This article was first published on DollarsAndSense.sg.
Singapore is an expensive place to live in. Faced with a costly living environment here, people here are increasingly getting creative on how to earn more. The (big) problem however is that workers in Singapore are also working some of the longest hours in the world.
So, how do you earn more money when you are already working such long hours.
The solution to this for many is “passive income”. Passive income basically means earning a regular flow of income even though you are not required to put in any material effort to the endeavour. The problem is many who embark on passive-income generating ideas are neglecting the second part of the sentence – they’re putting in a lot of effort to actually generate that additional income.
The problem with this approach is that it will only lead to mediocrity in both your career as an employee and your passive-income generating idea. And that’s due to the misconception of what passive income is and is not, and why you’re actually just starting a side-hustle.
What Passive Income IS NOT
If you resolved to do better yourself and proceeded to do some reading on this topic, you may have encountered people or websites giving advice that just takes up too much time. This, by the way, is the exact opposite of what passive income should be.
Passive Income Should Not Take Up Much Time
“Why not use your piano skills to earn passive income teaching children on the weekends!”
“Use your free time to walk dogs in the neighbourhood!”
These activities involve you being present and working on the task. By definition, this isn’t passive income. It’s a side-hustle if you do it on your free time around your work schedule, or even a part-time job.
This article is not about whether you should or should not be doing this. It’s just to point out that if you’re doing this, it’s income you’re earning by being physically present completing a task.
Passive Income Should Not Require Too Much Effort
These types of advice usually come in the form of selling your intellectual property (IP).
“Write a book and rake in passive income by publishing it on Kindle [or other platforms]!”
“Simply start your blog and earn money from Google advertisements!”
“Earn passive income by showcasing your music on YouTube [Spotify or other platforms]!”
While some people may consider this a grey area where you already have the talent for writing, singing and other interest, the majority of people have day jobs that do not require them to produce these works of art.
To actually earn this passive income, people would have to spend an extraordinary amount of time and effort to produce a piece of work that is of high quality and that other people would be willing to pay for. They would then have to publish these pieces, and possibly market it, respond to the platform operators, perhaps even protect their IP, and loads of other things that come with being IP owners.
Passive Income Is Not Embarking On A Whole New Business
“Set up an online business by selling your products on eBay [or Carousell or Zalora or other platforms]!”
Sure, some of you can sell a few things that you don’t want anymore or even source cheaper products to resell on these platforms. But to continuously receive payments from these platforms, a lot of effort will be required to regularly source for new products, manage your supply chain, ensure inventory, delivery of products and dealing with customer feedback. This is similar to what small business owners have to face operationally on a day-to-day basis.
Be prepared to spend a lot of time and energy upkeeping your “passive income”. You have to think about ways to improve the products you are marketing, and to increase the number or types of products that you’re selling.
Even if you’re successful at generating income this way, it will definitely not remain passive in the longer term as competition will chip away at you. And if you’re unsuccessful, it will also not generate any income, passive or otherwise.
Why These Passive Income Generating Idea Will Lead To Poor Outcomes
There are many reasons why you will not succeed in the long run even if you do stumble upon some initial successes. You may be great at piano or good with dogs, you may be a talented writer or singer and you may even be a shrewd business owner, but if you’re not doing something on a full-time basis and with maximium effort, chances are your source of “passive income” will not last very long.
Competition Works Full-Time
Once you start achieving even a small amount of success, your competition in the field will be looking at how to improve and take away your business. It does not mean you got worse, it just means everyone else around you is working full-time to get better.
If you’re walking dogs only on weekends, your full-time competition will be there for your customers on weekdays and on weekends. If you’ve stumbled on a great concept writing a blog, your competition will be able to write faster and more than you. If you’ve identified a product that people want but don’t currently have enough access to, you can bet your competition will be bringing this product to them much faster and at better prices.
You get the idea, by being full-time, your competition would constantly be thinking about how to improve their services and how to win new customers (including your customers). Whereas, you, are trying to get away from your customers as quickly as possible, because you’re doing this passively. Customers are smart, they will realise this.
There Is No Drive To Move Forward
Beyond just trying to earn a few bucks more each month, there is no real drive behind passive income ideas. There is no vision in trying to achieve more and neither are there any processes in place to continue improving the idea.
This lack of time and leadership will ultimately render the idea obsolete as competition moves in or when you lose interest or are bogged down by other responsibilities in life, such as having children or pursuing other passions.
This lack of drive will also mean the idea never amounts to much as there will never be any scalability with the people running it never having any intention of ever working on it full time, or giving it the due attention it deserves.
Side-Hustlers Face Many Similar Constraints When Competing With Full-Time Small Business Owners
Even if you just want to start a side-hustle because of your passion and aren’t worries about spending more time and effort on it, many of the same constraints remain. This is especially if you don’t have the intention to eventually turn the idea into your full-time responsibility if you gain initial traction.
Passive Income Tends To Be Generated More From Investments
While many may point to the fact that you still have to monitor and manage your investment portfolio when you invest, the main point of passive income is to let your money work for you, rather than you working physically for more money.
This means investments in stocks and bonds which pay dividends and interest rate respectively, purchasing an investment property or renting out a room in your flat to earn rental income, or buying IP (rather than creating it) to earn the passive income.
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