How not to get super-rich: the passive income scam
by Jonathan Fields | 12/18/07
You’ve heard it hocked by every “get rich quick” speaker and author for decades. Forget about passion, meaning, significance and just devote all your time to creating passive streams of income. You know, start a franchise, rent properties, write a book, create a viral information concept, rent billboards.
Easy schmeezy! Just buy it, build it, get it going, then let it run itself and throw off millions while you to just kick back on the beach and watch your bank account soar.
Problem is…the “passive income” approach to wealth is largely a big, fat scam!
I could rant for hours on this, but, instead, I’ve always found the best way to get somewhere is to look at people who are already there and see what commonalities arise in the methods they used to get where you’re thinking of going.
So, for those of you who aspire to fabulous wealth, here are some eye-opening facts about the richest 1% of people in the U.S….and how they got there. According to a recent SmartMoney report of The Harrison Group’s latest wealth survey:
- The number of pentamillionaires, people worth more than $5 million dollars (excluding home value), in the U.S. has quadrupled in 10 years to 930,000
- Only 10% inherited their wealth
- 70% of big-family fortunes are less than 13 years old…it’s mostly new money created by entrepreneurs.
- 80% started their own businesses or worked for a small-business that exploded.
- Most did not accumulate the bulk of their fortunes over time, but rather in a fairly short burst after years of hard work.
- Most of this new money is generated by risk-takers for whom “wealth is a byproduct of pursuing their passion.”
- For most, money was not much of a motivator. Solving a problem or improving on something that existed was.
- Only 10% of their wealth was attributed to passive investments.
What does all this tell you about acquiring super-wealth?
You’ve got to work at it…really, really hard, often for years. It may not come until you’re on the verge of giving up. And, the prime motivator is rarely the desire to get rich or retire early, but rather the mad-passion to solve a problem, make a difference or do something better.
Of course, this is a bit funny, too, in light of the recent rambling I’ve been hearing about blogging being an amazing way to generate passive income…oh, sorry, I think I just gave myself a hernia laughing.
Maybe, for a cadre of bloggers I can count on one hand who’ve accumulated a massive enough library of evergeen content to generate attention and revenue for years to come, this is true. But, guess what, it took them years of hard work to amass this “passive-income generating asset.
Are there quirky exceptions, especially in the tech-world? Sure. But, I wouldn’t hang your uber-wealth hat on being one of them.
Does this all mean I don’t wanna be rich?
Um, no! I do. I want to live a nice life and give my family what they need to be comfortable. But, I will create this as a by-product of loving what I do and who I do it with, adding meaning to the world and and living a significant life. Not, as the result of a quest to create passive income devoid of passionate genesis.
Honestly, the real reason I want to be rich is to be in a position, after taking care of my family, to be able to give it all away…to be a conduit!
Food for thought.
So, what do you guys think? Share your thoughts in the comments…
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December 18th, 2007 | 11:04 am
I think passive income, like most financial information on the internet, is aimed at keeping middle class people more comfortably middle class.
This blew my mind when I started looking at the financial section of Forbes.com. It looked NOTHING like AOL’s money or MSN finance. The subject matter was totally different.
I suspect that most finance blogs that make money off of passive income (aka point-and-click advertising) are blogs that other finance bloggers read. I could be wrong, though, but it does seem like a self-contained circle of finance bloggerhood with everyone saying just about the same thing.
December 18th, 2007 | 11:52 am
@ Hayden - I think the “lure” of being able to just kick back and your magic money-machine take care of you if huge, so it’s an easy thing to peddle. It also preys on the fact that most people do not love what they do and would love to find a way to stop doing it sooner, rather than later. BUt, you are definitely right, when you look at the people who’ve a substantial living, like the study revealed, the way they go about making it usually very “active.”
December 18th, 2007 | 1:27 pm
I think that the key to wealth is to focus all of your efforts into doing what you think will offer the most to the world. If you just focus all of your passion into offering your talent to the world then the money will come. I believe it works in terms of Karma in the fact that the more peoples lives you help change for the better then the more you will be rewarded. The second we take our minds off of the money aspect is when it starts to happen effortlessly for us. Share your love with the world and it will share it back, this is a universal law that we cannot escape!
As far as these get rich quick programs go, most of the money being made in those businesses is from poor suckers signing up and paying the $200 sign up fees. You can always tell this is the case when the recruiters talk more about the money to be made and not about the product you will be selling. In order for it to be legitimate, there has to be a good product or service backing it and that should be at the forefront of their business pitch.
Amazing article as always Jonathan
December 18th, 2007 | 2:26 pm
@ Evan - I agree that doing something meaningful is optimal. And, that’s not too hard to do when you are younger and don’t have a lot on the line.
But, also, being of an age where I have some pretty substantial financial responsibilities, I think the process needs to be different. If you want to transition to a meaning/passion-driven career later in life, rather than trusting whatever you need will come, you need to be seriously proactive and think outside the box to “make” what you need to live on come from doing something that also delivers great meaning, both to you and to the greater community.
This is a tall order and it’s something I’ll be writing about in a lot more detail over the coming months.
December 18th, 2007 | 3:18 pm
I’m not sure where to start; I’m of two minds. The first is that I’ve looked into making a living from doing something that I love (teaching at a local zoo for instance) and I just don’t see that it’s possible to pay the bills this way. Quitting my obligations to follow my bliss will make me broke.
On the other hand, I’ve spent more years than I would have liked working just to make someone else loads of money and me not that much money.
There must be a middle ground - a place where we can make enough money to pay the bills and give some away, while at the same time still working hard at tasks we enjoy and that also give back in some way.
Perhaps that’s the secret. It’s certainly not an out of the box passive income website.
December 18th, 2007 | 8:14 pm
I am at a point in my life where following my passion and helping others live their best life is a win-win and I am sure that it will provide enough income to allow me to continue to do what I love for many years to come. Living your life in a way that is true to your intentions is much more than living a certain “lifestyle” that often is dictated by others around you. If you can’t quit a job that is not satisfying (although I did with a financial downside at the moment); then make a commitment to spend some time each day in an area of interest that has meaning to you and day by day you will be directed in the path you are meant to go.
December 18th, 2007 | 10:14 pm
I love the way you write. I love how practical and useful all your articles are. I love what you wrote:
“You’ve got to work at it…really, really hard, often for years. It may not come until you’re on the verge of giving up. And, the prime motivator is rarely the desire to get rich or retire early, but rather the mad-passion to solve a problem, make a difference or do something better.”
That is so awesome. And true. Thank you.
December 18th, 2007 | 10:24 pm
I agree Jonathan. That is what I have done in my young age. I think pretty much everybody has to go out and do a rinky dink job in the beginning just to survive but its the light at the end of the tunnel that will give you the motivation. You need to use your normal everyday job to fund your dream job into actuality. And for those people who think “I love my job and it helps people but there is no way I can make good money from it”, it’s always going to be hard to do that as long as you work for somebody else. While you work for them you are realizing THEIR dreams, not yours. If you look inside yourself, there is something that you were born to do waiting to break out and change the world for the better. It’s just a matter of finding that one thing and turning it into your reality.
December 19th, 2007 | 8:46 am
Wow, I realize after coming back to read my comment and the others after mine that I must have been in a down mood yesterday.
@Adeline - I love what you said “Make a commitment to spend some time each day in an area of interest that has meaning to you and day by day you will be directed in the path you are meant to go.” I am doing that, but failed to mention it. Thank you for the reminder that following your dreams is a process and it may take some time.
@Lisa - Thank you for pointing out that sentence from the post, and thank you Jonathan for writing it. Even though I’m in my early 30s, which is young in the span of things, I have felt lately like I’ve been working really hard and ready to give up. But, I’m not giving up. I’m doing little things every day to get me closer to my goal of being a full time activist.
@Evan - Thank you for the reminder that working for someone else is helping me live their dreams, not mine. It does help me to put my employment in a different light. While I do need that income for now, there is a light at the end of the tunnel and working for someone else won’t last forever.
I’m so glad I found this blog - Jonathan, your posts are inspiring to me. And the comments are inspiring as well. Thanks everyone!
December 19th, 2007 | 11:41 am
@ Cathy - Love your insights (in both comments, heehee!). It actually just reinforces how tied our actions and inspiration our current state of being is. I’ll be writing lot’s more on this topic, so stay tuned..
@Adeline - totally agree, sometimes you can’t just make a jump, so an incremental approach lets to “dip your toes” a bit and begin to add a bit of passion to various areas of your life!
@ Evan - I agree that, very often, entrepreneurship holds a lot of the answers, but not always. I love it, but a lot of people also aren’t best served by it. You can, though, become more entrepreneurial within your current field or job in an effort to bring more meaning to what you do. I think where I differ, though, is in the paying your dues area. In some field, like medicine, I agree, it’s a must, but in many others, boldness and visionary thinking can allow you to leapfrog a lot of the dues-paying drudgery that keeps a lot of people locked into doing something they don’t enjoy for years. It’s not easy, but it is very doable.
December 19th, 2007 | 1:07 pm
I’m only 23 years old so my knowledge may be limited on the subject but I thought the same thing as you when I was first coming out into the working world. What I wanted to to with my life was be a musician and spread my message through music to the world. I would laugh at the idea of having to pay your dues (so prevalent in the music industry) because I thought “if you are good, you are good and people will notice you and you will make it. The people who whine about paying your dues are just not good enough to make it and are denying that fact”. So about a year went by since the forming of our band and KABOOM, we got signed to a major production contract. We were recording our album in a multi million dollar studio with a world renowned producer who was promising us famous guest musicians on our first record and shows with huge bands. “Pay your dues my ass!” we would joke.
About a month into it, our producer went bankrupt.
It all went away and we were back at square one. Now almost 2 years later, we are still paying our dues and playing shows and touring around the country in a van and lugging our heavy equipment while hoping for our next big break.
Like it said in your article, most of these pentamillionairs became rich in one big burst after years of hard work. This shows the there was a point at which their hard work paid off for than and a long time before that in which they were paying their dues. I can see that today’s technology/internet age has the potential to make people rich quick when they have the right idea, but most of us are faced with the reality of having to start our own business which takes a lot of money and a lot of patience and time!
The harder the battle, the sweater the victory!
December 19th, 2007 | 6:38 pm
[...] Jonathan Fields over at Awake at the Wheel wrote a great blog post yesterday about how many people nowadays are trying to blog because they want to quit their day jobs and make money easily. He says “passive income” is a big scam, and he’s absolutely right. [...]
February 29th, 2008 | 7:46 pm
I have some friends who work to well paying jobs (manager and pilot), own 2 business (tanning salons) that they both put lots of hours into. They also own rental properties in 2 parts of the country.
Is this a good income? Who knows. they only check the account once or twice a year (one of their family mebers stays on top of the finances).
Because they ignore it, it probably will be a great passive strem one day. But they put tons of research and analysis before picking a part of the country to invest in, they didn’t just “buy forclosures,” or dillapidated rentals in their town.
I regret spending so much time focused on earning money, rather than saving it. I took my Social Secyurity report and recently figured what my wife and I have earned in our 30 years of working (we are 46): $1.5 Million!!!
ALthough I have about 150K in retirement savings, 3 pensions, 40K in home equity, I spend everything else.
Our incomes are so high right now that we really need to save or it will be embarassing.
March 19th, 2008 | 7:33 am
[...] How not to get super-rich- the passive income scam - Learn what the super-rich do and copy their [...]
March 24th, 2008 | 12:32 pm
[...] Okay, so I pretty much called the whole “get rich from passive-income” thing a big, fat scam! [...]
March 26th, 2008 | 9:00 am
[...] How not to get super-rich: the passive income scam Some harsh words for the idea of passive income. I think part of the challenge is how to define passive income. One of the commenters offered a pretty good insight, too: “I think passive income, like most financial information on the internet, is aimed at keeping middle class people more comfortably middle class.” I could write a whole post on that idea alone… in fact… be patient! (@ jonathan fields / awake at the wheel) [...]
March 26th, 2008 | 3:00 pm
[...] In my morning roundup today, I made an offhand reference to a comment from Hayden Tompkins about passive income: I think passive income, like most financial information on the internet, is aimed at keeping [...]
March 29th, 2008 | 10:12 am
The fact that by far and large most millionaires worked extremely hard is reassuring because it means if I choose to work hard and make the sacrifices of time, sleep sometimes even family, solve a problem or follow my passion, all of which require “a great deal” of effort on my part effort I can use far less constructively but is by far the less stressful - to watch television,laze around or even sleep………..choosing to stretch myself is most likely to lead to wealth……and if I choose not to do these things because it seems as too much effort ………I can’t really complain if I am not rich.
April 6th, 2008 | 1:30 pm
[...] A recent blog conversation mentioned on The Simple Dollar started me thinking about wealth and quality of life. One of the participants wrote I think passive income, like most financial information on the internet, is aimed at keeping middle class people more comfortably middle class. (comment on this post) [...]
April 28th, 2008 | 12:42 pm
Money comes easily and frequently. Money comes easily and frequently. Money comes easily and frequently.
Ahhhhh.
May 1st, 2008 | 12:06 am
I don’t think anyone ever said you can get super-rich from passive income.
however, you can generate some passive income that over time will become enough to live off of.
May 6th, 2008 | 2:39 am
Those who preach the gospel of “get rich quick via passive income!” are false ‘profits’!
However, those who preach the gospel of “creating a passive income rather than leaving your money in a fruitless bank account” or as an “umbrella for a rainy day” deserve an offering!
Job security is a myth!
Can I pass the offering basket!
Thank God for passive income.