How earning big money online became a nightmare for me and how you can avoid the same mistake
Over the past decade I have built a successful online business around both passive and active income streams and I’ve learned the hard way that there are advantages and disadvantages to each. In this post I want to explore these to help you decide what works best to fit the lifestyle you want.
So, what is passive and active income?
Passive Income: Income you receive on a regular basis with little work required to maintain it. Source: Wikipedia
Examples: Micro Niche Websites, Authority Websites, Blogging*
Active Income: Income you receive that requires ongoing work or earnings by the hour.
Source: Me
Examples: Freelancing, Consulting, Blogging*, Traditional Business
Passive Income
The advantages for passive income are pretty obvious. Making money while you sleep, travel or spend quality time with family is very sweet indeed. This year for instance I was in Australia for five months with my wife and Clara pictured here – all the while my income just continued to show up in my bank accounts. Building passive income can also be done part-time, whenever and wherever you like.
However, creating successful passive income does require a leap of faith. You really have no idea how things will turn out – you might end up earning $100/month or $10000/month. Usually you can estimate what you will earn a little more accurately than this, but the point is – your income potential is not completely known.
For example, in my existing business each month I really have no idea how well each of my affiliates sales will do. I have seen one of my affiliates bring in $6000 one month and $1000 the next. In this case the reason was tied to a change in the economy. Another big unknown from month-to-month is Google search results. As I described in my August Income Report, Google has had a huge negative impact on my earnings lately.
Even with these potential negatives I love passive income because there are two things you can do to effectively eliminate the negatives:
1) You can diversify income streams through multiple websites (or other income streams)
2) You can get traffic from sources other than Google
Active Income
Active income does not seem as sexy as passive income at first glance but it has one key advantage over passive income – you can start earning income almost immediately.
Freelancing or consulting can be a terrific way for someone starting out.
Tom Ewer makes most of his money from freelancing and in a recent post he outlined how he left his employer in just three months. (Interestingly, Tom successfully uses a blog as his platform to show that he knows what he is talking about). Pretty awesome way to go for Tom and many others starting out, but not for me.
Freelancing for me would be too much like having a boss. When I wake up in the morning – I pretty much do whatever I want, every day. Sure I work hard sometimes, but sometimes I go mountain-biking, travel for a few months or just hang out with my family and friends at the cottage. Because of my freedom, when I am working some days I feel like 10 year old on Christmas Eve. The thought of having to deliver something each week makes me cringe. A few years ago when my business was booming, I found myself caught up in the the thick of doing things I did not enjoy. At that point I wanted to quit – fire my own ass and start something else. I even considered working a Starbucks and then the economy tanked and solved everything. Fortunately the recession enabled me to take a step back. Then I really started to discover the untapped potential earnings that could be generated from affiliates instead of clients that required my constant attention.
So, What’s Best For You?
If you are excited by the lifestyle passive income can bring, I would recommend building a useful niche authority website, which I described here. Just one – you only need one to start with. You can also do it part-time if need be.
There are other ways to create passive income but in my opinion none are simpler and more lucrative than the websites that are the subject of this blog.
On the other hand, if your desire to fire your boss is really strong and you need money sooner rather than later, I would recommend a freelancing or consulting approach with a view to building passive income later.
If you are interested in consulting, I would highly recommend Alan Weis’s book which I have read. In it he shows how to charge clients for value added rather than hours worked.
For me personally the answer is still both passive and active income, but this time I have structured things differently. I love the income the passive income brings through my useful authority websites bring but I also love the daily human interactions that this blog brings.
For most people just starting out however, choosing just one thing and focusing on that one thing is critical to being successful. It is WAY to easy to chase after the next shiny thing.
Here are some questions to help you decide: Passive v Active
- Do you have a strong desire to stop working for the man?
- Are you the type of person who needs human interaction, even thrives on it?
If you answered yes to both questions above – why not start freelancing as soon as you can?
- Do you have a strong desire to have a lifestyle that has time and location freedom?
- Are you able to work on projects alone and see them through to completion?
If you answered yes to both questions above – why not start building a useful niche site as soon as you can?
*If you are still undecided blogging may be the way to go for you.
Blogging has a neat trick up its sleeve, one that static websites and other businesses can’t do so easily. A blog based on a passion has the potential to develop into a business as you go along. Blogs are a strange hybrid because they can generate active and passive income. Unfortunately they rarely have the ability to generate income quickly like freelancing, but they can become excellent sources of both passive and active income long into the future.
Be careful what you ask for, in today’s online economy many things can happen – good and bad. At first glance, it seems a no brainer that passive income would be everyone’s first choice but I think the answer lies in the lifestyle, personal needs and desires we seek.
Thanks for reading, I hope this has helped you in your quest to not only earn great money but create a wonderful lifestyle too.
Have your say below – What do you prefer active or passive income? What are you doing now?
Image courtesy of Salvatore Vuono / FreeDigitalPhotos.net
Jeff says
Good food for thought here. I am very motivated to leave my job but I don’t want to without the security of other income. In the past, I have tried to generate some income for some time with Adsense sites but not had much success. I am working on niche sites now, so hopefully works out.
cubiclefree says
Thanks for posting Jeff. I really do believe you are on the right track! Stick with it and I am sure you will find success.
Financial Samurai says
I’m doing my best to diversify away from G and develop more passive income sources. I hope Yahoo and Bing can do better in the competition!
Writing my book on how to engineer your layoff has been very rewarding and passive now. Where is there a book that teaches you how to quit your job with a severance? Affiliate income is also my favorite!
cubiclefree says
Great topic for a book Sam. You are offering something very cool and unique there. Think we really need to move as far away as possible from G! This is one of my main focuses. I rarely look at keywords anymore but I am finding lots of other sources of great traffic.