The Smart Passive Income Guide (2015)

Chapter 4: The Pitfalls of Making a Passive Income




As you know by this stage of the book, it truly is critical to enter into your passive income venture equipped with a practical and realistic mindset.  It is easy to get carried away by  the buzz surrounding a passive income. Many of us have spent countless hours daydreaming about a way of earning money that allows us freedom and the ability to follow our passions.  As described above, a passive income can provide you with this kind of lifestyle, but you need to be prepared.  Don't be one of those foolish people who rushes in, jumping on the bandwagon unprepared, wondering why they didn’t do this years ago and why only a few people are actually going after it. These people are ill-informed and nowhere near ready for the hard times that will befall them when they are not able to make money or they lose out on their life savings. This chapter is going to talk about some of the pitfalls that come with working on a passive income so you can avoid falling into these traps. While there are a lot of benefits, like what was discussed in the previous chapter, it is not all fun and games and a lot of other things can happen that you were not planning on. With this information in mind, you can be a success story rather than a cautionary tale!



Pitfalls of a Passive income



With the many great benefits of getting a passive income, there are also some things that you will need to watch out for. Here are some of the most common pitfalls of making a passive income that you should be wary of.



Might Lose Money



Yes, it is possible to lose some money when you are working on making a passive income. This is not something that will always happen, but it is possible. Sometimes this will just be the money that you invest into a new idea, such as purchasing some land or property before you sell it for a profit. Other times it is going to be because you were taken advantage of and you will never see that money again. Let’s look at both of these situations to get a better idea of what this means.


First, let’s look at investing money before you make a profit. If you are purchasing property, land, or even materials in order to get started on the idea you have at hand, you will still be losing some money, especially if the idea fails. These are not necessarily bad moves to make, though. It is usually a good investment to put your money in real estate, but if you purchase in a bad market or pay too much, you could end up losing out on the money that you just spent and you could even end up in an even bigger hole. It all depends on the way you approach it and if you are smart enough to make it work.


Many people are scared about the money they might lose, even if it is in a legitimate way. They are worried that they will never get it back, which is always a possibility if things do not go the right way. They just might not be cut out for losing this much money on this big of a risk or they might be willing to do it but don't have the financial means. For example, if they have a family with kids, it is not likely they have thousands of dollars laying around for their venture.


Before you start on a venture like this, you will need to make sure you have a little bit of money stowed away. Some of these options involve a big investment, such as purchasing property, and if you are going full speed ahead with the idea, you may not have another income source for a while in order to pay the bills or make it through. Saving up the money, or choosing another option that does not cost as much, is often the best way to ensure you are on good footing when you get started.


Second, you may be taken advantage of. This is a bad situation and one you should be especially careful about. While it is possible that you can lose out on a lot of money in the first situation, that is more likely to be because you did a poor job or did not do your research rather than the idea being a bad one. With this second example, you are taken advantage of right away because someone fooled you or you just did not listen to your own intuition. A smooth talker can convince lots of people! There is no shame in falling into such traps if you’re innocent or unaware of the possibility. Luckily for you, you are now informed about this possibility and should be aware of those trying to take advantage of you. Listen to your intuition, do your research, and you should be able to avoid this kind of encounter.


Remember, in reality, you do not need any special tools or information that cost money to make it with passive income. All of the information you need will be available at a library, from a few books, and from talking to someone who has done it. Spending hundreds on a special kit will never help you out and is just going to get you into a cycle of losing more money.



Bad Ideas



Another pitfall you may come against is that you may have a bad idea. We know you’re smart, but you’re also inexperienced, so some mistakes will be made in the learning process. If the idea you are using for making a passive income is not good, it does not matter how much time, energy, or money you put into it. You are going to end up failing in the long run. It is better to take the time to find out a good idea and think it all through. Otherwise, you are really just setting yourself up for some hard failure. When you are doing your research, take the time to figure out where others might have failed in the past and which ideas may not be as profitable as you would have thought. This can help you to avoid coming across the same issues in the future.



No Steady Paycheck



While you are working on getting the passive income stream set up, you are likely to have no steady paycheck. Some people are able to keep up with their regular income source and work on the side with the passive income depending on the idea, but this is usually not the norm. You might have to completely quit your current job in order to devote yourself to the new endeavor, or at least find a new job that is often lower in pay and hours in order to pursue your dreams. There are a lot of issues that can come with not having the steady income you are used to.


For some people, this is the main reason they will not choose to pursue a passive income. If they have a mortgage, bills, debt, or children and a family to take care of, it is usually not possible for them to take the leap and try to make some money through passive income. You might have to go a bit of time without an income source and just live off your savings or the income of your partner if you have one. This can often be difficult, and when unexpected expenses come up, you may be at a loss for how to cover them. For this reason, many people choose to just stick with the secure job they have, even if they are really passionate about the idea and think they could make it.



No More Blaming



When you are making a passive income, there is no one else you can blame if something goes wrong. If you make a client mad, you cannot hand over the blame to your supervisor or another employee who might have been working on the project with you. If you have someone who is not satisfied, you have to deal with it. If things are not going the way you want, you have to be the one to change things. If you do not get the work done, that is your problem, and if it is not going to get done, you will not be paid. You have to take the blame, but of course that also means you get all the credit when things go the way they are supposed to. Some people do not mind being the one in charge, while others need to have that supervisor or other person in charge in order to make it through the day.



No Health or Other Benefits



Just like with the paycheck, you will need to give up the health benefits and other perks of having a full time job. Many positions in companies offer you a good health package for the family, retirement plans, vacation days, and other benefits in addition to the security of a paycheck. When you give up your job in order to pursue a passive income, you will also be giving up other benefits you are used to enjoying. You might decide it is not worth doing this in order to make the passive income because these benefits are nice to have in life. You might also determine that it is worth going without those benefits in order to be your own boss or get ahead in the game. It is up to you to decide which is the most important, as long as you understand how this will be affected when you are working on passive income.



The Trap of Making Passive Income Passively


In some circumstances, having a passive income can be difficult and even dangerous. This occurs when this mode of income stream is not the right fit for your business. Some of the danger is going to come from the fact that most people think a passive income means they can just passively sit by and still make money. For those who know this is not true (which should be you by now!), there is no danger because they will continue to work hard; on the other hand, those who believe this will run into trouble, even if they initially work hard or had a good knowledge of the work to start with. Being aware of the potential dangers that could arise as a result of using a passive income in your business will help you decide if it is the right move for you. 



Being passive does not put you ahead



If you want to stay ahead of the competition, you are not going to be able to be passive. While you are sitting back and hoping the income is coming in, you will see that the competition is coming onto your turf and actively going after customers; and they will be winning. Even if you come up with a new idea that no one has thought about yet, if you do not stay on top of the game after a little success, someone is going to beat you to the punch line and create a better product. You cannot just sit back and hope the whole thing is going to work out for you. Instead, you need to always be working, creating, evolving, and doing what needs to be done in order to be ahead of the game, or the competition is going to beat you.



Keeping Customers Takes Work



Your customers are finicky and they want to be wooed. If they think you are ignoring them, they are going to feel neglected and could easily betray you for another competitor who promises to be there for them. Yes, this might seem like a lot of work, but it is something you have to do in order to keep your loyal customers and keep the money coming in. It is not possible to sit on your butt and hope they will keep handing you money. When there are so much competitions to fight against and so many markets, you might only be able to make money by offering customers your time and your attention. Remember, the customers are the ones who pay your salary, and without them, you have nothing.


Money Doesn’t Just Show Up



If you think that money is going to just show up, you are too passive. A passive income still means you need to get out there and do the work, but most people forget about this memo. They might spend a little time developing their talents, and then hope it all works out in the end. Often it doesn’t and that is when things can get bad. You have to be actively working at all times.



Purpose and Passion do not come from Passivity



One of the best ways you can get customers to choose your product over another is to show them the passion and purpose you have for your business. Have you ever been around a salesperson who shows no interest in the job they are doing? They might try to sell you something, but you can tell they are not into it or that they just do not care. You might purchase the product because you really need it, but often you might walk away or find someone else. On the other hand, when you are near someone who really loves the work they are doing, believes in themselves, and believes they are able to help out others, it is almost impossible to walk away without the product.


You need to be like the second person. It is up to you to get out of the rut and not be passive, but active. Be the second person, the one who can convince almost anyone to purchase their product and hand over their money. When you are not able to do this, it is hard to make a living and you are more likely to fail. There is a passionate reason why you got into the passive income business, so use that original spark to keep things going and convince customers you are the very best at what you do.


While passive incomes are not always exactly what people think they are, there is still a lot of potential that comes with them. Staying in touch with your passion and the reasons you got into the passive income game in the first place will help you to remain active and be successful at what you do in order to reap the rewards.