Passive income

We often hear about passive income in the blogosphere. Unfortunately, this term is often used wrongly and abusively. In truth, truly passive income is a rare commodity. If we could receive money so easily without working, it would quickly spread around the world and everyone would want to get out of the famous metro-work-sleep pattern. Unfortunately, the vast majority of us still have to work in order to feed our families and make our society work. People who live on completely passive income represent only a small minority. While waiting for this windfall, we can console ourselves by supplementing the income from our lucrative activity with passive income. But let's start by seeing what this means exactly.

For various Internet authors, passive income is characterized as follows:

• Unlike active income, it is not dependent and proportional to the time and effort devoted to the income-generating task.
• They require very little or no active participation from you, which means you earn money even when you're doing nothing.
• They don't require your physical presence, which means you can be on the other side of the planet and it won't change anything.
• They draw their strength from automating tasks rather than repeating them.
• They take time to set up, at the beginning, during which time they generate little or no income. However, later on, they require almost no effort and generate income 24 hours a day, 7 days a week.
• They generate considerable margins because the proceeds of the income go directly to you (and not to your boss).
• You are your own boss. You decide what needs to be done and when it needs to be done.
• They are generally taxed less than active income.

Some examples considered as passive income in the blogosphere:

• Rent paid by tenants
• Copyrights, patents, inventions
• Advertising revenue from a website
• Income from a product sold on the web
• Trading
• Stock dividends or bond coupons
• Retirement pensions
• Create / buy a business

Let's now see for each of these examples if we can not speak of passive income.

Real estate rentals

Collecting rent requires managing the property and the flow of tenants. It is necessary to ensure the financial reliability of the tenant, to monitor the payment of rent, to claim if necessary the unpaid amounts, which can sometimes lead to complicated and long administrative procedures. It is also necessary to carry out the inventory of fixtures at the start and end, to draw up/sign the lease contracts, to carry out the necessary repairs/renovations of the property, etc. If the tenant is reliable and loyal, and the property is in good condition, then the investment in time is not too great, but if this is not the case, then the worries and time required for management can quickly become significant. You also cannot be absent too far and for too long (for example, going to a warm island for several months), because your property and/or your tenant may require your physical presence. The only way for real estate rents to be truly passive income is to entrust their management to a property management company. This will nevertheless cost you around 5% of the rent. In this case your only work will be to validate or not any possible works and to collect the rents.

Copyrights, patents, inventions

Composing songs, writing a book, developing software or a smartphone application requires time and effort at the beginning. Success is not always there. On the other hand, once the work is done, and if the product works, you have nothing more to do, except collect royalties. You can put yourself on autopilot mode, even on the other side of the world and receive your income 24 hours a day. Unfortunately, this way of doing things requires special skills and talent. It is therefore far from accessible to all of us.

Advertising revenue from a website

This is the classic mistake. The big lie known by the entire blogosphere except by those who are getting started. Many sites boast and even sell you solutions to earn passive income from the Web, even though they themselves only earn these profits from your credulity. Let's be clear: unless you generate really considerable traffic, the income from advertising on the Internet is barely enough to cover the hosting costs of the site. Even if you opt for free hosting (which is not possible if you want to undertake something serious), the income is derisory. You can get the same thing by just investing in two dividend-paying stock positions (see below), without having to do anything.

And unless you create a truly extraordinary site, don't imagine that you're going to escape this rule. The vast majority of sites on the Web generate little traffic with low advertising revenue. In addition, and perhaps most importantly, maintaining a website requires a lot of time. Of course, you can opt for a static site with infrequent updates, but this will come at the cost of poor SEO, and therefore even more modest income. A blog generates more traffic and income, but requires a lot of time to write articles, moderate and respond to comments, ensure technical maintenance, site development and SEO. The more you want to stand out from other blogs, the more you will have to work not only on writing, but also on the layout and technicality of the site. This last aspect is very often underestimated. A serious blog requires some computer skills (html, php, mysql, etc.) and a significant amount of time to put them into practice. What blogger hasn't spent a sleepless night or sacrificed a day because of a technical problem on their site?

In short, the profit/time investment ratio of blogging is really very low. It is anything but passive income. The confusion comes of course from these web scammers who sell you the miracle solution to become rich from a blog, but not only. It also comes from the fact that advertising revenue can be obtained 24 hours a day, 7 days a week, wherever you are in the world and you organize yourself as you wish. You can indeed blog anytime and from anywhere, as long as you are connected to the Web. But unfortunately the income is really too minimal, especially compared to the time it requires.

Income from a product sold online

To get around this problem, many bloggers have turned to marketing products through their site. While this strategy is much more effective in terms of the profits made compared to the advertising approach, it nevertheless requires no less work, quite the contrary.

Selling products requires technical skills, development and therefore additional time, at least at the beginning. Later, if it is done well, we can say under certain conditions that we switch to automatic mode. This is what happens with digital products, such as e-books or paid access. On the other hand, physical goods require handling, unless this task is outsourced. In all cases, the interface between the site itself and the payment method will have to be as automated as possible, otherwise significant manual management will be necessary.

Here too, as with advertising revenue, you shouldn't expect miracles. It is certainly a little more lucrative, and even if the technique allows you to automate the various tasks to be performed as best as possible, the site will still need to be kept up to date in order to ensure sufficient referencing. So quite a bit of work all the same, for income that is far from extraordinary. Once again, we can't really talk about passive income.

Trading

Some people practice trading, a technique that consists of buying a stock listed on the stock exchange in the hope of selling it more expensive a little later. Some of them even resell the stock(s) the same day, hoping to make a small daily capital gain, without keeping a position open after the market closes. This is called day trading. Statistics from US brokers show that 90% of these traders lose money. It is obvious that this activity requires monitoring time not only during the day, but also time to collect information outside of market opening hours. Not to mention that it is a stressful activity to say the least, since the day trader must somehow ensure his income daily. Even if trading is carried out over longer periods, the work of monitoring and collecting information is still very present.

Trading allows you to manage your time as you wish and you can do this task from anywhere in the world. However, you can't really say that income is independent of the repetition of tasks performed, especially in the case of day trading. In any case, you are obliged to place orders on the stock market to make profits (but also losses). Some orders can be semi-automated, but you will still have to configure them. In any case, if you do nothing, you don't generate money. Trading requires active management. We are therefore once again far from what can be described as passive income.

Dividends and coupons

Dividends correspond to the share of a company's profit that is redistributed to shareholders. Coupons represent the interest that a bond pays to its holder. On the one hand, the holder of a share is given the share of the profit that is due to him, on the other hand, the holder of a bond is remunerated for having lent money. The two methods are certainly different in nature, but in the end the approach to earning passive income from these two types of investment is quite similar. It involves selecting a set of quality securities that will pay income to its owner at regular intervals (most often quarterly, annually, or sometimes monthly or semi-annually). While the process may take some time at the start to choose the positions well, it only requires very modest monitoring thereafter, provided that the initial work has been done correctly.

Of course, you can mix dividend-paying stocks and coupon-paying bonds. The big advantage of the former is that they are likely to grow with profits, and therefore allow you not only to hedge against inflation, but above all to increase your income year after year, without any additional effort. Dividends and coupons are truly a source of passive income. You manage your time as you see fit, from anywhere in the world, and you continue to receive them, whatever you do and without any outside help.

Create / buy a business

Many also believe that you can create your own business or buy an existing business, to become your own boss. But being a boss is anything but restful. You already have to be able to generate profits, which is not so obvious. You have to ensure the long-term survival of the company, be able to pay not only yourself, but also your suppliers, as well as your potential employees. You also have to manage conflicts with them, recruit, fire... In any case, before you can delegate these tasks to other people, you will have to reach a sufficiently large size and you will always bear the ultimate responsibility for everything that happens there. No, running a business is anything but passive income.

Conclusion

As I said in the introduction, truly passive income is very rare. I am deliberately leaving aside copyright, patents and inventions which are only for a very small elite. In the end, only the dividends, bond coupons and real estate rentals with the help of a property management company are truly passive in the sense that they do not depend on any effort on the part of their owner. Whether the latter is sleeping, going on vacation, is sick or simply has other more interesting things to do, he will continue to receive his income. I was also going to forget pension annuities. Of course, this is a type of 100% passive income. But who wants to work until he is over 60 to benefit from it?