Don’t let pursuing passive income overtake your life

Passive and quasi-passive income streams are great. The whole premise is that you put in some hard upfront work into an asset (e.g. property, e-commerce store, books, dividend stocks) and then it will produce regular income streams in the long-term (more than 24 months) with little or no upkeep. You can then relax on the beach sipping margaritas all day.
At least that’s the theory.
Below are a few commonly held views about passive income:
  • Once established, no work is required and you can be on a permanent holiday mode.
  • Seeking passive incomes should become my life goal.
  • Creating a passive income stream is very hard.
  • Creating a passive income stream is incredibly difficult.
  • I don’t have time to establish a passive income stream.
I derive almost half of my income from passive and quasi-passive routes now and I would like to share my experience in this sector with you.

1. Passive income is truly passive – NOT

This is perhaps one of the commonest misconception. The create-once-and-drink-cocktail-all-day slogan is what gives this sector its enduring allure. There are plenty of overtired and stressed out workers on my morning commuter train Googling ways to make more money without taking up too much time and that idea with its SEO headline definitely attracts attention.
The truth is that no income streams are truly passive.
Rental and dividend incomes are my 2 key passive income streams and I can tell you, if I were to take a year long cocktail-fuelled holiday, they will definitely not pass the 24-month mark!
I set aside at least 1 hour every month for dealing with tenant enquiries, financials and repairs. Furthermore usually every 18 months there will be tenant turnover, which requires at least 10 hours to be set aside for viewing, negotiation and tenancy preparation. I worked out that I spend at least 30 hours per property per year on average.
Equally every 6 months my dividend stocks require regular review of company news, financials and reports to ensure the fundamental investment thesis of the business remains valid. This takes an incredibly large amount of time (at least 20 hours per company per year).
If I don’t perform these tasks outlined above, I might get away with it for 3-6 months. Anything longer, property might start falling apart (imagine not fixing a small water leak for 5 months!); tenants might leave thus severing the income; companies might stop paying dividends due to adverse financial performance that you weren’t aware. Thus very gradually that passive income stream dries up due to inadequate maintenance and you will then have to actively restore it.

2. Relying solely on passive income induces boredom

There was a period of about 3 months where I had graduated from university and had yet to secure a job. At that time I was generating around £1,200 worth of passive income per month, which more than covered my rather low living and entertainment costs as a bachelor.
The issue was that I was bored to my pants.
Granted I didn’t have to worry about making ends meet and could have as long a lie in as I liked and occasionally could party until 6am and not worry about a thing. Yet such life became monotonous and unfulfilling after week 2 and I soon started to miss the intellectual challenge workplace provides.
That episode taught me that no matter how much passive income I’d be generating, I will always hold a mentally stimulating job.

3. Passive income enhances my life satisfaction through financial liberation

Currently my passive income streams pays for all of my mortgage and covers all of my living expenses whilst I use my employment income mainly to save into my pensions and other investment funds.
What this means is that if my employment income was to dry up tomorrow for whatever reasons, my passive income streams could pick up the slack immediately and ensure my family is well fed and looked after, without seeing any degradation in our living standard. That is before we even dip into our emergency fund and our unemployment insurance.
Having such safety net in place can be mentally liberating and provides an incredibly powerful psychological boost for me to enjoy my work even more, thus enhances my overall well-being.

Wrap up

Passive income is a wonderful addition to your personal finance if you hold the right attitude to it.
For me personally:
  • Nothing is truly passive.
  • Relying solely on your passive income limits your growth.
  • Having multiple streams of passive income can be incredibly liberating and improves your overall well-being.
Do you have a passive income stream? May be more than one? What is your take on this issue? Please comment away.