Reader Beware

Be careful when you read Kiyosaki, Robert Allen, or any of the army of gurus preaching that passive income will end all your troubles. The overall concept of “Rich Dad, Poor Dad” is profound, but it doesn’t tell the whole story. Don’t quit your day job yet.

When I first read Kiyosaki, I was immediately hooked on the concept. I read all the books and they blew my mind. I bought the game Cashflow 101 and hunted down every last friend and family member who was still brave enough to donate a few hours to reliving their financial failures in a board game.

Young Passive Income Warrior

I went out and started my portfolio. The economy was on still on a real estate bender, so I was able to buy a rental house with no money down, no proof of income, and no credit. I stuck in a tenant who paid me $100 more than I paid to the mortgage company and thought to myself: …damn I’m good.

I got the idea to start a bulk candy business for passive income. We bought ten machines and placed them in ten restaurants in Austin. Just like that, we added $250 a month to our passive income.

When we were ready to move to LA to give the entertainment industry a shot, I started scanning the internet for bulk candy vending businesses in Southern California. I found a guy who was willing to let go of 40 machines in decent locations for next to nothing. I almost covered the acquisition cost on my first day in LA. Just like that, I added another $500 a month in passive income.

I thought… damn I’m good.

King of the Anthill

At this point, I pretty much decided that I had made it. All those suckers moving to LA, struggling to pay the massive cost of living increase had nothing on me. I had $850 a month in passive income. What did they have? …a crappy job? Kiyosaki taught me that jobs were for suckers.

Hero Fallen

I went to see Kiyosaki once at the Real Estate Wealth Expo in New York City. It was an event where hundreds of real estate gurus all got together to give speeches, sell books, CD’s, and boot camps. Robert was one of the headliners and I could hardly contain my excitement to see him.

With my girlfriend at my side, I proudly stood up to greet him along with hundreds of others in the auditorium as he entered the stage. My perma-grin turned to puzzlement as he put his right hand on his forehead in the shape of an “L”. “Losers!” he yelled and the crowd cheered.

“What is he talking about?” my girlfriend asked. I wasn’t sure, so I continued to listen as he explained to the crowd that working a 9 to 5 job was the mark of a loser. Over and over again, he stuck his hand to his forehead and repeated the chant: “Loser!, Loser!, Loser!”

Wait a minute, I thought. I bet 95% of this audience has a 9 to 5 job… and they’re cheering.

Steady Ahead

The experience had taken Kiyosaki down a notch in my eyes, but I still believed strongly in his concepts. To me, he was a brilliant “big picture” guy who left something to be desired in the category of tact, humanity, and details. I didn’t need him to be a good guy to know that passive income was for me.

I found sporadic work in Hollywood producing small-time pieces for TV and internet, but never pursued full-time work. Why would I? 9 to 5 was for suckers (but not losers).

Soon after, I started GeniusTypes and added another $750 a month to my cashflow. My passive income streams were over $1500 a month. I thought: …this just keeps getting better.

The First Sign of Trouble

Life should have been good. I had done everything the books had taught me. It was almost as if everything I touched turned to gold. I had money coming into my bank account even as I slept… Big pimpin’ …right?

As I explained all of this (with great pride) to my girlfriend, something weird started to happen. I was telling her how great everything was and somehow, she was ticked off!

I don’t remember the exact conversation, but it went something like this:

Her: Your stupid “passive income” isn’t helping us pay the ridiculously high cost of living here!

Me: What are you talking about? I make that money in my sleep!

Her: Who the hell can live on $1,500 a month in LA?

Me: But it’s passive!

Her: That’s the freakin’ problem: you need to get your butt into action!

Me: But it’s passive…..?

Her: (shut down)

Something had gone terribly wrong.

Starting Over

Now you have the long version of why I stopped posting on GeniusTypes. I went out and got a job… Actually, I got two. I worked 60 to 80 hours a week in order to make up for the long period of time that I was quote/unquote “self employed” (which really means unemployed). It was the antithesis of everything that Kiyosaki had taught me.

I also went looking for guidance. Instead of believing in authors and trying to do it on my own, I found people who had achieved the success that I wanted. I found some mentors.

The Right Map

The first thing they taught me was something I didn’t want to hear. I wouldn’t have bought their book if they were selling it like Kiyosaki because it kind of sucked…

They agreed that passive income was the ultimate, but everyone needs money to survive. If I couldn’t pay for my monthly expenses with passive income, then I must do the next best thing: get a job.

…But Kiyosaki says jobs are for Losers!

…Who’s more of a sucker: Someone who works full time and supports their family, or someone who quits their job and gives all of their remaining money to Kiyosaki fpr books, CD’s, and boot camps?

Wow. That was kind of harsh.

Leverage Your Time

I re-learned the concept of leveraging time. Kiyosaki had taught me that passive income was a way to leverage other people’s time in order to free up more of my own. He was accurate in that assessment, but he left out a crucial detail:

When you don’t have enough passive income to pay your bills, the best way to leverage your time is to get a job.

Think about it. If you have no money, is it better to spend your time chasing passive income or to get a job? The answer is to get a job… but the advanced correct answer is to get a job and use your nights and weekends to build passive income.

Large in the Margin

The ultimate goal is to get enough passive income to cover your bills; but in the meantime, it’s important to view passive income as a marginal profit center. This means that passive income should be above and beyond your regular operating income and expenses.

Everyone has a minimum cost of living. No matter where you live in the U.S., it costs several thousand dollars a month to stay afloat. If you have no money, your only option (if you want to remain independent) is to get a job. Passive income would only help you if you had enough to cover your basic expenses.

Believe it or not, a job is the best way for a broke person to leverage their time. Think about it: what activity will yield me the greatest number of dollars for forty hours of work a week? If you have no money to invest, the answer is to get a job.

After the hours you need to spend to pay for your basic cost of living, the next highest leverage activity is to gather passive income. Any passive income you make from now on will be in your profit margin. When I was making passive income without a job, I had no profit margin. I was taking a net loss every month on my basic expenses.

Passive income is most beneficial when it’s in your profit margin. $1,500 a month in passive income won’t pay your bills, what if it was extra? That’s $18,000 a year that you could use to invest in real estate. Do you see what a tremendous difference it makes when you take it from primary to marginal income?

Your Credit

Another great reason to get a job when you’re broke is your credit. If you want to accumulate passive income-generating assets, you’re going to need the help of a lender. The wealthiest people I know are in real estate. In order to purchase real estate, a bank wants to know that you have steady income. If you are quote/unquote “self-employed” with no real income, the bank isn’t going to budge.

Check Your Ego

It was a bit of a reality check when I realized I wasn’t above working for the man. In fact, working for the man was the only way that I stood a chance to succeed.

Creative types are highly intelligent (which comes with a little bit of ego). It’s hard for a really smart person who thinks they know it all to realize that he can’t break the laws of nature. You might have the greatest idea in the world, but great ideas alone don’t pay your rent.

Build a Foundation

You can’t fight for financial independence until you have a foundation. Even though there are many ways to create passive income with little money, everyone needs a minimum amount of money to survive.

Furthermore, the best ways to create wealth (real estate) require money. If you don’t have any to start with, the best way to get some is to work. Work enough to pay your expenses and put away some to invest. That’s what my mentors taught me. It’s boring, but it’s proven.