Should Side Hustlers Build Active or Passive Income Streams?

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active income vs passive incomeI was listening to a podcast last month, and the question came up of how much of your time is spent in “reactive mode” vs. “proactive mode.”

That really hit home since it’s something I’ve been wrestling with lately, and a challenge I believe all side hustlers are faced with.

I’ve found myself in “reactive” mode quite a bit, delivering work for clients, answering email, fulfilling other people’s demands on my time. And all that is totally fine, because it pays.

But it doesn’t “scale,” or at least it doesn’t scale easily.

And it’s left me without much leftover time to pursue “proactive” projects — like writing a new book, creating a course, or building a new website.

Examples of “Reactive” Tasks:

  • Checking email
  • Checking Facebook
  • Checking Twitter
  • Delivering client work
  • Answering the phone

Examples of “Proactive” Tasks:

Active Income vs. Passive Income

Active income is the money you earn as a direct result of the work you put in.

Your day job is active income.

Freelancing is active income.

Coaching and consulting is active income.

No matter how you have it structured, whether you’re hourly or on salary, whether you’ve “productized” your service or not, you’re still trading hours for dollars. (Unless you have a team in place behind you to deliver the work.)

Passive income is the money you earn from assets you control.

Affiliate earnings are passive income.

Investment returns are passive income.

Book sales are passive income.

Passive income is naturally attractive because it doesn’t require your direct involvement — at the time of its earning — to get paid. To be sure, there is often a BIG upfront investment in time and/or dollars to build or acquire a passive-income-earning asset.

Active income activities are generally reactive, while passive income activities are generally proactive. 

With Limited Time, What Should I Work On?

For side hustlers with limited time, how should we prioritize our projects? Should we focus solely on building active income streams, to ring the cash register immediately?

Or should we focus entirely on building passive income assets, relying on our day jobs in the meantime for active income to pay the bills?

The Case for Chasing Active Income

I think the answer will depend on everyone’s unique situation. If you need to see money coming in right away, an active income strategy is the way to go.

In fact, for most people starting out, a reactive/active-income approach is probably the fastest path to getting out of debt, building a financial cushion, and improving their balance sheets. Most active income side hustles don’t require a huge upfront monetary investment, and you can begin to see the returns right away.

For example, Harry Campbell explained he was earning his first ridesharing fares within a week of applying to be a driver.

I got an email a few weeks ago from another listener who said he made $300 in his first weekend of buying and selling on Craigslist.

It’s rewarding and empowering to begin earning those first dollars outside of your day job!

Plus, along The Hustler’s Path, active income often leads the way to passive income.

The Case for Chasing Passive Income

The trouble with a completely reactive or “active income” strategy is the hustle can never stop, or the income dries up. Eventually you’d like to have some of your money working for you, to give yourself a little breathing room.

So if you’ve already been side hustling for a while, or are in a strong enough position financially, then I think it makes sense to start chasing passive income. Or build a little “proactive” time into your allocated side hustle hours.

Maybe that’s investing in peer-to-peer loans or websites, or maybe that’s in building an asset of your own like an ebook, product, or course.

Finding a Balance

For a while, my time was probably split 25/75 between reactive/proactive or active-income/passive-income projects, but lately it’s probably been flipped the other way.

It’s a battle between getting paid now and — maybe — getting paid later. There’s definitely such thing as spending TOO much time on passive income strategies, because they may never pan out.

Like any “spec” work, work you do on speculation, there’s a chance you’ll never get paid — dropping your hourly rate for that project to a big fat $0.

(I’ve had my share of those!)

In some ways, it’s a chicken vs. the egg dilemma; it almost takes some level of passive income to free up your time to work on developing more. And if you don’t carve out any passive income time, you might never get it.

One way around it is to raise your rates to a level where you don’t need to be hustling up active income ALL the time.

I think 75/25  active/passive is a good split for beginning side hustlers, but I’m going to aim to nudge the scale to tip back toward the “proactive” or passive income side.

Of the 8 income streams I’m working on, half are relatively passive — it’s just a matter of growing them.

Your Turn

How much of your day is spent in reactive vs. proactive mode? How much of your side hustle time is spent chasing active income streams vs. passive income streams?

Let me know in the comments below!

Should Side Hustlers Build Active or Passive Income Streams

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31 thoughts on “Should Side Hustlers Build Active or Passive Income Streams?

  1. I would say the biggest distinction in terms of wealth accumulation is between income streams you can sell and those you cannot. You cannot sell your future labor for a lump sum today. By contrast, you can sell a website’s future earnings for a lump sum.

    If you are trying to build a retirement fund, an income stream you can sell for a lump sum is king.

    Compare the speed of these methods to accumulating a $100,000 retirement fund:

    1. Saving 10% of your income from your $50,000/yr salary (which is a savings rate 5x that of the average American). If you stuck the money in a savings account earning just enough to cover inflation (good luck finding that in today’s market), it would take 20 years to accumulate an inflation-adjusted $100,000.

    2. Selling a website that earns $50,000/yr on Flippa or Empireflippers for a $100,000 lump sum today.

    I’ve seen sites on EmpireFlippers started a year ago that already earn $4,000+ per month and are selling for close to six figures.

    It is mathematically impossible to save $80,000 in one year from a $50,000 salary. It is possible to start a website in December of 2013 and sell it to $80,000 in 2014.

    • Hey Jeremy, thanks for stopping by and the thoughtful comment. Sounds like someone’s been reading a little MJ DeMarco lately :)

      I’m all for it, but let’s not gloss over the fact that building a site that earns $4k a month is MUCH easier said than done!

  2. Great breakdown!

    I poured all my efforts into passive income from the beginning… but that’s because I was hanging on to a quarter-time day job (active income, hourly) that paid the bills. I’m a big proponent of entrepreneurs having an active income stream (doesn’t have to be online) that covers your living expenses and doesn’t take up too much time, you can go full steam ahead in building your passive income streams without the pressure of having to make rent… which can lead to poor decisions made from a place of desperation.

    Incidentally, I’ve never had any significant success building passive income on someone else’s platform or product (Amazon, Udemy, YouTube, affiliates, etc.). 98% of my revenue has come from building my own solid authority site and creating my own products.

  3. This is a great question that many business owners should ask themselves when deciding they want to escape from their 9-5. I know I had no intention of creating another ‘job’ for myself. Having passive revenue streams is a necessity if you want a scalable brand. To me, that’s the difference between being a business owner and an entrepreneur.

    • Absolutely. If you’ve already got “enough” income through your job or other means, then I think it makes sense to work on more speculative projects for the future. Thanks Jaha!

  4. This is such a good topic and I rarely see it addressed.

    Am currently using what I call the “65-25-10 Formula”. It divides your actions based on how long it will take to see results. The basic idea is that it is easier to stay motivated & productive if you are seeing results on a regular basis.

    Here’s how my actions are allocated:

    65% = results expected within 30 days
    25% = results expected within 30-90 days
    10% = results expected in 90+ days

    This is how it typically plays out on each income stream:

    65% = building
    25% = launching
    10% = maintaining

    These percentages, oddly enough, also line up with my split between active & passive income streams (65% Active, 25% Blend, 10% Passive).

    Another great post, Nick, keep it up!

  5. Hi Nick

    This is exactly what i am wrestling with at the moment! Feel like i need to make a change somewhere but the reactive tasks remains the dominant force!

    Mr Explainer

  6. If you have left over money from your active income sources, buy dividend aristocrat stocks for passive income. This way you can predict your income return with more accuracy than affiliate income, amazon, or some other such thing. This of course is not to say that those other avenues of passive income are not of value, they just take longer to establish to any degree of revenue importance, and the probability of establishing such revenue is less likely than if one were to buy dividend paying stocks–provided one is careful in the selection of those securities.

  7. Almost all of my time is spent doing reactive things: responding to prospect inquiries, hitting deadlines for clients, etc.

    When my schedule loosens up, I then have time to do proactive things — like improving my website, writing another ebook, etc. But my “free time” ebbs and flows, so it’s hard to set aside X hours a day for proactive business activities.

    I’ve been freelancing full time since 2005 and I’ve tried many different side hustles with varying results. And I’ve always got a side hustle going. (Ssshhh! Don’t tell my clients!) ;-)

  8. I think the phrase “passive income” is a misnomer. Pat Flynn is probably the flagbearer (or ringbearer?) of the passive income concept, but the dude hustles and is always producing quality content. That’s not passive. Instead, he’s learned to identify and spend time on activities that produce bang for the buck. He has a great return on investment of time.

  9. Passive income has always been my ultimate goal. Before my internet marketing days I always thought I would end up owning several rental properties. Now I have “make money online” aspirations that seem limitless.

    I’ve tried several strategies. The months I’ve brought in the most money were mainly the months that I got sidetracked and found ways to earn active income online. But it drives me crazy to do work that I only get paid once for. Still looking for that sustainable and (mostly) passive income stream. Think I’m headed in the right direction now with the Amazon stuff I am working on.

  10. There are activities with more bang on the buck than others, but no income is truly passive. I think that’s a deceiving concept – similar to perpetual motion or infinite growth – and it shows a childish, naive perspective.
    All income streams need maintenance. Rental units need cleaned, repaired, filled with renters that pay on time. Books and courses get obsolete and the few classical ones weren’t written for money in the first place. Let’s say you plant an apple seed today – by the time you’ll have a mature apple tree giving you kilos of fruits it will still need maintenance: watering, pruning, picking its fruits and so on. Heck, even certificates of deposit need some maintenance – I still have to check on the rates and act accordingly. So whether you do the work like a marathon – as in active income – or as a sprint from the beginning – as in “passive” income, you may burn the same number of calories :)

    • My econ professor compared different investments to lanes of traffic on the freeway during rush hour. Everyone wants to get ahead and move quickly, but by definition, if one lane was truly moving faster, it would soon get clogged up with other drivers. (And then the lane they just exited would move faster because of all the empty space.)

      I’m not sure if this is a good tie-in, but your note about burning the same number of calories either way triggered the memory.

  11. I’m all for passive income, because ultimately I don’t want to worry about going to work every morning to earn a paycheck.

    Although you definitely need some active income to sustain your lifestyle until your passive income is large enough.

  12. Yeah, I’m not a fan of too much side work because you are given an assignment which has a start and finish. The goal is the assignment and nothing beyond. That’s great for the person I’m doing the project for, but they aren’t looking out for me they are looking out for themselves. I have to remind myself often that I’m going to set loftier goals and outcomes for myself and spend time on that. I may not see the initial outcome or income like freelance, but I like the work better and in the end I’ll make more.

  13. A bit of both is my favorite thing to do. We all try and get the most things going on we can to grind out that next dollar. Ultimately would love to have a 100% passive portfolio but got to get to that level first!

  14. Its a balance we all need to have in our daily lives. Setting up a system that can allow you to work both active and passive activities is necessary to succeed. I feel not enough time is placed on passive income as a whole, because so many people are tied to traditional jobs.

  15. I’ve had this conversation in my business discussions with myself so often.

    I tell myself, users always come first, so anything with the status of action required when it involves another person/company takes priority, which is a majority of that reactive stuff…then acting on the proactive content, posts, product creation, creation of anything really.

    Proactive stuff has so much more longer term value but also risk, it’s also more of a mental battle to execute on for me. Reactive often equates directly to income, but as you’ve nailed down, that isn’t scalable. It’s a dilemma alright.

    Ideally I’d like it to be 80% proactive, 20% reactive as an end game, as I enjoy interacting a lot, I don’t want that to go away completely.

    It’s been a slow, very slow scale moving toward more proactive in my business, and I’m probably around 70% reactive, 30% proactive in my sidehustle business…this was good fuel to get my head down soon and produce more proactive content…admittedly, it’s what suffers the most in my schedule/life. Thanks!

    • Robert — thanks for stopping by and the comment. Someone asked me recently what percentage of my income was “active” vs. “passive,” and I was surprised to find that the majority of it could be considered “passive” — though the truth is I spend most of my time trying to cultivate it and grow it so I guess that makes it not that passive at all!

  16. I’m actually more interested in active income to supplement my disability check. Passive income won’t cut it, because after the first $20 I lose dollar for dollar what I get for a monthly income.
    Apparently I should look into freelance blogging or copy-writing and add some coaching services as well. Knowing this encourages me because I don’t need a self-supported blog (at least to begin with.) I can use an ordinary WordPress blogsite and buy a domain name for $1.50 a month.

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