Passive Income Is A Lie, But Scalable Income Is Real

And it’ provides a realistic path to actual “passive” income and financial freedom

One of the biggest buzzwords in personal finance these days is “passive income.” There is no shortage of internet marketers that want to sell you on the idea that if you simply listen to them (and buy their “program”), you too can kick back and start generating income with minimal effort.

Here’s the thing; the idea of passive income is a load of crap.

That doesn’t mean that you can’t start a digital business and change your financial life forever because you absolutely can and should.

In this article, I’ll explain why what most people refer to as “passive” income is actually “scalable” income and how you can use it as a stepping stone to financial freedom.

Why passive income is a myth

As I have written in the past, bloggers and YouTuber’s have begun referring to any digital business as “passive income opportunities.”

• Affiliate marketing.
• Selling digital products/software.
• Selling info products like courses and books.
• Selling physical goods online.
• Displaying ads on a YouTube channel, podcast, or blog.

Usually, when you hear someone refer to “passive income,” what they really mean is a business with scalable income. Scalable income means you are not guaranteed to make a dime, but there is no limit on your earning potential.

An example of how scalable income works

One aspect of my business is selling online courses, which is a perfect example of scalable income.

• If no one buys my course, I won’t make any money.
• Since it is a digital product, it does not cost me extra money to sell additional courses.
• This is in stark contrast to someone selling physical goods.
• If I was selling computers, I would incur extra costs for every computer I sold. In economics, this is referred to as the “marginal cost of production.”
• Selling a digital product, especially an info-product like a course means my marginal cost of production is next to nothing.
• That means my costs would be the same if I sold $0 or $1 million worth of courses.

That is what it means to have scalable income, and it is what most people refer to as “passive income.”

And while it is true you need to work less for every additional dollar of scalable income; it’s not like you can just kick your feet up and stop working. Passive income is money you can earn without doing any work. If I stopped working on my business, it wouldn’t be long before the income dried up.

The only true source of passive income comes from investment income.

• Dividends from stocks.
• Interest earned from bonds.
• Rent collected from real estate.

Unless you have inherited a lot of money, the only way you’ll generate a significant amount of passive income is by generating active income from working, living below your means, and investing the difference.

Don’t trust anyone who tells you any different. People who tell you it’s possible to earn money without working are either trying to sell you something, delusional, or both.

Active income can come from a 9–5 job or from a business with scalable income. Or, in my case, both.

The simple path to wealth lies in keeping your expenses constant, increasing your income, and investing the difference

In the past, I’ve written about the “two levers” we can pull to increase our savings rate.

1. Saving more of the money we already have.

2. Making more money.

Learning to live frugally, or at least getting to a point where you are happy living below your means, is a crucial step towards financial independence. If you don’t learn to save money when your income is relatively low, you’ll be more likely to fall victim to lifestyle inflation when your income increases.

However, once you have adopted good spending habits, the fastest path to building wealth is constantly looking for ways to increase your income while keeping your cost of living steady and investing the difference.

• If you can live on $25,000 and make $50,000, that means you have $25,000 to invest.
• If you can live on $25,000 and make $75,000, that means you have $50,000 to invest.
• If you can live on $25,000 and make $125,000, that means you have $100,000 to invest.

If you can find a way to invest several times your annual spending each year, it won’t be long before your personal wealth takes off like a rocket ship.

This is a simple concept but much more difficult in real life.

Unless you are prepared to practice an extreme level of frugality, it’s unlikely you’ll be able to save 2–4 times your annual expenses each year on the paycheck from your 9–5 job.

By the time all of the taxes and deductions come off your paycheck and you subtract the amount you need to pay for housing, transportation, food, and other essential living expenses, the odds are you don’t have a ton of money left to invest at the end of the month.

That is why creating a side-hustle with scalable income was a game-changer for me.

Adding scalable income helped me save my first $100k

Two years ago, I picked up writing as a side hustle. In my first month of writing, I made a whopping $15.

I kept writing and building an audience, and slowly the income from writing began to increase. Early in 2020, I created an online course to further monetize my writing and recently started focusing on building a YouTube channel.

All in, my side hustle earns anywhere between $2,500-$4,000 per month or between $30,000- $54,000 per year. Every penny of which gets invested in the stock market.

I can invest every penny of profit from my side hustle into the stock market because I can cover all my living expenses, and then some, with the income from my day job.

My side hustle income has helped me save more than $100,000 into my investment account years earlier than I would have thought possible.

This is where the numbers get exciting; the road to $1 million

Between the compounding of my current investments, the additional savings from my day job, and the savings provided by my side hustle, I can project how long it should take to have $1 million saved.

• If my side-hustle income does not grow at all, I’ll have $1 million invested within 10 years.
• If I can double my side-hustle income over the next 12-months and then it does not grow any further, I’ll have $1 million invested within 6 years.
• If I can double my side-hustle income over the 12-months, and then double it again 24-months from now, I’ll have $1 million invested within 4 years.

This illustrates the wealth-building potential of adding scalable income on top of a day job.

I always remember “why” I am doing this

Let me be clear; what I am doing is basically working two jobs. Much of my evenings and weekends are spent working on scaling my side hustle income.

It is not easy, and it is certainly not passive.

But for me, it is worth it. In the last year, I became a father, and the concept of building wealth took on a whole new meaning. My focus is not only to provide financial security for the rest of my life but for my son’s entire life and any kids he may have.

I want my son and future generations of my family to not stress about money. The most valuable thing money can buy is freedom; the freedom to spend your days doing what you love.

Many people take jobs they don’t really like for one of two reasons.

1. They need a job to pay the bills.
2. No one is offering to give them their “dream job.”

As a result, they don’t have the freedom to spend their days doing what they love.

By dedicating myself to learning how to build a side-hustle that I love (and I do love my side-hustle) with scalable income, I can provide that freedom to my son in two ways.

1. Building enough financial wealth to sustain our family's living expenses. That means he won’t need to take a job he doesn’t like to pay the bills.
2. Learning skills that I can pass on to my son so that he can learn how to earn a living doing work that he is passionate about. That means that if someone else is not willing to offer him his dream job, he will have the tools to go out and create it for himself.

The sacrifices I need to make over the next few years are nothing compared to the benefits of achieving that vision.

Put simply, my “why” is more powerful than the costs I need to pay upfront.

Scalable income combined with a powerful “why” can be a game-changer. But make no mistake, there is nothing passive about it.

If you found this discussion useful, consider picking up a copy of my book “The Financial Freedom Equation” right here.

This article is for informational and entertainment purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.