Search on the term “second income online” and a hundred articles and stories about how someone makes $1,000 a day will strike you in their spare time. Even more interesting, you’ll notice that the buzzword that comes up most often is “passive income.” Passive income has become the holy grail of the second income prophets. They talk about it in hushed tones. It almost has a reverential quality to it. Create passive income and become financially free is their slogan.
If only it were as simple as some of these articles make it sound. Often the authors of these articles are trying to sell you something. Software that will automate your sales or investments. Somehow they are trying to get their “passive income” by selling you the idea of “passive income”. In the end, it looks like a pyramid scheme. The person at the top sells the idea of passive income to two people; those two people sell the idea of passive income to four other people. It goes on until eventually you have a few thousand people all trying to create passive income by selling passive income tools.
I know something about this because I have tried to create passive income in the past, but with limited success. I usually end up working very hard for the so-called “passive income” I generate. Passive income itself is supposed to be self-perpetuating. Once you set up a passive income system, it is supposed to perpetuate itself using its own dynamics.
So where does that leave you? You may or may not be in debt, but either way you want some of that “passive income.” For starters, if you really want to get into the business of making passive income, you’re going to need a lot of time. Time is one of the key elements.
Let’s be honest, most of us don’t have the time or energy to create a second income. I know I didn’t. I was so busy doing nothing (well, nothing important) that I made excuses and couldn’t do anything. The few times I started passive income projects, they invariably died a quiet death, never to be mentioned again.
So what’s the alternative? It’s a lot closer to home than you might think.
Passive spending - the mirror image of passive income
No one ever really talks about passive spending. At least, no one talks about it in your personal finances. To illustrate what I mean by passive spending, let’s use the example of a gym membership. Let’s say you have a membership at the local gym that costs you $80 per month and is paid for by direct debt. That $80 will be deducted from your account each month, whether you are in the gym every day or haven’t seen the inside of the gym since January 2. the spending is passive, you don’t have to physically go out and buy anything for it to happen. You signed up once and now you pay by direct debt every month.
Now, as an alternative to generating passive income, a simple solution would be to eliminate as much of your passive spending as possible. The net result is the same. If you eliminate $100 of passive spending each month, it’s still $100 that stays in your account and doesn’t go anywhere. That means you don’t have to invest time and energy to generate $100 in passive income.
Here’s a list of some of the typical passive expenses
Phone bill
Look for a cheaper provider. There are always good deals to be had.
Electricity bill
Look for ways to reduce your electricity bills. For example, use energy-saving light bulbs. They may be more expensive up front, but they will save you money in the long run and are more environmentally friendly. You’ll need to get creative while trying not to compromise your standard of living.
Magazine Subscriptions
Do you really need these subscriptions? Can’t you just look at the magazine in the store, see if there’s anything interesting in it and buy it if there is, but don’t buy it if there’s nothing in it that interests you.
Gym memberships
Be honest, how many times have you been to the gym in the last three months? Is there anything you do in the gym that you can’t do outside? For example, go for a run, ride a bike, etc.
Insurance
Shop around for the best deal. Usually, if you go to one company for both your home and car insurance, they will give you a discount. Keep looking!
Website subscriptions
As with magazine subscriptions, do you really need this membership? Most of the information on the website is probably available for free on the web elsewhere. It just takes a little searching.
Cable TV
Do you really need those 200 TV channels? When was the last time you actually watched anything on channels 50-200?
Rent/Mortgage
If you have a mortgage, shop around for a better deal. There are still some great deals out there, but it depends on your personal situation. As far as rent is concerned, it may be possible to rent a place for $100 less, a little further away from your current home. It might be worth looking into. That extra $100 will be very helpful.
Bank/credit card fees
Again, store around. Change banks if you have to. Many of these fees can be reduced or eliminated.
The above list is just a sampling of the passive expenses people incur each month. There are other things you could probably identify in your own situation that could be classified as passive expenses.
If you are determined to generate a second income, I suggest that before you begin; you tackle your passive expenses first. It’s best, at least initially, to spend time and energy reducing your passive expenses. That way, any extra income you earn will be added to your bottom line and not used to pay for passive expenses.
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There may be situations where, if you reduce your passive expenses enough, you no longer need a second income. You may not need to take a second job or start a side business in your spare time.
