What’s passive income and why are influencers so hell-bent on lying about it?

By Alma Fabiani

Published Feb 4, 2023 at 09:00 AM

Reading time: 2 minutes

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If you’ve never come across the term ‘passive income’ while scrolling through your preferred social media platform, first of all, well done—I’m not sure how you’ve been able to dodge it for so long. If you have, you might want to stick around regardless because, as this article’s headline suggests, you’ve probably been fed a pack of lies.

What is passive income?

Passive income is money that you earn either automatically or without putting in much effort. It can come in various different forms, such as renting out a flat to someone (as long as the property owner isn’t a real estate professional), receiving royalties from a book, song or film, and investing in dividend stocks. So far so good, right? After all, there’s nothing wrong with wanting to supplement your income, especially not when faced with soaring inflation and a slowing economy.

The real issue here isn’t passive income itself, it’s the fact that it’s being promoted by countless individuals online as an easy way to make thousands each month. Their selling point? It’s supposedly easier than a traditional 9-to-5 job.

The reality is, if you’re looking to ‘make money in your sleep’, you’ll need to work at it just like you would a full-time job. And that’s me going for the best-case scenario here. From courses, e-books and other various products online to vending machines in high-traffic areas, you name it, and there’s someone on YouTube, TikTok and even Reddit claiming that they make insane amounts of money from it for close to no work.

Just set it all up and you’re ready to go, is what passive income-obsessed netizens tell those who, understandably, wouldn’t mind making money effortlessly. While many people claim to be making passive income, particularly on social media, according to Census Bureau data, only 20 per cent of American households earn such pay. The median amount that those households make from those sources is $4,200 a year.

The difference between passive income and leveraged income

What people often call ‘passive income’ is income that isn’t dependent on a single paycheck or employer. But in a lot of cases, they’re confusing it with leveraged income—putting in time and effort in advance to earn recurring profits from selling something specific. Even worse, many of us go as far as to mistake a side hustle (aka, more work) for passive income.

Taking renting out a property for example. Although it’s described as a way to create passive income by many sources of authority online, it’s easy for people to underestimate the time and money needed to buy and maintain said property. It doesn’t take much for unexpected repairs and expenses to eat into rental profits, and I’m not even getting into the details of what being a property owner entails.

Speaking to The New York Times about her distaste for the way both terms are seen as interchangeable nowadays, Gina Vanegas, 37, explained that she had initially felt ashamed of that extra money, especially when family and friends would refer to it as “passive income,” implying that she didn’t have to do any work to earn it.

“Thinking specifically as a Latina, it’s ingrained in our stories to really have to work hard to get ahead,” Vanegas told the publication. “Somehow passive income doesn’t count as hard work, but that couldn’t be further from the truth.”

The COVID-fueled race for passive income

When the COVID-19 pandemic hit the world, and most of us ended up with too much free time on our hands, we began to question whether working a traditional job would provide us with enough money. Mindsets changed, leading gen Zers and millennials to think of different ways to earn extra income, save for the long-term future and enjoy the present.

Though I won’t claim that I have the perfect solution to solve all your worries, one thing is for sure, hustle culture is not dead, it’s just rebranded into something even more deceiving. So be wary of what people tell you online—but you can trust me of course.

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