It sounds like income that you don't have to work for. Most people have that idea in mind when they reach out to us – having investments that produce income 24/7 which ultimately produces financial freedom.

However, I want to reframe this concept today: Can there truly be income that’s completely passive?

Except for the interest you could get off of a treasury bill or a CD savings account, which is very little today, especially when compared against inflation, there isn't anything that's really passive about passive income.

No one cares about your money as much as you do

For investing, you have to be active enough to determine what investments will produce sustainable, predictable cash flow. This involves some of your time and a certain amount of due diligence and research. 

Depending on the investment, you still might have to manage the person who is producing that cash flow for you. Remember – no one cares about your money as much as you do. 

You could have a business in which other people work for you and even run the business for you via a partner of sorts. You could then get owner distributions out of that as your  “passive” take. 

However, you’d still need to implement some oversight even after the time spent in the start-up phase, after implementing the right model to produce profit and finding the right people to work with. 

Not exactly passive, is it?

What about alternative investments like real estate rental properties? Many people do the majority of the work themselves – that’s what I did when I was much younger. Doing it yourself is definitely not passive. It takes time. It takes work to negotiate, acquire, renovate, repair, and manage tenants. There’s a lot to do.

Now, you can also hire people to do that (That's called “turnkey” rental properties). That's the way I would prefer to go today. And people might say, “Well, you'd be giving up too much of the ‘profit’ David.”

My response is, “That depends. What am I really giving up?” See, hiring it out buys back my time and my sanity. How much is that really worth?

Any “passive income’” you earn actually requires some amount of trading your time for it. The key is finding a way to trade as little of your time for as much income as possible. That ratio is what you should focus on and why, even though I could earn more, I am not as active in the above investment example.

When should I hire out vs buy back my time?

When you're younger, when you have more time than money, it makes sense to be more active and to trade your time for money, working to increase your time value (the amount of money your time is worth in a career or profession).

But when you're older in life and your time value is worth more doing what you were trained to do (i.e. being a dentist, doctor or other profession), there comes a time when you don’t want a second job managing your money in investments. 

If you want to get closer to “passive income” (not utilizing your time as much but still getting a high value return), you need to be on the forefront of directing your capital in the right investments. The key is doing this through strategic collaboration. No matter what avenue you take, that takes time. It takes relationship building. It takes a network. It takes specific learned skills.

Danger: Abdicating your hard-earned investment dollars

Where people go wrong is when they completely abdicate their responsibilities. They surrender their hard earned money to the constructs of Wall Street, Financial Advisors, 401ks, money managers, etc. They do this because they’re not willing to put any more time into it than what was told of them – They take the idea of “passive income” too far, not giving enough time or thought into where their money is actually going.

Money managers do the best they can but no one looks after your money like you do. I believe your money is best served with you in control of it. If you disagree, just think about how much money is being lost in the markets today and how little control its owners had over it. But that is still where most money managers recommend investing – the volatile, unpredictable, and uncontrollable financial markets.

Is managing your own money and passive income, a skillset you can learn?

Of course it is. You successfully made it through school. You passed the tests, the boards, and got the licenses. You learned what you needed to learn to be successful in practicing your profession. There’s no reason you can’t do the same with your investments. 

People might tell you, “You can't do this because it's too complicated and you don't have time.” Well, that’s why you’re here. You want to take the wealth you've worked so hard for and preserve it, maintain it. You want to have your money work for you because that's how you buy back your time.

There is a learning curve to it. Some time on the front end will be needed to educate yourself but the sooner you do it, the sooner you can take your foot off the pedal.

If you continue to give third parties the full control of your money, maybe they do the best they can, but in the world that we live in today – market gyration, volatility, uncertainty – there's no way that a passive-index-fund-investment-type of strategy is going to cut it. It'll set you back and increase the time needed to reach your goals by a great amount.

That's not what any of us want.

Taking Control Now

Now is the time where you need to make a decision. Take control of your financial investments, just like you've taken control over your business operations.

You can do it. It's what we do at Freedom Founders. We do it better than anybody else. If you've always wanted control of your future finances, you need to make that change today.

Wait longer and you may have to suffer the decline of the markets during the current market correction. Do you have time to build back up? Do you have time for the market to catch back up again? Historically, it’s taken 6, 7, 8, or 9 years to do so. 

Most people don't have that time. I wouldn’t depend on it. I would make sure that I'm moving forward and not backwards.