The Most 3 Dangerous Myths of Passive Income

By Dan Lok | Blog

Jun 01

When I first got into business it was for one reason: to make money. I was your typical business opportunity junkie. I was the guy who subscribed to business opportunity magazines and responded to every single ad in those magazines. There were days when I would receive dozens of offers in the mail, each promoting a different way to make money, and I would try all of them.

To my disappointment, I was not an overnight success. In fact, I failed in over a dozen different businesses before I learned what it truly takes to succeed as an entrepreneur. For years, I chased the elusive goal of earning passive income, only to end up with active losses instead.

When I finally stopped chasing money and focused on building a real business instead, everything changed. In my early twenties, I was earning six-figures per year as a copywriter. By the time I was 27, I was earning multiple six-figures per year in passive income from digital product sales online. By the time I was 30, I was a multi-millionaire.The 3 Dangerous Myths of Passive Income | Dan Lok | Lifestyle Business Magazine

Today, I own and/or am an investor in over 20 companies in different industries, and I live a lifestyle that is the envy of most entrepreneurs. I work when I want, with whom I want, from wherever I want. If I don’t want to do something, I don’t do it. I answer to no one. I have true freedom. The good news is that this type of lifestyle is certainly possible. The bad news is that it doesn’t come easily.

The truth will set you free, but first it will piss you off

As a young entrepreneur, I defined success as financial freedom. Financial freedom, as you’ve likely been taught, is defined as the point at which the income from your assets (passive income) exceeds your expenses. You no longer have to trade time for money. You are financially free.

Well according to that definition, at the age of 27 I had achieved success. I was earning multiple six-figures per year in passive income, which was more than enough to cover my expenses. I was financially free. There was just one big problem. After a few weeks of hanging out at the beach, basically doing nothing all day, I became depressed. I experienced a void that money could not fill. That’s when I realized that my definition of success was completely wrong. I needed something to work towards. I needed a purpose. So when I tell you that financial freedom and success are not the same, you that know I am speaking from experience.

I wrote this article to help expose the dangerous myths of passive income. These are the myths that cause thousands of entrepreneurs around the world to blindly chase financial freedom, thinking that it is the key to living a successful and fulfilling life. These myths will likely contradict what you’ve been taught from other sources, but if you maintain an open mind, you may find what I am about to share with you to be incredibly liberating.

Myth #1: Passive income is permanent

It certainly makes sense to define financial freedom as the point at which your passive income exceeds your expenses, but there is one major flaw with this definition. This definition assumes that passive income is permanent. Unfortunately, passive income is not permanent. A source of passive income can dry up or disappear at any moment.

To help illustrate this point, allow me to share a quick story. Several years ago, a friend of mine was generating approximately one million dollars per year in passive income from various websites he owned. His websites generated revenue from affiliate links and banner ads, and he relied primarily on Google to drive search traffic to these websites. One day Google made a change to their algorithm, and my friend’s websites immediately started to receive less traffic. The following year, his income decreased to $500,000, then to $250,000, and eventually to zero. Remember, just because it’s passive doesn’t mean it’s permanent.

Myth #2: Passive income is easy

Passive income is defined as income that is received on a regular basis with little effort required to maintain it. This definition causes many people to mistakenly believe that generating passive income is easy, which isn’t true. Passive income is not easy to create, and it isn’t created overnight. Most of the work required to generate passive income is done upfront when you acquire or create an asset that produces passive income in the first place.

For example, as a bestselling author, I have earned thousands of dollars in passive income in the form of royalties from my book sales. What most people don’t realize is that it took me several years and thousands of hours to learn the concepts that I teach in my books, plus the additional time it took to actually write and publish them. So if you were to ask me if earning passive income as an author is easy, my answer would most definitely be no, it is not easy.

Myth #3: You have to choose the right vehicle

There are many different methods (vehicles) that a person can use to generate passive income. Rental income from real estate, dividends from stocks, and royalties from music or book sales are just a few examples. These vehicles, and many others, are all viable options for generating passive income.

The myth that causes many people to believe that their lack of financial success is due to the wrong choice of vehicle is the myth that they have to choose the right vehicle in order to succeed. In reality, there is no right vehicle. There are people generating significant passive income with each of the vehicles mentioned above, just as there are people generating little to no income using those same vehicles.

The vehicle you choose doesn’t matter. What matters most are the knowledge, skills, and dedication that you possess as you work to create passive income with your chosen vehicle. Someone can introduce you to a specific vehicle that has the potential for creating passive income, but if you’re not equipped with the knowledge, skills, and dedication to make it work, you will likely experience failure.

Don’t aim for financial freedom, aim for financial confidence

Financial freedom is an illusion. It’s a concept that many so-called experts want you to believe in so that you buy their product or system that promises to help you create passive income. Remember, just because you have a passive income stream today doesn’t mean you will have it tomorrow. Your “financial freedom” could disappear as quickly as Google can make a change to their search engine algorithm, as was the case with my friend several years ago.  

Don’t aim for financial freedom, aim for financial confidence. Financial confidence means knowing you have the skills and the ability to make money anywhere, anytime, regardless of market conditions. You’re not depending on any external circumstance or vehicle to generate income. Financial confidence is true freedom. Once you have it, nobody can take it away from you.

You can’t build a business passively

Whenever I hear an entrepreneur tell me that their goal is passive income, I cringe. What they are basically telling me is that they want to do as little as possible and receive as much as possible in return. This is a terrible intention. Every time I see someone create a business with the ultimate intention of getting away from that business and its customers as quickly as possible, it fails.

If you truly want to be successful, you need to eliminate the word passive from your vocabulary. This is a bold statement, but consider the impact of the word passive in other contexts. How healthy would you be if your goal was passive health? How intimate would your relationship with your spouse be if your goal was to have a passive relationship? I hope you get my point.

If your goal is to achieve financial success by building a business, you cannot do it passively. You can’t stay ahead of your competition passively. You can’t maintain a loyal tribe of customers passively. You can’t lead teams of great people passively. You can’t create meaning, passion or purpose in your business or in your life passively. Anything that is worthwhile requires you to work hard at it. Move forward with intention, purpose, and meaning. Help people. Make a difference. If you adopt this mindset, you will inevitably achieve success.

Ready to build a lifestyle business?

Enter your name and email below to join our growing community of lifestyle entrepreneurs, and receive instant access to our Lifestyle Business Startup Checklist.


About the Author

Dan Lokis a multi-millionaire serial entrepreneur, international best-selling author, and highly sought-after business mentor. He’s written over a dozen books that teach entrepreneurship, and is considered one of the world’s leading experts in internet marketing.