Passive Income Pitfalls

5 Passive Income Pitfalls to Avoid

Passive income is key to growing your wealth. In fact, many millionaires become millionaires because of passive income streams. 

That doesn’t mean these people literally sat back and enjoyed money rolling in without doing anything at all. 

Chances are they made wise decisions, managed their money, and avoided common passive income pitfalls.

In The Millionaire Master Plan, author Roger James Hamilton explains, “It might look like the apple farmer has ‘passive income’ because his apple trees keep giving him apples, but it still takes time and expertise to nurture those trees.”

We all know “money doesn’t grow on trees,” but Hamilton’s analogy works well to demonstrate the importance of nurturing passive income.

Whether you hope to earn passive income through real estate, investing, or blogging, you will need to avoid these 5 passive income pitfalls to see your wealth grow. 

#1 Not Having the Right Mindset

One of the most common passive income pitfalls is failing to see that it is work.

Some people mistakenly believe that, because it is called “passive,” they don’t have to do any work to make money. 

This couldn’t be further from the truth.

The difference between active income and passive income is that you can continue to earn money passively after you actively create something.

The blog you write about passive income won’t earn you money as soon as you publish it, unlike an hourly wage. You need to monetize it and consistently post. In other words, passive income is work.

Even the IRS says so.

According to Experian, “Just like income from a full-time job, income earned from passive activities is taxable. If you sell your interest in a passive income activity or sell a property that generates passive income, you are also responsible for taxes on any earnings you make.”

If you treat it as a casual hobby, you shouldn’t expect to earn enough to quit your full-time job or retire early.

Instead, you need to have the mindset of an entrepreneur. Your passive income side hustle is your entrepreneurial business. Treat it as such.

Entrepreneurs don’t just sit back and wait for things to happen – they make things happen.

#2 Not Diversifying Passive Income Streams

Diversifying Passive Income Streams

We are all familiar with the saying, “Don’t put all your eggs in one basket.”

Well, this is a common passive income pitfall. 

People tend to put all their eggs [financial dreams] in one basket [one passive income stream].

Tom Corley, the creator of Rich Habits, completed a 5-year study that revealed most self-made millionaires generated their income from multiple sources. The study showed:

  • 65% had 3 streams of income.
  • 45% had 4 streams of income.
  • 29% had 5 or more streams of income.

Millionaires don’t put their eggs in one basket. They don’t just invest in one stock. Or own one rental property. They invest in several. 

Most successful bloggers have discovered the key to earning money blogging is by having multiple passive income streams, such as creating and selling courses, e-books, or products on their blogs.

According to Growth Badger, “45% of bloggers who earn over $50,000 per year sell their own product or service, while only 8% of lower-income bloggers do.”

Similarly, some people are taking advantage of the sharing economy and listing products on multiple sites. 

[Related Read: How to Start a Blog for Under $100]

#3 Not Being Patient

It takes time

Another passive income pitfall is thinking you’ll immediately start earning money overnight. 

Many people mistakenly think passive income is a get-rich-quick scheme. It isn’t. 

It takes time (sometimes quite a lot of time) before you can enjoy the rewards of the time you spent working on this income stream.

Let’s say you want to start earning money by making YouTube videos. This is a fantastic goal, but it is one that will not happen overnight.

This is because YouTube has specifications you must meet in order to monetize your videos.

Before you can earn the first penny from YouTube videos, you must become a member of the YouTube Partner Program (YPP)

Here are the eligibility requirements for YPP:

  1. Follow all the YouTube monetization policies (i.e., the content must meet YouTube’s community guidelines and Google AdSense program policies, such as making sure all videos are advertiser-friendly).
  2. Live in a country where the YPP is available.
  3. Have more than 1,000 subscribers on your YouTube channel.
  4. Your videos must have generated 4,000 Watch Time hours over the last 12 months.
  5. You have an AdSense account set up.

Rules #3 and #4 take time, and they are the ones that typically slow down YouTube monetization.

However, once you nurture your passive income stream, you should consistently earn income. It just takes patience.

[Related Read: How to Quickly Scale Your YouTube Channel]

#4 Not Being Realistic about the Time Commitment

dreaming about making money

Again, don’t let the word passive fool you. It requires time and some effort before you can enjoy consistent passive income.

Unfortunately, dreaming about making money in your sleep leads to another passive income pitfall.

Not only does it take patience to wait for the money to start rolling in, but it also takes time to create the stream.

Many people don’t research how much time they will need to invest to make it happen.

For example, it takes a considerable amount of time to create a blog and build up a blog following.

According to Oberlo, “The number of active bloggers in the United States is forecast to hit 31.7 million in 2020.” 

This means your blog will be competing for attention against 31.7 million other blogs. You can’t write any old thing and hope it gets read.

You have to spend time writing quality content and researching ways to get your blog in front of the right audience.

Oberlo claims, “The latest blogging statistics show that on average, it took nearly four hours to write a blog post in 2019. This is around 30 minutes longer than that of 2018 and more importantly, a 65 percent increase from 2014 and pretty much in accordance with the increase in the overall word count. It appears the extra dedication is also paying off. Writers who spend more time on a post see more positive results from their posts than those who spend less time on it.”

Four hours per blog. If you write multiple blogs a week, this adds up quickly.

As a result, many bloggers quit before they start to enjoy any passive income.

But, this doesn’t just apply to bloggers. All forms of passive income require some initial time upfront that you may or may not have.

That’s why it is important to do some research so you know if you have the time and resources necessary to generate passive income from a specific stream. 

[Related Read: How to Monetize Your Blog]

#5 Not Setting and Sticking to Goals  

Sticking to Goals

The final passive income pitfall has to do with goals and staying on track. 

As we’ve stressed, passive income doesn’t happen right away. 

You have to put in some time and energy in the beginning before you can earn the rewards.

This is why it is so important to set goals and review them regularly to ensure you’re on track.

If you don’t set clear goals, it will be very tempting to give up when you don’t see your bank account growing right away.

[Related Read: 9 Strategies to Earn Passive Income]