficient to provide income nearly an order of magnitude north of $27K/year, but that still means that when I'm halfway to my personal goal, I'll have 5x what MMM has and he'll be rich and I won't.
He's rich because he lives simply. I have more than he does, and I'm not rich because I have expensive hobbies (and a desire to fully pay for top tier undergrad college for both of my young kids).
And that's OK.
Studied CS at university for 2 years, dropped out to pursue an idea. After a couple years of work, I was bringing in 20k a month.
It was the most incredible time of my life. It lasted for 7 years before it hit the bottom. During that time I spent my days playing beach volleyball, tennis, golf, skateboarding, gaming, girls, beautiful car/apartment, the life in Santa Monica CA!
I wasn't the least bit afraid when the project/business started slowing down. I decided to launch two more ideas - BOTH FAILED. At that point I was burnt out and was running low on savings. I had no other choice but find employment. In my mind, I failed and lost everything. It hurt me for years, and still hurts me to this day.
While I have a great job, the feeling of imprisonment and failure is always with me. Eventually I got the strength to work on another idea during weekends and late nights. That gives you very little time, especially when you have a demanding job. It took over the course of a year to launch this new idea and it's not working out the way I hoped it would.
Call it what you want, but in my mind that's three failures in a row.
I've learned that luck and timing are definitely part of the equation. I've learned that you can spend year after year obsessed with coding your ideas and end up with only the knowledge.
It's extremely tough and taxing to go down this route. Be prepared to fail multiple times. Be prepared to lose every cent of your savings.
I know I'll continue trying, hopefully one day I'll come back on top again :)
I made many mistakes, the biggest ones were:
1) Having hit a relatively high success at 21, I felt indestructible. I had no fear of spending most of my income on entertainment. I knew nothing about budgeting, I should have saved.
2) Towards the end, I definitely spent too much time having fun and ignoring the product. When you're on a high roll for so many years, you feel invincible.
The decline started gradually, but in my mind I always believed I could easily bring everything back on top. At the end, I repeatedly did everything in my power to save the product but it was too late.
That was contracting, so I needed to come back to LA to refill the travelling stack. It doesn't take much work to pivot that into a SaaS product or two that replaces the same amount of income. Again, maximising for free time and flexibility with profit being a nice side effect.
Then it gets really good.
Do tell! Creating the product is easy, it's causing the product to generate income that has always eluded me.
I'd love to hear some passive income hacker (PIH) failures, risk & reward, opportunity cost in terms of time spent on your own venture vs. spent on climbing the corporate ladder and vs. traditional passive income paths say, becoming a slum lord, dividend investing etc.
A friend told me about a friend who claimed to be making loads with affiliate marketing, so I started to immerse myself in performance marketing, the lifestyle was just too attractive.
I started with a $100 FB ads coupon and by the time that was spent I luckily stumbled on a profitable campaign.
I quickly realized that the globalized economy is extremely competitive, and internet businesses with low barriers to entry are radically hyper competitive.
There was no way to be completely passive and successful.
So I obsessively scaled my profitable campaigns and researched and experimented with new ones. I went to conferences, and sought to strike better deals with affiliate networks and even sought direct deals with the companies whose products I was selling.
I spent a lot of time building relationships with the ad reps of the companies I was buying ad space from.
I did a lot of industrial intelligence to find what was working and what wasn't.
My girlfriend at the time was finishing her last year of college and I did all of this while she was at class. When she finished school we embarked on a cross country trip, went to a lot of music festivals and moved to Boulder, CO.
It was a pretty sweet lifestyle for a while.
The money was still coming in from my old campaigns, but the distraction of being on a permanent working vacation took a toll on my efforts.
Then the industry kind of imploded. The field got incredibly more competitive and a lot of affiliates began engaging in outright fraud to increase conversions.
Because of the unethical behavior, the companies I was buying traffic from started making it harder for affiliates to operate, they wanted national brands as advertisers and I don't blame them.
The industry was scummy, not so much because the conferences I went to had their opening night festivities at strip clubs. Or that even at the relatively more respectable events naked women wearing only paint would serve drinks.
It was just corrupted by the huge amounts of easy money made possible by the implosion of the global economy and the resulting plummeting of ad rates combined with the deceptive marketing practices employed by the affiliates.
When more and more people heard about the easy money available, only the sociopaths or otherwise ethically impaired could profit.
My dreams of easy passive income were dashed and I threw myself into software development. Now I create real value, instead of exploiting narrow arbitrage opportunities.
Making amazing software products is so much more valuable, rewarding and sane than film making anyhow.
To answer your question, is it possible? Yes it is, but it is very dependent on market conditions and they are forever trending to be less favorable.
There are still incredible opportunities in lead gen (better connotations than affiliate marketing) but these days you have to build a platform that delivers real value instead of just buying cheap traffic and selling it for more.
My most poignant memory from the time was being a part of a circle of festival goers holding a large circular nylon parachute that caught and launched a seemingly infinite series of glow sticks into the air in a fountain like manner at Rothbury on July 4th 2009 during a Grateful Dead set.
The money from that period is long gone, and so is the girl but the memories and skills remain.
Ill share one more story about the ethics of the industry because it's worth it:
An acquaintance in the biz once bribed a Facebook employee whose job it was to approve or deny ads on the platform. His inside man set his account to auto approve any ad he wanted.
He used that to get the scummiest, most downright fraudulent ads he could up.
He told me that he made $80,000 in 4 days by placing ads like 'Google is hiring, apply here' that led to credit card rebill free trials for how to make money from home info products.
The bribed employee was led out of the building after four days of this.
I had always wanted to write a book about this industry titled "Internet Bandits", it was quite fascinating. There was a time when a kid with a credit card, poor ethics and some basic web design skills could make $50,000 a month.
The problem is with any "easy" money like this is that there is no consistency. Like most ad campaigns, the fuel behind them runs out. You are constantly having to come up with new ideas, that in which most will fail. I would say less than 10% of your work is directly profitable (just due to testing and failed ad campaigns.) So while I did have "passive" income for moments at a time, it wasn't truly "passive" because I would constantly be preparing for my next campaign. The stress that can come with the down time of not having any campaigns hitting can be brutal.
I would never do affiliate marketing again, but the taste of passive income was enough for me to completely realign my goals towards it. For me, it's not about the top end number anymore, its about the consistent one.
In a previous discussion about making a living from Android apps, I asked if anyone had numbers on how many people successfully do so [1]. I received several responses arguing that quite a few people do make a living that way, but I still haven't been able to find any solid numbers, even an order-of-magnitude estimate (does Google release enough data to make such an estimate possible?).
Also I have a few other friends with similar bootstrapped businesses, and I can say I've never actually met anyone with true "passive income". I really enjoy the freedom and flexibility I have, but if I stopped working on my business it would eventually shrivel and die. Competition is fierce, and I'm in a commodity type business (basically online marketing/ websites for realtors) with several huge competitors and hundreds of smaller ones, so I'm continually trying to improve the software/ product.
I'm not in it to generate passive income, and I think starting with that goal in mind could be frustrating because as others have said, most passive income preachers secretly do a ton of work (think of how hard tim ferris actually works, every single day). I'd reiterate what others have already said, just treat it like learning to program, realize it's going to take a long time, and steadily improve on it. The goal for me is freedom to do or make what I want, flexibility, financial security, and to have my efforts tied directly to my success.
Personally I've had nothing but failures in my attempts. And I've definitely met a number of people who did have success at one point but are back to working full time after the well ran dry. The assertion that this is a low risk path for everyone I think is a little misguided
It is only low risk if you aren't fully committed to it.
The problem with these types of posts is that they make it seem like passive income is easy. In fact it is a hell of a lot of work to create, say, an info product, and marketing it can also be a full-time job. You need to have surplus income and time to take on the risk of doing this, which is hard to do if you're an employee. This probably explains why most of the passive income stuff we read on HN comes from consultants.
It will only ever be a full time job if you work on it full time. Since it's your company, you get to choose the hours you work, so you can make your lifestyle look however you want it to look.
So yes, it may in fact be a hell of a lot of work. But fortunately you possess a hell of a lot of time before you die. Divvy it up any way you choose, but please don't give up because it takes effort.
The end result is really nice.
It may be surprising to you that my customers actually don't care how many hours I want to work, but only about the value I deliver to them. I don't get to wave a magic wand and work 10 hours a week and keep all my customers, though I'm sure my competitors would wish I tried.
The place I see "lifestyle businesses" working best is where the market is unattractive to larger competitors due to size, difficulty reaching clients or others. There only select markets where this is the case.
Look, I love all the lifestyle business stuff and I'm adopting some of the tactics myself, but the suggestion of this article and your comment that the hours you work is solely a matter of choice is bullshit. You have to give up something, normally money or proximity to family and friends. Or put it a lot of work upfront building a business that you can then coast on.
I think the argument here is that "value delivered to customers" and "amount of work required to deliver that value" are completely unrelated to one-another. To give two examples:
1. The biggest possible improvement you can generally bestow upon a small services business is a website (not even a fancy one, just a five-page Wordpress shindig with acceptable SEO.) This takes approximately two hours and $50 (I'm being generous.)
2. Video games are one of the most difficult software products to produce in terms of sheer SLOC, expertise required, and resources needed, and yet the value most customers assign to them ranges between $0 and $60.
What would happen to your business in you spent 20 minutes answering emails tomorrow morning then went fishing for the rest of the day? What would happen if you did that twice a week from here on out?
If the answer is yes, the business would implode within a day, is there not something you could do to change that?
There should be no question in anyone's mind that you need to wear several important hats well and do the hard work to be good at them. The determining how to scale of each of the dimensions (time, money, freedom) becomes something you can control. If you can't wear all the hats yet, you need to learn more. Half-assing someone else's affiliate site model, dropship site, etc is kind of like like trying to build an great app by cutting & pasting code from google searches. You need to learn how to code first. Same with business and marketing.
I used to think I could just contract on the side and make some good money. I did that for about 7 months...but every day you come home wanting to mentally relax...guess what? More work! Your weekends? More work too! Everyone has deadlines at their main job...now you have two deadlines! Deadlines when you are at work and deadlines when you get home.
I ultimately decided to never take any more side work (which might lead to passive income) simply because the mental toll it takes is harsh. Money is sort of not really just lying around on the ground...if it were that easy, some hacker in Russia who is out of work would figure out how to get it before you simply because they are desperate and you are just sort of doing this as a hobby.
Real success requires being pathologically driven to beat everyone or having some kind of advantage of everyone else.
I work with a very smart engineer who runs a full on side business which nets him a good amount of money. His day-to-day motivation is noticeably less than everyone else and his output is less...because he is dividing his time between work, side work, a child, a wife etc. He eventually just announced he was leaving to do his side project.
Yes you can do side work, but if you are any kind of regular adult your side projects will all be temporary unless you are willing to quit for them. The mental toll adds up.
I probably only make about $20-$25k a year off a few low maintenance projects, taking up random contracting gigs when I feel like.
The experience of seeing new places and meeting new people is priceless. No amount of money, equity or incentives can ever make up for that.
If I could change one thing, it would've been quitting my full time job even earlier.
Absolutely no regrets.
Passive income
- To echo many other entrepreneurs in this thread, successful passive income does contain a healthy portion of timing and luck.
- Passive income also requires a lot of optimization and making slight changes to improve performance, adjusting to new trends over time.
- Passive income is a lot about running a business and exploiting opportunities. For example, cold-calling a non-tech-savvy mom & pop store to become a partner in your online venture.
- One good passive income generator is not enough for the long-haul. One will need 3 - 5 different niches to be comfortable for many years to come. There is lots of volatility and some niches will eventually fail.
- The only real passive thing about passive income is that your websites are running while you sleep. There is always day-to-day work.
Finding new opportunities
- Once you find a good niche and quit your day job, you will try to create new businesses in other niches and fail dozens of times. It may take 2 - 3 years to find or create another viable niche or business. This can be soul-crushing if your expectations are not set. However, all of the tech created in those failures will come in use in the future.
- My [current] most successful way of finding new opportunities is to do contracting work for small businesses. They always have lots of problems and deep knowledge of their niche. Keep a conversation going with those small businesses and start creating solutions for them.
I learned this the hard way. I had a great passive income site that was at one point making $12k a month. Spent more time tweaking text and other (in hindsight) trivial things than finding other passive income methods and when the gravy train failed I didn't have anything to fall back on.
I can code/debug for a corporate in my sleep but creating entire products on one's own is a whole different ball game. I'm tired of these articles making it sound _so easy_.
1. You've touched on the hardest part about consulting/side projects. The idea of freedom to code on whatever you want to is slightly shrouded in myth because so little of it has to do with code: marketing, bizdev, and even accounting/forecasting are all handled by you, the VP of Marketing and CFO of Dsschnau, Inc. It's like exercising a muscle group for the first time: it's incredibly difficult, but you get much better at it much quicker than you expect. (You also get a new level of appreciation for all those silly marketing types.)
2. Any post about financial/personal freedom is generally geared towards a early-20's male hacker who doesn't have a family to support. It's an entirely different ball game: the value proposition suddenly gets a lot more complex than "welp, if I can't sell X subscriptions/bill out for $Y I guess I'm eating ramen this month.'
and
http://www.reddit.com/r/passiveincomehackers
were created not long after (same day perhaps?) the inaugural passive income hacker post i.e. https://news.ycombinator.com/item?id=6108092
"That's a shame, because as a programmer in the 21st Century, you're in a unique position to do something that most people simply can't; live a life with adequate income, lots of time and total freedom over what you do with it."
That sounds great, but how?
http://visitor.r20.constantcontact.com/manage/optin/ea?v=001...
I only spam you once or twice a month.
There's nothing for sale there and I don't talk about niches. I also don't talk about my online service business, but you can extrapolate similar product creation and marketing approaches.
I've been building sites for years, and I'm starting to think that my focus should be on what I'm really good at: C/C++ software (instead of trendy websites). I've been obsessed with the idea of finding an underserved vertical, and taking my knowledge of machine learning and analytics and building some game changing software for that niche. The only issues I have is: what niche?
Nowadays everyone is a hacker in some way. But honestly - who cares? Just ignore it if it upsets you (I do).
Do you work extra hard at startups? Of course. But in my experience startups are more flexible in terms of working remotely while traveling and freedom in letting people work on parts of the business they are interested in.
And maybe I'm the exception, but I've been able to take a lot of weekends off - it helps me be more productive during the week.
Saying that as if it's some kind of feat actually reinforces the whole "startups make their employees work 7 12 hour days every week" thesis.
Aren't you SUPPOSED to take the weekends off?
This takes a lot of luck, in general (more than work) or/and a lot of ruse and malice.
Otherwise, if everyone just end up being a founder, it obviously doesn't work either. You need minions to do the actual work. If you don't wanna be a minion anymore, someone else has to be. Never ending loop.
Passive income sources always dry up if you don't put constant work into them. I never had one last longer than 2 years without working on it from time to time.
To me the prototypical passive income model is a software product. Once you get it out you can reap revenue for one or maybe two years without much additional work. But after that you better release an update.
Harder than you thought it would be, but easier than most just-starting-out passive-earners would expect, if that makes sense.
You can achieve the same balance and freedom with a part-time job, freelancing, as a PIH (although I don't think the OP actually earns passive income in the accounting sense) or some other work arrangement.
What's most important to have the kind of freedom that the OP describes is to first have a relationship with money that supports it.
Wealthy means few constraints on lifestyle. travel where you. Buy most of the stuff you want.
I have the same view of wealth as you and I am a programmer at a startup. I wasn't hugely interested in this but now I am.
Some resources are richer than others.
On the other hand, most passive income material smells more like an old-fashioned pyramid scheme than anyone else.
Yes, there are terrible startups out there that expect extreme hours. It's easier to leave one of those, and get a better job, than it is to generate a passive income stream from that point. Take the first step first. Get a better job first. Get some security and sanity in your life. Then, start to think about passive income.
It's hard to come up with good ideas when there's a gun in your face, which means that having a really bad job (e.g. the 84-hour-per-week startup gig) will make it almost impossible to build something that people will pay for. However, I wouldn't advise quitting wholesale for most people; if you end up with no job, then you have a different gun in your face, which is that you're rapidly running out of money.
I'm not going to argue that it's easy to generate passive income while working full-time; only that it's not easier for most people to just quit their day jobs and "magically" come up with the golden iPad app.