Passive income: Can easy side hustles earn big money?

Sajan Devshi, 38, says that he first heard about passive income during the 2020 pandemic lockdowns. With almost everyone at home, and many people on furlough, Devshi noticed more and more people on his Facebook and TikTok pages posting about the creative ways that they were making money with minimal effort.

"This ranged from cryptocurrency to drop-shipping to ecommerce," says Devshi, who is based in Leicestershire, UK. "I particularly liked the idea of starting something up and then letting it maintain itself with minimal input. This would mean I could still have time to do other things that are important to me and make money at the same time."

Seeing all the options, he felt motivated to "find something productive to do in the evenings outside of my working hours". Doing something that could make even a small amount of passive income in return would be handy, he'd thought. So, once Devshi had finished work and put his children to bed, he started to research different niches that content creators were describing.

Passive income – income that takes minimal labour to earn and maintain – was once mainly a preserve of the wealthy, who were able to own assets such as rental properties, or build investment portfolios that paid dividends like clockwork. Yet the concept has taken on a new life since the pandemic, with millennials and Gen Zers leading the pack by finding increasingly creative methods of forging passive income streams.

Experts say that the current interest in passive income comes from the confluence of a challenging job landscape and the influence of social media. While passive revenue streams can work for some people, others may find the dream of a low-effort income might not be all it seems.

The right conditions

TikTok and Instagram are full of videos and posts about ways to make money "in your sleep".

In one TikTok video, which has almost 10 million views and 800,000 likes as of this writing, a content creator tells their followers they can make thousands of pounds by designing a blank journal that Amazon will then print and sell, informing them that they will be able to "sit back and collect all your profits while Amazon does all the work". In another, an influencer tells viewers they can make "5 to 10k a month online as a complete beginner" by promoting other people's products on social media.

Shankha Basu, an associate professor of marketing at Leeds University Business School, UK, believes content like this is a big factor in the rising interest in passive income, especially among young people. He describes a "feedback loop", where people see influencers talking about their success in making passive income, which inspires them to try the same thing. Those who manage to make money often then talk about their own successes on social media, and so the cycle continues.

Alex King, a personal finance expert and the Founder of Generation Money, also commonly sees social media create a consistent reinforcement that passive income is not only achievable, but a normal way to reach financial freedom.

Economic conditions have also bred this fixation on setting up passive income streams. "Over the last decade or so, income growth has stagnated," he says. "Many young people work on precarious contracts, and there is a limit on how many extra work hours someone can add to their day."

Basu says, combined with inflation and the rising cost of living, many millennials and Gen Zers specifically see passive income as an escape from working long hours for little reward. "Covid-induced lockdowns also prompted interest in passive income, as many people realised that they might prefer greater flexibility," he adds. "It gave people the time and opportunity to discover and learn more about these passive income opportunities."

"There's a view among Gen Z that diversifying your income is a practical necessity of current economic conditions," adds King. "Gen Z has a strong pull towards flexible working and the idea that you don't need to be in the office five days a week to make a living, so the prospect of passive income really resonates with them."

Too good to be true?

According to the US Census Bureau, 20% of American households earn passive income, with the median earnings sitting at around $4,200 (£3,390) a year, and estimates suggest that around 36% of millennials already make passive income of some kind.

Yet many other people are finding that standing up a passive income stream is more complicated than online influencers make it seem.

This notion of purely passive income is not actually true in the way they imagine it – Sajan Devshi

Devshi, who decided to launch an educational-resources website to help students navigate exam revision, has found the project more complicated than he imagined it might be. In October, he made just more than £200 ($244) in profit, yet he spends around one-to-two hours a day dedicated to the project – significantly more work than he expected.

"Everything requires a certain level of work to get the project going. The 'passive' element only kicks in later," he says. "I would say to people this notion of purely passive income is not actually true in the way they imagine it." Devshi hopes his website will eventually reach what he describes as a "maintenance" stage, where his workload will decrease, but the site will remain profitable.

Toronto-based Thomas Blake became interested in earning passive income during his second year of university in 2015, while studying psychology and interning in digital marketing. "I was worried that finding a job post-graduation would be difficult, so passive income seemed like a natural way to begin increasing my earnings gradually, and to diversify my income," says Blake.

Blake, now 27, began to read up on internet personalities who had become financially independent through this approach. "They were talking about investing and creating different passive income streams to earn a full-time income and retire early," he says. "This sounded too good to be true at first, but when they broke down the math and power of time and compound interest, plus how many ways there are to create passive income, it was my lightbulb moment."

Blake eventually found a Reddit post about 'phone farms' – using multiple phones to download reward apps, which run in the background as you go about your daily life. "I spent the next few weeks tampering with phones and sure enough I earned a $5 Amazon gift card pretty quickly," he says. He expanded to nine phones and began to run them constantly.

But although people online had promised that you could make "a few hundred dollars a month", Blake found that he was only making about $25 to $40 (£20 to £32) in that timeframe. "When you factor in the time it took to reset devices when they crashed, plus the energy usage and device costs, it wasn't a very profitable endeavour."

While some content creators can share useful tips, King says other passive income influencers have an ulterior motive. "Many influencers quickly realised that there's money to be made by selling courses about how to generate passive income – which, ironically, generates passive income for these influencers."

Blake drew similar conclusions from his foray into phone farming. Although he now has a successful passive income source through advertising revenue on his blog, he believes that much of this content sells young people something that is too good to be true, creating something of a passive income pyramid scheme.

"You see content creators getting rich by selling the dream of passive income, while leaving out some critical details," he says.

Reframing the opportunity

Although some success stories should be taken with a grain of salt, experts believe there are opportunities to reap at least some rewards.

This may especially be the case amid the widespread adoption of remote and flexible work, says Winnie Jiang, an associate professor of organisational behaviour at INSEAD, based in Singapore. This may "enable employees to explore, access and manage avenues that can provide passive income".

More people creating passive income streams could also represent a wider shift in how young people particularly earn money. Basu adds that new, easily accessible and diversified options for earning means young people can increasingly exploit the potential to generate passive income to its fullest.

"These digital businesses also have lower exit barriers, he says. "Loss-making digital businesses are easier to shut down without incurring a substantial financial loss compared with traditional businesses."

Importantly, the mindset around the accessibility of passive income has shifted: it is no longer a preserve of the wealthy – in many cases, the adage that you have to have money to make money is falling away.

-bbc