Tuck the kids into bed.
Kiss your significant other good night.
Slide under the covers, close your eyes and wait for the magic to happen.
“Make money while you sleep”
Ahh, the holy grail of financial independence. A present-day Noah’s Ark, keeping you afloat no matter how bad things get.
Hardly any conversation involving financial independence doesn’t touch the concept of passive income.
At its purest form, it is building up a stash of 25 – 30x your annual spending. Dip into it to the tune of 4% a year. Exert no effort. Live happily ever after.
You can even keep calling it passive income if you wish. I find investment income to be more appropriate, but it sure isn’t as catchy.
The downside, however, is that it takes a fair bit of time to get there. Hustle and bustle to make more money at work. Reduce your spending. More likely than not, do both.
Still have some time (and energy) left over? Try your hand at real estate. It ain’t easy, but it’s still one of the most effective ways to build wealth out there.
If you haven’t got kids and are willing to push the pedal to the metal, you can get to financial independence in a decade or so.
For the rest of us, it’s probably going to take twenty-odd years.
Life has a habit of throwing a few curveballs our way, whether its unforeseen expenses or a period of unemployment. Inflation and variability of stock market returns can shift the goalposts even further out.
But it doesn’t have to be this way, especially in the brave new online world. No need to spend years and decades building up a real estate portfolio or starting a business.
Instead, just throw up a website. Create a course. Write an e-book.
There’s seemingly and endless number of easy ways to collect a steady stream of income for the rest of your days.
If that doesn’t sound appealing, I don’t know what does.
I happen to have two good friends who have tasted the nectar of making serious money online.
Both operate in the standardized test space, helping aspiring graduate students ace those GMATs and LSATs.
The first owns some of the top-ranking iOS apps that help people study on the go. The second comes at it from a different angle, running a very successful forum on the topic. Both generate an income that’s well into high six figures, potentially surpassing a million in years when the stars align.
Both toiled for years to launch their respective businesses. They’ve passed up on professional opportunities and repeatedly tested the patience of their (highly supportive) wives.
The efforts paid off. Escape velocity reached, digital assets scaled and producing meaningful income day in and day out.
But make no mistake – a life of peace, quiet, and relaxation it isn’t. Hand-to-hand combat is more like it.
There is no shortage of app developers trying to capture the top slot on the App Store. And a crafty little company called Facebook happens to have launched a feature called Facebook Groups, decimating all but the most successful internet forums pretty much overnight.
Instead of resting on their laurels, my friends continue an intense, albeit financially rewarding, battle of staying relevant in their niche.
Hmm, perhaps blogging is a better option? Sounds WAY easier, and you can get up and running pretty much overnight. And all those successful bloggers seem to be living the dream, aren’t they?
Unfortunately, lost in the sea of Bluehost affiliate links and $99 SEO courses lies a simple question you need to answer:
What makes you special?
When I first tried to break into investment banking straight out of university, I didn’t stand a chance.
I didn’t know a single soul in the industry. No idea how to network, what to write in my cover letters and what to expect in interviews.
It wasn’t a surprise most of the coveted jobs went to my fellow students with access to information.
Six years later, as I was gearing up for my second shot as a graduate student, the world was different. By that point in time, the internet was full of advice on landing an investment banking job.
I went from not standing a chance to securing multiple offers. Practically overnight, my structural disadvantage disappeared.
No longer the underdog. Instead, I probably edged some other poor chap with family connections and pedigree straight out of a job offer.
Information is no longer a privilege, and we should all love the internet for being the great equalizer that it is.
But you can’t have your cake and eat it too. Lowering barriers to entry works both ways.
Having scaled the investment banking wall, I don’t get to pull the drawbridge behind me. Thousands of smart, hungry, motivated folks are streaming in, nipping at my heels.
Likewise, being able to throw up a website doesn’t give you the right to succeed online.
Neither does being the first to cover a specific topic. If it was, we’d all still be reading “The Richest Man in Babylon”.
And it isn’t being the first to discover the promotional power of social media. Does anyone still remember Tila Tequila? Thought so.
In the online world, you don’t get to flood the proverbial moat after reaching success.
Staking your virtual ground doesn’t preclude anyone else from digging for digital gold in the same place.
Instead, you are now competing on a global basis. Facing off against anyone with a laptop and an internet connection.
Believing that there isn’t anyone out there who can do a better job is wishful thinking at best, delusion at worst.
Rain Over Me
Now, I am not writing all of this because I want to rain on your parade. Pursuing
passive investment income is an admirable, worthwhile endeavour.
Doing so online is a very credible way to go. As a matter of fact, more people than ever are figuring it out right now.
Unfortunately, very few of the people who are trying to sell you the dream are up front about what it is really like to live that dream.
Is it a good life? No doubt. But it isn’t quite cruising on the lazy river.
Perhaps a better way of looking at passive income is to ask the following questions:
Is it really the passive part that makes it so appealing? Or are there other things at play here?
Could it be the desire for agency that comes with having multiple, uncorrelated streams of income?
Perhaps you miss the days when you had a semblance of control over your workdays. Or maybe you are tired of going on yet another holiday where the question isn’t whether you will have to work, but rather “how much?”
What about the natural need for diversification?
Industries and professions rise and fall. Age discrimination looms large (isn’t it funny it always rears its ugly head just as you’ve finally climbed up the compensation ladder?)
And as much as we hate to admit it, there will come a time when our physical and mental abilities will no longer keep up with the demands of our employers – and the potential of our younger colleagues.
Alternatively, you could view passive income through the prism of maximizing the outputs instead of simply trying to minimize the inputs.
Because what certainly hold true for things like writing that (e-)book, starting a tutoring side hustle, or even partaking in the ill-advised process of publishing your thoughts on the internet, is that you can now use technology to reach a far bigger audience than ever before.
And if you happen to be really good (or more likely, keep at it until you become really good), you get to reap the spoils. A six- or seven-figure income is well within reach.
It’s just that the process of getting, and staying, really good at something has nothing to do with the word “passive”.
About Banker On Fire
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Banker On FIRE is a London-based M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.
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