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It's more than just a ticket. Good morning, Radicals. Happy Monday. 5 a.m. here on the East Coast, and today, let's kick off your week with a little discussion of passive income, the myth and the reality of passive income. Welcome to the Radical Personal Finance Podcast, the show dedicated to providing you with the knowledge, skills, insight, and consistent daily encouragement that you need to live a rich and meaningful life now, to build a plan for financial freedom in 10 years or less, and to sort through all of the nonsense, the lies, the misdirections, and the marketing copy that so consistently pervades this world of financial advice.

Today, we're going to tackle one of the sacred cows of the early retirement financial independence of personal finance, wealth building, living a rich life now world. I need a new name. That was way too much of a mouthful, but we're going to tackle one of the sacred cows today of passive income.

This last week, I was looking around the personal finance space on iTunes, just trying to see what shows were ranking well, and I noticed that there are at least three, I believe, three shows right now that are top-ranked money shows all related to passive income. I started taking a quick look at the titles and things like that, and I said, "All right, these shows are doing awesome.

It's time to tear down some sacred cows in this discussion of passive income," because the way that you hear people talk about passive income to you so consistently is an absolute myth. It really is, but it does exist. Passive income does exist. Today, I'm going to tell you what words we should use instead of passive income and how you can actually get passive income.

No, you don't do it by signing up for my passive income program. Before we do that, I will work on my passive income by doing today's ad. Today's ad is for Paladin Registry, the financial advisor referral service that I recommend to you. Paladin Registry is a simple way for you to start your search for a great financial advisor.

One of the things – cheat, cheat, cheat – one of the ways that you actually can get passive income is through something like Social Security, which is an annuity stream, and through taking money distributions from an investment portfolio. Most of you will wind up in this situation at some point in your life, and this is a really good place for financial advice.

Financial advice may or may not work for you when it comes to figuring out which network marketing company you're going to join to build passive income, but it definitely is important as you're starting to accumulate significant assets and trying to make some of those really important decisions, such as when do I take Social Security, such as how do I structure my portfolio to provide an income for me so that I can have passive income for the rest of my life.

If you have interest in discussing some of those questions with a qualified financial advisor, reach out to my friends at Paladin Registry for a referral. The way it works is you go to RadicalPersonalFinance.com/Paladin – P-A-L-A-D-I-N, or link in the blog post or show notes, which are right there on your phone screen – RadicalPersonalFinance.com/Paladin.

Click that link. It will forward you through to a landing page. You put in your name, your address, your info, your email address, your phone number, how much money you have, and Paladin Registry will connect you with a couple of qualified advisors there in your local area, who most importantly have been vetted and have been screened for accuracy, integrity, disciplinary record, and knowledge and experience and practice structure.

Go to RadicalPersonalFinance.com/Paladin. I always say this. I can't promise that you're going to be able to find your next financial advisor at Paladin Registry. The application process that you should put a financial advisor through should be significant. You got to find somebody who's going to be a good fit with you, your personality, who really understands you and your goals.

However, I can promise you're going to start at a better position than picking up the digital phone book. RadicalPersonalFinance.com/Paladin. First let's go straight to the heart of the matter. The things that most people refer to as passive income are in no way passive. A good example here would be Radical Personal Finance.

Some people would take what I do, which is to build a business, giving you a podcast trying to teach you about money and how to live a rich life now, and the fact that I earn revenue from giving ads to you like the one I just did. I'll get a check at the end of the month from Paladin Registry.

For every one of you that goes through that link, I get a little commission because you go through that link, you put your info in there and they send me a commission check. That's how that deal works. So at the end of every month, I get a check from Paladin Registry.

And so therefore, this is passive income, right? Because I just sit at my house, speak some words into a microphone, and I collect a check. Those of you who know my work schedule know this is not passive. It's 5 a.m. That's when this show is scheduled to go out, 5 a.m.

That means that I'm actually not recording it live, of course. It's Sunday afternoon here. I am determined to get the show published at 5 a.m. on Monday morning. Sunday afternoon, my family is asleep and here I am recording today's show. So I can promise you that it is most assuredly not passive.

While many people are sitting around and watching sports and hanging out, I am here working. And I do not want to be sitting here in front of this microphone right now. I really don't. I would have a book, a new novel that I'm going to read, working my way through the one-second-after thriller series of Collapse of the American Economy because of EMP.

And I want to go and start on the next book in the series. And I want to lie on my couch on Sunday afternoon and do that. But I'm not doing that. I'm sitting here in front of the microphone recording this for you right now. So it'll be there in your podcast feed on Monday morning at 5 a.m.

That's my personal commitment to myself. Now, this is my business. But I'm telling you this to demonstrate to you that this is not passive income. But every single day, if I look on Facebook or every single day I look at the ads that are running all over the place, you'll see some internet entrepreneur who is trying to sell you a program on how you can get rich on the internet and how you can build passive income through your online business.

Can you make money through the internet? Yes. Can it be more passive than going out and digging, you know, using a shovel and digging ditches all day? Yes. But it's not passive income. It is in no way passive. What it is is residual income. That's the point. And that's a better term for the vast majority of things you hear referred to as passive income.

Some of these ads are just so absurd, the ones that I read, how somebody, you know, made all this money in two weeks with this brand new program. You can do this. But what they always miss is the amount of money, or sorry, the amount of time and the amount of work that that person has put into the study and the work and the preparation that took them to that point.

The skills and the knowledge that I have that allow me to sit down and do the show every day have taken me tens of thousands, and I don't want to exaggerate, but I think tens of thousands of hours would be accurate, to accumulate and to build. And this is the way that most passive income things are.

Think about it in the sense of a highly paid professional, somebody like a physician or an attorney. Do they get their high rate of pay simply because they show up to work? No. Do they get their high rate of pay because they show up and they have us reach a certain age?

No. They get paid because they've spent a lot of time studying, learning, and they developed specific, unique skills. And there is no place that you are going to go where you're going to get paid without you doing something valuable and helpful. Passive income really doesn't exist, with one exception.

I'll get to where it does exist in a moment, but it really doesn't exist. So wipe this idea of passive income from your head. I know a lot of wealthy people. I know a lot of people in the online space. None of them have passive income. I know a lot of people in network marketing.

I have had clients who have been six-figure earners with network marketing and multi-level marketing approaches. None of them have passive income. I've known people who own businesses. None of them have passive income. Passive income is very hard to come by. What most of these people have is residual income because all of those types of opportunities are ways where you can disconnect your hourly work from your hourly pay.

I think there's a good place and time to be working in a situation where you work an hour and you get paid an hour. Good places and times for that is when you're young and you don't have any meaningful skills that you can bring to the marketplace. If you're 14 years old and you're working on an hourly wage, that's good.

Another good place would be is if you're just at the beginning stages of your career, you don't have a lot of skills yet and you need the money. If you need money, hourly work is a great place to go. But in general, if you're being paid by the hour, that means in many ways you're a commodity.

You may be a highly paid commodity. Your hourly rate might be $300, but you're a commodity. They can take you out, bring somebody else in and replace you. That's okay. There's nothing morally wrong with it, but it's not as exciting as the world of residual income. I'm convinced that in almost every business, you can find a way to go from being paid hourly to getting a share of the profit.

If you are a laborer, you work in a construction job, you can move yourself up and you can build skills, move to the top of the labor force and you can move over into management if you want to. You can build your own company. You can sell jobs and just take a cut of the profit.

There's all kinds of things you can do. And these types of areas of work start to open up the power of leverage for you. Leverage allows you to profit from other people's activities, other people's work, other people's money, other people's contribution. Leverage also allows you to magnify your own work and you can get a much higher return when you're no longer constrained to the hourly rate that you get paid.

It can also open up a lot of freedom and flexibility in your life. But you got to recognize that in order to get there, you're probably going to give up a lot of freedom and flexibility in the early part of your career. I don't want to leave you with the wrong impression.

If you're working at a job and you earn a flat rate of 40 bucks an hour or 20 bucks an hour or $70 an hour and you do work that is honest, important, valuable work, you get paid a straightforward hourly wage and that allows you to meet your obligations, to save some money, you have money to give away, you have money to set aside for yourself, that is absolutely honorable and in many ways you can have a phenomenal life doing that.

There are many times such as Sunday afternoon when I'm sitting here working that I often get a little bit jealous of people who are sitting on the couch watching football. My novel is sitting there and I really want to go and read it. So nothing wrong with that. But I know many of you are looking for something more.

You're looking for something where your income is not tied to that specific hourly wage. Because one of the benefits of yes, I'm sitting here on Sunday afternoon recording the show, but by this next week I'm going to be ahead to where I'm not sitting here on Sunday afternoon. And then there have been many times when on Wednesday afternoon I have the flexibility to disconnect and go do other things.

So it's a give and take. Most ways that you're going to create residual income, however, are going to require a huge amount of effort up front, a huge amount of sacrifice, a huge amount of work, a huge number of hours up front for you to get the benefits on the backside.

One of the well-known books in this space that is very popular with my generation is a book called The Four Hour Workweek. The author, Tim Ferriss, it's a good book. But the premise of the book is that you can live on the four hour – that was an inaccurate statement.

The title of the book tantalizes you with the idea that you can work four hours and earn a living on that. And the idea is that if you can set things up in your business where you have systems and processes that run your business, then you'll be able to just do a little bit of supervision, a little bit of overview, and a little bit of maintenance and everything will work great for you.

Now it's a catchy title. It was beautifully designed. And it's nonsense when it comes to actual implementation. Now can you, for a period of time, set up a business that only requires four hours of attention per week? Sure. Of course you can. Tim Ferriss did it. He was the author of the book.

But recognize that that business came after hundreds and thousands of hours of work to set it up. And recognize that every single success story that you hear – I have several friends who market various products and things like that. They're big – highly committed to the four-hour work week.

Guess what? They put a lot of work in up front. Their businesses require management and supervision. And nothing works forever. It's not passive income. It's residual income. And I recommend you pursue residual income first. Residual income is very achievable in today's world. There are many, many ways that you can achieve residual income.

There are many traditional brick-and-mortar businesses that will help you create residual income. You may or may not be able to enter into them because you may or may not have the investment capital needed. You may not have the market needed. You may not have the experience. But you can achieve residual income from business ownership of a local, traditional brick-and-mortar business.

And there are a lot of opportunities that you should consider pursuing in that world. You can do this in the wild new frontier where I'm working in this world of online stuff. Lots of ways to do it. And they're not all shady. They work. You can do it with things like network marketing.

Several of you have asked me for my thoughts and my opinions on network marketing. I'll do a standalone show on that at some point. But there's nothing fundamentally wrong with the idea of network marketing. If I went completely broke and I had no opportunities and no one would hire me, I would go and consider working in a network marketing company because it allows me to build residual income where I'm getting paid for my efforts and there's not much of a screening process for me to get in.

It's one of the problems with network marketing. We'll deal with that in another show. But all of these types of things, and there are dozens and thousands more ideas that could be used to build residual income, that is eminently achievable. But what about passive income? Is it a total myth?

It's not a total myth. I do believe passive income exists. And I'm going to give you three specific categories of passive income that I can think of that are truly passive. Number one, if you are the beneficiary of a trust fund that somebody else has established for you, you have true passive income.

My wife and I recently finished updating all of our estate planning, new estate planning documents, new trusts, kind of established everything. And as I was working through the trust planning process for my children, I was just thinking about this and saying, "This is passive income. If I die and my children are the beneficiaries of the trust that we have established, then they will be receiving passive income." And if you are in a situation where you are the beneficiary of a trust, you have passive income.

You get money for simply existing in that circumstance. Now, I hope for your sake that you're never in the situation because it very well could ruin your life. Many people look to this concept and say, "Wouldn't that be great? Wouldn't it be great just to sit back and collect a check from the trust every month and have to do nothing?" The answer is no, it wouldn't be great.

It would be fun for a season, but very quickly, it will destroy your life as it has destroyed the lives of many other people. Unless you are mature and disciplined and very active in other areas of life, in that case, it can be a blessing. If you're mature and disciplined and a person of integrity and character, and if you're busy working at something that matters to you, then it can be a blessing for you to be able to enjoy an income like this.

One of Warren Buffett's well-known aphorisms, beautiful, his quote was this, "I'm leaving my children enough money so they can do anything, but not enough so they can do nothing." I think that's a very powerful and concise way of articulating the truth. It's nice to have options, but I hope that you're never in the situation where you have the option of doing nothing because that can ruin your life.

But that is legitimately passive income. Number two, passive income. If you are the beneficiary of an annuity stream, such as your Social Security payments, that can be passive income. Now, we're already breaking the test of passive income. The only true one is really is something like a trust fund because there you didn't do anything up front to earn it.

If you're going to be the beneficiary, however, of a stream of income from Social Security, you've done a lot of work. You've done years and years of work to contribute to the system in order to be qualified to receive payments out of it. That is truly legitimately passive income.

You don't have to do anything in order to receive this stream of payments. Be careful. This also has the potential to wreck your life. Most people are not going to live on Social Security payments. However, I do know somebody that's close to me in my life that I know that lives on a very small Social Security check.

And as I said with the trust fund, I have watched this ruin their life. They basically have become a blob of a human being without purpose, without energy, just kind of whiling away the days, watching movies, doing nothing, wasting their life because of the benefit of this passive income.

If I could go back and if I could wave – their life is not my business in terms of have control. So clearly, this is just a thought experiment. It's not my place to tell other people what to do in this way and to come in and control someone else's life.

But if I – they're good. If I had the option of cutting it off, man, I would cut off their income in an instant because it's destroying their life. But Social Security is legitimately passive income. Social Security is an annuity stream. It's a stream of payments that comes in that will come in for your entire lifetime once you're receiving that payment.

So it's an annuity stream which leads me to kind of the twin of – this category is called annuities. You can also set a passive income with an annuity stream of your own by buying a private annuity from an insurance company. If you have saved half a million dollars or a million dollars, you can take that money to an insurance company and you can say, "Here's my million dollars.

Give me a check every single month for the rest of my life," and they will work out a contract with you where every single month for the rest of your life, a check will arrive in your mailbox or will show up automatically in your bank account. That is true passive income.

Recognize again, it's a lot of work to earn and to save the million dollars. But that is legitimately, accurately, properly called passive income. Which leads me finally to category number three, dividends or income from large, well-managed, publicly traded companies or somewhat largish, well-managed private companies. The idea is if you can be a part owner of a business where you have no management responsibilities of any kind and if that company is well-managed, well-supervised by the board of directors, well-run by the executive team, if that company is well-managed and it's profitable, then they can cut you a check and send you your profits every quarter.

That is true passive income. This is most easily done in the world of publicly traded companies. You can go and if you own enough shares of Coca-Cola stock, you'll get your dividends and you can set up your life to live on the dividends. That is legitimate passive income. You will do nothing for that money.

Yes, you had to work and save the money, but you'll do nothing for it on an ongoing basis. You have no management responsibilities. You have no supervisory responsibilities of any kind. As long as that company is well-run, the board of directors does their job, you'll get your checks. Many people have become very wealthy and live very comfortable lives spending the dividends from their Coca-Cola stock or their Microsoft stock or their Disney stock or their whatever.

Publicly traded companies are going to be simple because they're going to be overseen and simpler. They're going to be regulated by the public markets. They're going to have a high degree of scrutiny applied to them by the public markets. There's going to be an accountable board of directors, which are probably going to be professional and experienced, and there's going to be a well-run executive team.

The pressure of the public markets is going to be good at keeping these companies working hard for your benefit. You can do this with private companies as well. There have been many people who've built up local companies, regional companies, all kinds of companies, and then sold them but retained a stake of ownership and/or kept them in the family but continue to receive – be in an ownership position.

The challenge here is when you move into the private market, the company needs to have a certain amount of size in order for this truly to be the case. Recognize the fact that if you are – you have a plumbing company and there are 20 plumbers that work for you, that's not passive income.

You're running a plumbing company. That's different than owning shares of a company that makes plumbing parts and there are thousands of employees and you just sit back and collect the profits. But receiving dividends from a large publicly traded company is legitimate passive income. I want to lump in here other possible investment opportunities.

For example, I have a friend of mine who's financially independent because of many shares of oil wells that his father purchased for them. He set it into a trust fund and his entire life he's received revenue from the payments, the profit from these oil wells. His dad worked in the oil business, systematically accumulated many, many interests in thousands and thousands of oil wells and my friend has received these payments for his entire lifetime.

So there are other investment opportunities. I'm just going to lump them for sake of simplicity under publicly traded companies. But recognize that you could buy shares in a large publicly traded real estate investment trust or all kinds of different investment opportunities. These are passive income opportunities, legitimate. But almost everything else falls in under residual income.

So I encourage you. It's awesome to work towards passive income. I think that – and by the way, if I'm missing something, I couldn't think of any more. But I don't deny that there might be something else. If you can think of another category of truly passive income and what I mean is you go off and you disappear to the mountains of Tibet to become Batman and 10 years later you come back, is your bank account much, much fatter than when you left?

That's what I call passive income. So if you can think of something else that I'm missing, another category that I'm missing, you let me know. But the passive income is achievable. Most likely you're going to need to do a lot of work and a lot of saving to get there with the one exception of trust fund kid or I guess lottery winner would be another thing.

But residual income is going to be a lot simpler. If you recognize the danger of passive income, now if you're a mature person of character, you've saved millions of dollars yourself, I don't think that earning passive income because you have dividends coming in from companies, that's not going to ruin your life because you've already built the character and the capacity to handle the wealth.

You've demonstrated that you're the type of person who can save money because that's how you have the money to invest. And so in that case, you'll be busy doing something else, you'll be active in something else and the money is just a way of funding your life. That's different than if I die and my 21-year-old kid all of a sudden comes into possession of millions of dollars.

That could ruin his life. Residual income is eminently achievable. Before you go off pursuing passive income, think for yourself if there's an opportunity for you to pursue residual income. There are a lot of things you could do. You could build a product that you can collect royalty payments from.

Write a book, put it on the market. If it sells, you'll collect royalty payments possibly for the rest of your life. Create some kind of valuable intellectual property. Write a computer program that you can sell. Write a song that you can sell. Write poems. Do something. You can create intellectual property.

You're putting in the work up front, you create intellectual property, you can receive a stream of royalty payments for the rest of your life. Residual income. Build a business of some kind and of some structure that's going to result in your receiving payments that aren't tied to your hourly wage and you will be in the world of residual income.

This is well worth doing and this is probably going to be one of the quickest ways for you to move toward your financial independence. Passive income is not a complete myth because it does exist. But most of the things being marketed to you as passive income would be much more accurately called residual income.

That's it for today's show. It's a brand new week. It's going to be a great week. I'm going to be here with you all week. Lots of things going on here around the Radical Personal Finance home office. Working hard here for you. A couple of things as we go.

Thank you for those of you who have been sending in your emails with pictures and recordings for episode 500 coming up. If you have not done that yet, please do so. Take a moment, just pull out your cell phone and record a quick two to three minute voice memo for me telling me and the audience.

I'm going to play it on the show. Telling me and the audience of the things that you have done since you started listening to Radical Personal Finance. I'm aware of many of you who have changed jobs. Some of you have started businesses. Some of you have closed businesses. Some of you have sold property, changed approaches.

Tell the audience what you've done, what you've learned from the show and what you've done. Encourage your fellow listeners with the steps that you've taken. If you've gotten out of debt, great. If you've learned to invest better, great. If you've started on a new tack, let us know about it.

Please take a moment, take out your phone today and record a quick two to three minute voicemail email to me at Joshua@radicalpersonalfinance.com. Joshua@radicalpersonalfinance.com. While you're at it, send me a recent family picture, you or your family. I'm making just a little screensaver for myself that runs in the background.

That way I can, I like it when I record the show that I could sit here and look at your faces. Helps me to know who I'm talking to you, talking to. I think I have any other announcements. Patreon program. If you'd like to support the show, go to radicalpersonalfinance.com/patron.

Time to support the show directly, radicalpersonalfinance.com/patron. Kick into my passive income fund. Hey, after all, someday you can do what I'm doing and you can get rich doing exactly what I'm doing. But first you've got to make me rich at radicalpersonalfinance.com/patron so in the future I can sell you a program on how you can get rich doing exactly what I'm doing.

Happy Monday. I'll be back with you tomorrow morning. This show is part of the Radical Life Media network of podcasts and resources. Find out more at radicallifemedia.com. Are you ready to make your next pro basketball, football, hockey, concert or live event unforgettable? Let Sweet Hop take your game to the next level.

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