Finfluencers Have Lied to You: Passive Income is Not Real

In the digital age, ‘finfluencers’—financial influencers on social media—have become a pervasive force, often peddling the allure of passive income as a gateway to financial security. They promise a life where money flows in with little to no effort, painting a picture of a lifestyle filled with leisure and free from the shackles of the 9-to-5 grind. However, these claims warrant scrutiny, as the concept of generating consistent income without ongoing work may not align with the realities of personal finance. A closer look reveals that the narrative of easy passive income can be misleading, glossing over the complexities and risks involved in attaining genuine financial independence.

The finfluencer phenomenon taps into the collective desire for a more comfortable financial future, yet the strategies they endorse—often ranging from poor real estate schemes to stock market pump and dumps and beyond—typically involve more activity and oversight than the term ‘passive’ implies. Moreover, the suggestions offered in short, attention-grabbing videos or posts may lack the depth and personalized consideration essential for sound financial planning. The dissemination of simplified advice runs the risk of oversimplifying the diligence and dedication needed to manage and sustain one’s finances effectively.

It is crucial to approach the rhetoric of finfluencers with caution and to recognize that while the concept of passive income is attractive, it remains an aspect of a larger, more complex financial management picture. Cautious examination and critical thinking are paramount when one is exposed to online financial advice, as genuine financial security typically stems from informed decisions and realistic expectations rather than enticing online narratives.

The Truth Behind ‘Passive’ Income

The concept of ‘passive’ income often peddled online is largely a misnomer; it frequently involves substantial initial or ongoing effort and a risk of capital. This income class is regularly touted as an avenue to earn money with little to no effort, but this is far from the whole truth.

‘Passive’ Income is actually just Portfolio Income

Portfolio Income, contrary to the enticing label ‘passive’, signifies earnings that don’t come from traditional employment. They are derived from income generating assets. This can include rental property income, dividends from stocks, earnings from a business, and returns from other investments.

• Risk of Capital: One cannot overlook the initial financial input required for these assets. Investing in stocks or purchasing property carries the risk of capital, where the principal amount could diminish in value.
• Hard Work: Behind most income streams deemed ‘passive’, there is often a history of hard work. For example, a rental property might provide a regular income, but it also demands upfront exertion in terms of finding and buying the property and may require ongoing management and maintenance.
• Investment of Time: Even setting up a source of ‘passive’ income can be time intensive. Writing a book or creating an online course, for instance, could eventually generate sales without day-to-day involvement, but they necessitate a considerable investment of time at the outset.

In essence, what is presented as passive stands on a foundation of active effort. It’s a shift away from hourly wages to potentially more scalable sources of income, but it is not the effortless income stream many influencers suggest.

Unveiling Finfluencer Promotions

Finfluencers on platforms like TikTok and Instagram have been engaging audiences with promises of easy wealth through passive income. Yet, scrutiny reveals that their tactics may not be transparent, often leaving financially unsophisticated followers at risk. This video from The Plain Bagel is a great breakdown of the real explanation of ‘passive’ income.

Analyzing Finfluencer Tactics

Finfluencers often leverage their online influence to promote financial products or services. They promise high returns with minimal effort, promoting the allure of passive income as a path to wealth. However, they may not disclose the full risks involved or their hidden affiliations with the products they endorse. This lack of transparency can mislead followers, especially those who are financially unsophisticated and trust the finfluencer’s advice without proper diligence.

• Omissions: Crucial information about the risks and requirements associated with the financial strategies promoted may be omitted intentionally.
• Engagement Techniques: They use compelling storytelling and aspirational content to make their financial “advice” more relatable and desirable.

Social Media and Financial Advice

Social media platforms like TikTok and Instagram have become hotspots for financial advice. However, the informal nature of these platforms allows finfluencers to present their opinions as facts, without the necessary regulatory oversight.

• Regulatory Concerns: Various regulatory bodies have started cracking down on finfluencers for not adhering to financial promotion rules.
• Consumer Impact: Followers, often lacking in-depth financial knowledge, might be swayed by the influential position of these personalities, potentially leading to unsound financial decisions.

It is crucial for consumers to critically evaluate financial advice offered on social media and seek information from reputable sources.

Consequences of Misleading Financial Guidance

When financial influencers promote the illusion of effortless wealth through passive income streams, the reality often falls short, leaving followers to face the tangible repercussions of misguided financial decisions.

Debt and Financial Strain

Misled individuals may invest in get-rich-quick schemes with the promise of passive income, only to incur substantial debt for a rental property. The pursuit of effortless earnings can lead to risky financial behaviors, such as spending savings or accruing credit card debt in anticipation of a payoff that may never materialize.

Regulation and Legal Implications

Governments and regulatory bodies, such as the Financial Conduct Authority (UK based organization), have begun to crack down on “finfluencers” who do not abide by strict advertising rules. The misrepresentation of financial products can lead to legal consequences, including potential criminal prosecution for those who flout regulation. The recent guidance by the FCA aims to protect consumers from misleading information that could affect their financial well-being.

Legitimate Ways to Approach Portfolio Income

Portfolio income streams, despite misconceptions, can be viable if approached correctly. Key strategies involve prudent investment in assets like dividend paying stocks, debt securities, and real estate, or in some instances leveraging personal skills for monetization through a small business.

Investing in Debt Securities and Earning Interest

Bonds such as Treasury Bills are a secure form of investment, offering steady returns through interest. They are backed by the government and considered low risk. Investors can purchase them with the aim to earn interest over a set maturity period, typically earning interest monthly. There are higher interest earning bonds out there when it comes to corporate bonds however, they incur more risk of loss for your initial capital.

Investing in Real Estate

Real Estate investment can be a substantial source of income. Income-producing assets such as rental properties provide regular rental income, with the added potential of property value appreciation. Real estate investment demands due diligence and can involve direct ownership or real estate investment trusts (REITs). Real estate through direct ownership is by no means easy work or cheap to get into. If you would like to learn about real estate investing from an incredibly reputable source, I recommend learning about the BiggerPockets network, it is a great network to get exposed to and I actively am always learning from people there.

Hardwork and Monetizing Skills

Individuals often achieve non-W-2 income by working hard to develop and monetize skills. This can take the form of creating products to sell or offering consulting services that capitalize on your strengths. It necessitates strategic branding, marketing, and leveraging one’s distinct competencies for financial gain. Of course, this does not sound as appealing as something that is passive, but it is the reality of the world we live in.

Closing Thoughts

Nothing in life is easy, it may be simple, but there is no easy money that just comes to you once you set something up with a little bit of work or a little bit of money. I will make a post on building portfolio income and talk about what I am doing personally. Passive income sounds great but in reality, so much work needs to be done to get started or continuously to earn money.