623: Active vs. Passive Income

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1:17What's up? What's up? Nick Loper here. Welcome to the Side Hustle Show because your nine to five may make you a living, but your five to nine makes you alive. And that's the question on the table. If you're already earning active income, trading time for money at your day job doesn't it makes sense to pursue passive income in your side hustle hours? Well, maybe, but maybe not. And what is truly passive? After all, is there even such a thing? And what's the true cost of earning it? Excited to dive into this topic. And to help me out is Mr. Passive himself. Mike Hoffman is back on the show. Mike, welcome back.

1:48Thanks, Nick. Fired up to be here. You bet me as well. You might remember Mike from the vending machine episode we did earlier this year. That's number 599, I want to say 599 in your archives if you missed it. vendingpreneurs.com is his home base. We're going three rounds with Mike today. First up is that active versus passive income debate to help you decide where it's really best to allocate your time, energy, attention. Next up, we're doing donate a business idea. Stick around for that. And wrapping it up with the triple threat, a marketing tactic that's working right now for Mike or his students, a favorite new tool or resource and his favorite book for the last 12 months.

2:26So active versus passive income, love this topic. and I want to frame it this way. We know inherently that passive income is important. I mean, Warren Buffett, the Oracle of Omaha puts it in no uncertain terms. He says, look, if you don't find a way to make money in your sleep, you're going to work until you die. And like, well, I don't necessarily want that. So let's go back to the first part. I got to figure out a way to make money in my sleep. So we know it's important, but we don't get a lot of education on how to actually set this up for ourselves. And in fact, a lot of our education, maybe most of our education is geared toward active income.

3:00Go to school, get a good job. That's like the end game. That's the end goal for a lot of people, a lot of the educational system. Get a good job that pays well. Go find yourself a way to earn active income. And I think that's a perfectly normal way to start. It's probably where most people start. And then along the way, invest as much as you can so that someday, maybe decades later, in a lot of cases, you could begin drawing down those investments, kind of the traditional path. But it doesn't have to be that way. So my kick us off here. How do you view this debate from the perspective of somebody who is working full time?

3:33They've got the goal to make extra money. That's why they're listening to the side hustle show to start something on the side, but they've got limited hours to work with. Where does this conversation even start on active versus passive? The first step is where's your passion and what's kind of that fire in you? Because the reality of the situation is people's day job is not their passion. So whether that's someone that's passionate about, I don't know, being a mom and like being around their kids. And maybe they find a business idea that excites them and flares their kind of entrepreneur journey on the side.

4:08And they want to go down a path with that because they've had kids, but their day job just pays the bills. So I think for me, it's just aligning with where your passions are. And also understanding that a day job is just that it's the stability you can use to kind of explore this passion that you have. I'm going to flip it around. One of your first passive income projects is a rental property. Can anybody say, oh, I'm passionate about owning rental property or I'm passionate about selling snacks and drinks in an automated way? I'm passionate about the income that it provides and the wealth that it can build, but I don't know if I'm passionate about the sausage being made.

4:42100%, Nick. And I was having this conversation with one of our vendingpreneurs yesterday because it's like you don't go to school to learn about vending or you don't go to trade school to learn about the margins of a candy bar that you resell or anything like that. Yeah. But the passion for me is to spend more time with my kids. Like I was thinking about it this morning where there was a big kind of airlines had a freeze, IT shut down, what have you. And think about all these corporate employees that are on their road for their job. And they're just scrambling to find a way to get home today to be with their kids this weekend.

5:17And the reality is A lot of them aren't going to be able to get home till tomorrow. And like, that doesn't have to be you. Okay, that's fair. So if you have built up some other means of income, then you don't have to do the job that you dislike forever and ever. Correct. Yeah. It's kind of like the Justin Walsh mindset where it's like, you shouldn't just leave your nine to five and then all of a sudden your business idea blows up and in six months you have to go back into it. You should build this passion and vet it while you still have that active piece. That's fair. the challenge is having been a participant and an observer in the entrepreneurial world for the past 15-20 years more hours have been spent in vain chasing passive income chasing the elusive passive income the latest and greatest strategy or tactic to make money on the internet or whatever it may be where you would have been so much better off had you just leveled up your skills got a better paying job, or even gone the freelancing and consulting route, and you've gotten paid for your time versus toiling away.

6:21Because sometimes this works out. And this is like the case of the Site Hustle Nation blog, for example. The first years of the site, so far below minimum wage, trying to figure out the internet and trying to make that into a thing and will it into existence, where it's like, in the near term, would have been so much better off financially just going and getting paid by somebody. Go solve a problem, them go get paid for it absolutely you're spot on and that's like that valley of death you talk about it people are trying to like build a business or do work with the government it takes eight years of red tape to find like you look at palantir right now palantir is like booming from a business but they went through this valley of death just to break into the government same thing with businesses like our vending route right now is flourishing but those first five years it was like chop wood, carry water, chop wood, carry water.

7:14It was boring and it was scary all at the same time. Yeah. The way that I kind of like to frame it as thinking of your income as a pie chart, right? And for most people, especially straight out of school, like I'm trading time for money, you know, it's a hundred percent active income. And then to get to that Warren Buffett finish line of not working until you die, like eventually it's going to have to be fully time leveraged or fully passive income. And maybe you still want to do some consulting projects or maybe you want to work part-time or something. But like trying to build first, starting with a little sliver, but then building that passive income piece of the pie such that you don't need the active part anymore or it becomes optional.

7:53Yeah, I love that pie chart. That's a great analogy. And you're just trying to move those percentages as far over as possible. All right. So you like real estate, you like vending. What other passive or time leveraged models might be beginner friendly or would be on your radar. I think even just taking a step and really kind of understanding the percentages of your income and not getting into like, do you make enough to be able to invest in a rental or invest in a vending machine or route or whatever? It's more like understanding, okay, how much of your take-home pay is spent on rent? How much of it is going into a index fund or something that is just at the simplest level?

8:34you talked about earlier when you're in your 20s, you can get so far ahead if you just are disciplined enough to take a percentage of your income, no matter what that is, and start building that compounding effect in whatever asset class you want to start in. You have a rule of thumb of like, well, I'm going to put 10 % into some speculative passive project or like I never really thought about it that way. For my wife and I, we'll do 10 to 15 % into more of our conservative, like out of sight, out of mind index funds every month. And then, yeah, we have another probably 10 % that's high risk. Our financial advisor might not think it's the safest play, but it's something I'm bullish about.

9:23I mean, even in the vending space right now, there's so many smart machines that now are adding like digital ad screens to them. And And there's like these speculative opportunities for revenue that have never existed in this niche before. So that's kind of where I'm going right now. And then all these like unattended, the Amazon just walk out technology and stuff, just really trying to kind of think of five years ahead. And who knows, it might fall on its face. Okay, so I'm thinking first, so it starts off from a place of financial stability. Like that's got to be step one. Like I got to have enough income to cover my expenses and then having an understanding of where that income is allocated.

10:04How are my dollars going to work for me? And then taking a percentage of that, of the surplus, hopefully, and saying, OK, in your case, I'm investing that back into the business and more speculative projects and saying, OK, this is like the play money. Like everything else is maybe it's not super, super comfortable, but it's like I'm not going backwards and having a little bit of financial breathing room as a baseline. And so maybe this whole passive income discussion is one of privilege to be even able to tackle that. Like, no, I'm just trying to make ends meet. I'm trying to put food on the table.

10:34Like, I got to go earn some money today versus seeing if I can make some investment or start some project that may pay back in six to 12 months. There's something powerful in what you just said. And I think it comes back to like your habits, right? Like if you think of a book I might recommend later, but I'm going to spoil it by talking about it now. Now, profit first, the whole concept is you pay your profits before you pay off your expenses. So right away, when you get income coming in, it goes into your profit bucket. Well, guess what's going to happen? Naturally, you're going to really watch what your expenses are because now that profit first is paid out and you're only left with so much.

11:13So the same concept when it comes to our personal finances and investing in things like passive income. When you're a young kid, I will teach you to be rich. Another book always talks about immediately the day you get paid, you need to direct deposit into your stock portfolio that money. So then your play money in your actual bank account is a lot less than you spend too much. And it's like, oh, crap, I forgot to invest this month. So like that whole kind of just even habits of at the end of the day, it all starts with live below your means. Right. Right. If you're 20 % taken out before it even hits your bank account, that's the beauty of like Ross and these 401ks is you're already pulling that out before it hits what you think you can spend with.

12:00Yeah, this is super simple, but like never really heard it phrased actually before Bryn's mom, before my mother-in-law kind of explained that's how she as a single mom was able to save and invest. She's like, I would get the direct deposit paycheck for pretty much exactly what I knew my expenses were going to be that month. And everything else was out of sight, out of mind in savings and investments. It's like, I just never really, whatever the automated 401k deposit out of the paycheck, that was fine. But then everything else was just hit the checking account. It was like, all right, this is play money.

12:30It's still kind of inherently new to live below by means, but nothing was set up and systemized and automated the way that it could have been to maybe accelerate that or make it just make it more of a habit or make it more automatic. Yeah, yeah. And then it forces you to think about where your big rocks are. You know, you got people these days on social media that are like, oh, I'm going to start doing this or that, or I'm going to work on my offer and I need to get my SEO and all of these other like ancillary things figured out. And it's like, let's just start posting content once a day. Yeah, Noah Kagan calls it the rule of a hundred, like post a hundred pieces of content or, you know, come up with a hundred ideas and then come back and talk to me or Jimmy, Mr.

13:11Beast has the same thing. Why don't you post 100 videos and then come talk? Either you burn out and don't do the 100 and I don't have to talk to you, or you do the 100 and you figured it out along the way and I still don't have to talk to you. So I was like, this is a great little bit of advice from him. The counterpoint that I maybe want to make, especially on the passive versus active side is we've seen some examples of where near term cash flow, obviously chasing active income, service businesses, consulting, freelancing. you're going to ring the cash register right away. And we've seen some examples of where that can actually transition into something more passive or more time leveraged.

13:50A couple of examples, we have Wes Schaefer, who was the sales whisper, I think was his brand on the show years ago. And he was doing these kind of like sales funnel automation build outs and consults like, Hey, we'll analyze your business. And along the way, so he's getting paid to do that upfront, but along the way becomes a certified reseller for HubSpot for Infusionsoft, now Keep. And oh, by the way, they pay recurring commissions to hit, you know, and say, hey, based on your business, we found that HubSpot was the best fit for you. We'll sign you up. We'll get it all set up for you. He was able to turn that one-time active income project into recurring level of passive income for years.

14:30One of my other favorite examples is Matt Boknock. He was like the motorcycle repair guy. Hey, don't take your bike to the dealership. Don't pay dealership rates. Come, you know, bring it to me. I know what I'm doing. I'll fix it in my garage. Hours for dollars, side hustle after sending the kids to bed. But Matt set up the camera in the corner of the garage, films himself doing the repairs. Last we spoke, he had a hundred thousand YouTube subscribers. He was selling these engine rebuild videos as digital products. And it didn't take long. I'm sure it felt long, but it didn't take long from the outside looking in where the quote unquote passive side of the business far outpaced the turning wrenches side of the business.

15:03And it's interesting that some of these like little, maybe it's selling your sawdust type of products. But when you start by doing the work and building skills and relationships, sometimes those passive doors start to open or those more time leveraged doors start to open. Yeah. I was reading an article about this last night where there's something to say about the middle man and everything. Like if you look at Uber and Airbnb, what they have in common is they don't have any cars and they don't have any homes. they're just the middleman of connecting someone that's looking for a home in Washington on their vacation and someone that has a home.

15:42Just like Uber, you look at, and like the sales whisperer thing, he's just that dot that's connecting this potential person that needs a CRM to HubSpot or to whatever that vehicle is. And the same thing I keep coming back to with our vendingpreneurs, because you're spot on, like you got to reduce friction. For me, like I'm trying to make it as easy as possible for people to get product. Like they shouldn't have to go to Costco and spend four hours if we can just get it delivered to their door once a week at a bulk price that's just on autopilot based on the sales of whatever that. There's just so many levers is like just that core.

16:20I mean, Amazon, it's just a middleman. Anything in life, you're just trying to be that connector. And last night I had that aha moment where it's like Uber has no cars and Airbnb has no homes. Like what? Right. Facebook doesn't create any of their own content. Safe thing with TikTok. They're just content platforms. There's something to that. And this is a common path for side hustlers to start freelancing on the side. Yes, it's still active income. Maybe they take that full time. Maybe they start to hire subcontractors where it's like, okay, now it's a little bit more time leverage. It's not me laying the bricks or doing the day-to-day labor anymore, but I put myself in a management layer.

16:56and so different ways to transition from active income to passive income in the middleman method is similar it could be oh i started a house cleaning business but i didn't want to do the cleaning so i went out and fired people hired people who already knew how to do the cleaning we've seen examples of that on the show from window washing to graphic design and video editing you can do it offline you can do it online but the middleman game absolutely is a viable path Yeah. And then even you talk about that home cleaning, like those product companies will fight for you to buy their product to use for the cleaning.

17:30You think of like Airbnbs and all of the restaurants near you, they want your business and they will pay you if you promote their restaurants and your check-in folder when guests come to your Airbnb. be. Okay. Okay. Interesting. I never thought about that. And now I will definitely pay more attention to those little like welcome binders. Some of those houses, like, was that a paid placement? I mentioned our offer code for 10 % off your check. Side hustle nation, you get 10 % off. There you go. One other consideration here on this active versus passive debate is related to your home life situation.

18:08So for me, it was grateful to be living below my means and had my wife who had this steady job. And so when there were down years in the business, it was okay. We could still live comfortably on one income. And that freed up the time and the mental energy to focus on these more time leveraged business models, where even if in the near term, wasn't going to have this great ROI or it seemed was chasing this passive income. And sometimes it took months or years to materialize, but because we're playing it as a team sport, it still worked out. And so maybe that's a conversation to have with your spouse or partner to figure out, well, what role is everybody going to play here?

18:50But that was something that worked out in our favor in our house. Yeah, no, that's great. And we had the same similar situation last year. My wife actually lost her job and she was five months pregnant. And also our healthcare was with her job because I was just an entrepreneur. So we took care of her healthcare. And so it was like a scramble moment. But as long as you're living below your means and you have those different income streams for the rainy days, like you said, the mindshare, it was just a simple, it could have been a very emotional rollercoaster, but it allowed us to stay neutral in the moment.

19:25You ever get to the point of like, this passive income stuff sucks. It doesn't work. I'm going to go figure out how to make extra money just selling my skills. Do you ever have that conversation? Or does there come a point where you have people trying to build websites or do merch by Amazon or do dropshipping or whatever the latest thing is, you never quite hit it right. And I feel for those people, because all of these models can work and do work, but sometimes there's a factor of luck involved. Sometimes there's a factor of timing. And other times, it's like, I don't know, this just isn't the model for you.

20:02That's what I struggle with. I'm in the passive income camp too. But I definitely see the benefits of just like, like, if you're trying to make extra money, go make it go get it done. Yeah, I see both sides for sure. I mean, I do do a little bit of consulting for our special operations community with human performance, that's a lot more active. But I think the downside with like consulting or time for money is like with consulting, what you did for them yesterday doesn't matter. It's what are you going to do for me today? Like that whole rat race is just, to me, it's not sustainable. You're going to get burnt out.

20:34You're going to just play that substitution of time for money. And it's just, you might do it because it's your passion and you believe in the mission of whatever you're an expert in, but it's a tough business model. Well, if the hourly rate is strong enough, might be compelled to keep going. We had a guy who was doing like college admissions essay, consulting like a super, super niche business. It was like 220 something bucks an hour. Like, I'm okay with this. At a certain price, you can kind of just play the traditional route of like, yeah, I'm going to live below my means and invest the difference versus like, okay, if I'm just kind of squeaking by or my current skill set wouldn't afford a$200 hourly rate.

21:14Okay, now I've got to figure out how to build an income stream that maybe is unrelated to that or has some more leverage. Yeah, exactly. I could see that side for sure. All right. So is there a sweet spot. So let's say I'm eight hours a day is at my day job, eight hours a day, hopefully sleeping. And I've got eight hours left. Like, is there a sweet spot of like rule of thumb? What time should people allocate to passive income pursuits? As far as like buckets, I mean, I think it's like anything you just, you got to be balanced or there is going to lead to some burnout. You got to be balanced on all the things.

21:46If you're not doing much and you're sleeping too much and you're just on social media every night, like you're just going to get in a rut and feel stuck and spiral and watch news all day. And then the other side of it is if you're constantly working and you're just going to feel like you're never going to get ahead. So I think there's always going to be that balance. And I also think for me, just like with training, it's periodization. And I'm a huge believer in micro dosing and doing a little bit every single day versus like, oh, we're going to work five days and have two days off. But Sunday, you're stressed out thinking about, you know, the Sunday scaries, you're thinking about the week ahead.

22:24So like, why not spend an hour on Saturday and Sunday, if you can before your kids wake up just to do a little bit every day. And same thing with Friday, like, you shouldn't have to work past noon if just because it's Friday, and you're supposed to work till five is ass backwards. Yeah, this is maybe the key to it being proactive about it, no matter what your starting position is and being consistent with it. Nobody else is going to do it for you. And if you don't put in the effort consistently, that passive income is never going to come down the road. So even if it's just a half an hour a day, an hour a day, if you can carve out a little bit of time for these pursuits, your effort starts to compound and accelerate and you start to learn more and build your skills.

23:09But then you start hopefully with that little sliver on the pie chart and hopefully it starts to expand and expand as you move forward with it. And that's kind of how I thought about even when I was working full-time, like, okay, so I'm gonna spend my evenings and weekends like trying to build up the passive income so I could scale back the active income. We've heard from other podcast guests too, where I went from working five days a week to four days a week to three days a week. Like as it started to grow and grow, that was a by-product of that, being proactive about it and being consistent with it.

23:40So that's our active versus passive income debate. I love this topic. We'll geek out about it all day with anybody. So that's round one. Round two is donate a business idea. We'll be right back with that after a word from our sponsors. As a business owner, you worked hard to make that phone ring, but missing a business call, it's like watching money fly right out the window. That's why today's episode is brought to you by Quo, spelled Q-U-O. It's the smarter way to run your business communications. Quo is the number one business phone system built for 2025, not 1995. In fact, it's rated the top choice for customer satisfaction with over 3 ,000 reviews on G2.

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