In my search to come up with passive income sources I have come across some skeptics. If you go to the Amazon web page for the The 4-Hour Workweek there are tons of comments doubting the value of his passive income and outsourcing in the favor of traditional hard work. I also came across an article (from Awake at the Wheel) making the argument that this is not the way a person can really become “rich”. I was actually really impressed with the author’s thoughtful argument. In particular he had some great statistics I wanted to share:

“So, for those of you who aspire to fabulous wealth, here are some eye-opening facts about the richest 1% of people in the U.S….and how they got there. According to a recent SmartMoney report of The Harrison Group’s latest wealth survey:

  • The number of pentamillionaires, people worth more than $5 million dollars (excluding home value), in the U.S. has quadrupled in 10 years to 930,000
  • Only 10% inherited their wealth
  • 70% of big-family fortunes are less than 13 years old…it’s mostly new money created by entrepreneurs.
  • 80% started their own businesses or worked for a small-business that exploded.
  • Most did not accumulate the bulk of their fortunes over time, but rather in a fairly short burst after years of hard work.
  • Most of this new money is generated by risk-takers for whom “wealth is a byproduct of pursuing their passion.”
  • For most, money was not much of a motivator. Solving a problem or improving on something that existed was.
  • Only 10% of their wealth was attributed to passive investments.”

This got me thinking, how much is it worth to focus on passive income or would you be better off to just work very hard doing something you love? Passive income seems like a nice idea, and certainly people have had a lot of success, but it is true that even with lots of passive income sources it may never make you rich beyond your wildest dreams (whereas starting your own company certainly can if you dream big enough). To be honest I am not sure which approach is better; and I want to do both 🙂 (of course I seem to always want to have my cake and eat it too).

I think the interesting thing is that even though I love money, I love solving problems more. Some people are the innovators (the ones that come up with new ideas), or the creators (the ones that like to build stuff), but I have always been more of a fixer (someone who fixes something broken). I think one of the reasons I find finance so interesting is ultimately to answer questions (although the risk part is a lot like gambling and I kind of like the whole risk-reward cycle).

Here is my plan: I am super committed to my current job at a startup, and I truly believe we will be really successful (and all signs are pointing to yes)–plus I am so proud of what we have built and accomplished I can’t imagine not seeing it through until the end. Even though I have very little spare time (I do work at a startup so I primarily live and breathe my job) I am going to work on thinking through some passive income sources (obviously the interest on my current savings, but also my new little iPhone application), and I am going to devote energy to my plan to start my own company (starting with my GMAT).

This is definitely some food for thought.

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