I took a vacation to Southeast Asia for 3 weeks — all over Vietnam, Cambodia, and Thailand. Nobody on this site knew I was gone. Yet while I was abroad, I earned tens and tens of thousands of dollars while completely off the grid. In this post I’m going to show you how I earned residual income that gave me that freedom (aside from some really cool pictures of myself):
- Why you need a solid system in place (to actually make residual income)
- Why working passively is a LOT of hard work
- What the business of passive income actually thrives on
Ready? On to the pictures.
Taking a break from eating before eating again
I always wanted to stay in a hotel room with a pool. This was my back yard in one of my hotels in Thailand. It was a very romantic time with my brother: “Welcome, Mr. and Mr. Sethi.” Classic.
This is the second vacation where a white friend crashed his scooter. What is it about Americans that they can’t drive these things.
Didn’t smell too good.
In all that time, you continued to get emails and blog posts from me. My business grew: 1 day’s sales would have paid for all my meals and airfare — many times over. I rarely checked emails. And when I came back, I had a detailed status report of exactly what I needed to know.
To a lot of people, this is the holy grail of passive income.
Yet why do I still tell my readers that passive income is largely a myth for 99.9% of people?
I’ve said this over and over, including in 7 Lies We Tell Ourselves About Money and Why Most People Fail at Online Products: Passive income is unrealistic for most people. They see some guy go on a 3-week vacation and continue earning money, and say, “I can do that!”
What they don’t see are the systems that took years to put in place.
To make Residual Income, you need a solid system in place
Honestly, I couldn’t have taken this trip last year, and I’ve been writing this blog since 2004! But dreams are more powerful than reality. Here’s a classic example from a guy who emailed me:
I love your psychological insights on changing our minds.
One of the products I have been looking at is how to make money buying penny and small stocks that ballooned to 15,0000% within a year.
I am only interested in a business that makes residual income like Paris Hilton. Every time someone stays at a Hilton Hotel, she gets $1 per room because his granddaddy left her stock in the company.
Why work for money? or work until 65 years old or older?
If you unleash and are interested in this area that would create MAXIMUM VALUE for your customers, I will be first to sign up.
Unfortunately, this guy is doomed. He is so focused on a dream that he has spent close to zero time understanding the realistic universe of options to improve his finances.
In fact, if you asked him to break down the risks/rewards of 5 different ways of improving his finances (negotiating a salary, investing in the stock market, buying real estate, freelancing, etc), he would have no clue.
Instead, he’s developed tunnel vision around the idea of penny stocks, no doubt hastened by scammy penny-stock pushers who suggest you can live a ridiculous lifestyle while working 3 hours/day from your house dressed in your terrycloth robe.
Why earning residual income is a lot of work
I have a lot of friends making 6- and 7-figure incomes. Some of them even make it “passively.” All of them work harder than you would ever imagine, even the passive guys. In order for me to go on a 3-week vacation, it took nearly a year of building systems, hiring people, and systematically testing how far we could push it to remove me from day-to-day management.
And finally, when I felt ready, I vanished, stuffing my face with unimaginably large, spicy meals. Thank you, Asia.
Would you call that “passive”?
Would most people be willing to put in the work and go through failure after failure to learn how to earn “passive” income like this? (Not to mention that a lot of success is pure luck.)
Look, IWT isn’t just about simply making money. It’s certainly not about cutting back on lattes. It’s about deciding what “Rich” means to you and using psychology and systems to get it.
For me, two years ago, I decided that one of the markers of success would be taking a long trip where I would be off the grid — totally out of touch with people — and my company would still run without me.
Two years later, after a lot of failures, I had finally built the systems to be able to handle it.
What the business of passive income actually thrives on
This is what frugality zealots and passive chasers don’t get. They believe that cutting back is a virtue in and of itself, or that making $200/day is the end goal. I believe that cutting back teaches good values, but I also know that most of us want MORE — we want to travel to more places, buy more rounds for our friends, try nice restaurants.
I believe that making money without doing work is great, but I know there really is no such thing. The amount of work I put into building the systems that power IWT is gigantic — and I continue doing that work today.
You can’t out-frugal your way to Rich. You can’t fixate on earning passive income without trying the low-hanging fruit — negotiating your salary, automating your investments, freelancing — first. You can try, but you will almost always fail. I’m telling you the truth as a guy who earns a lot of money “passively!” In fact, I’ve left millions on the table by not teaching that very class:
A confession: I’ve left millions of dollars on the table by not developing a course about how to build your own online product and sell it on the Internet. My courses have sold well over $100,000 in one hour, and I get asked about how I did it over and over.
It would be relatively easy to teach. I could build a product teaching you how to build a product (now we’re getting meta), including sharing actual sales data, the tactics I use for product launches, my sales copy, the biggest mistakes I’ve made, and conversion rates for various techniques. The product would handily make me 7 figures.
Unfortunately, the blunt truth is, I don’t believe most people will ever be successful in building online products. This isn’t just a condescending “I can do it but you can’t” view. No, the data backs this up. The vast majority of people who try to create online products fail — like 99%+. This is the elephant graveyard where the dream of passive income goes to die.
See, to succeed with an online product, not only do you have to be extremely good at your area of expertise and know the basics of marketing — including identifying your niche, pricing, finding customers, etc — you then have to learn all about productization: packaging, upsells, cross-sells, advertising, email funnels, JVs/affiliates, refunds, customer service, sales-page construction, A/B testing, continuity programs, etc.
Unlikely. If we’re being honest, most people have enough trouble mastering the first part of the equation (creating something other people will pay for), much less learning the rare skills of productization. Think about it: Would a personal trainer have you do 400-lb squats on Day 1? No, he would start you off with light lifting to perfect your form.
Why would I sell something — even if it could make me millions of dollars — when I know the vast majority of people won’t be successful? The money does not motivate me if you’re not seeing measurable success. Remember, IWT was never about making me money. It was and is about behavioral change. There are tons of ways I could make easy money, but I have no interest in creating a product about creating a product when the vast majority of people will fail. (I encourage you to read The $75,000 Email, a story about turning down easy money because I simply wasn’t interested in it.)
But you can use other proven methods to make more money and give yourself the freedom to do what you want.
Each of these is far, far more likely to give you the lifestyle you want. You may not be able to brag about it on some random internet blog, but you will be able to do the things you really want to do.
Besides travel, I’ll give you an example of how money has changed my lifestyle. In a recent interview, Andrew Warner of Mixergy asked me exactly that:
Andrew: What’s the best part of having made it? You’ve done really well. This is on the sidelines, we’re all studying your sales copy. A lot of us are on the sidelines trying to evaluate how much revenue you’ve done. Estimates are pretty high. Higher than Fortune Magazine seemed to say so maybe people are exaggerating. But on a personal level what do you get to do? Do you get to travel somewhere interesting? Tell me about that.
Ramit: Well, I’ve always said money is a small part of being rich. I’ve said that from day one and I genuinely believe that. For me, there are so many other things with being rich. In fact, I wrote a post years ago ‘what does rich mean to you?’ Helping your parents with their retirement. Being able to travel and visit your friends.
I’ll tell you a couple of things that I guess I’m able to do now that I wasn’t able to do before. The first thing is I’m a cognitive miser. We’re all cognitive misers. We have limited cognition. I always wanted to be able to go and just, if I see something in a grocery store, or I want to take a taxi instead of a subway, I didn’t want to have to think about it. That doesn’t seem like that glamorous of a thing but it really matters to me. I think it’s the freedom thing, the flexibility thing, on a very micro, day to day level. If I see, let’s say I feel like ordering a drink or if I feel like getting an appetizer. I never got appetizers when we were kids. I can do that.
Also, by the way, things don’t change that much. We were a very middle-class family and we had a lot of kids in the family. We would eat at Taco Bell sometimes and we would never, ever order the Mexican pizza…We go there but we can never order the Mexican pizza because it was too expensive. I still remember it was $3.45…To this day I have never ordered a Mexican pizza. I could walk in there and order it without a problem. My friends are like come on, I’ll get it for you. I’m like no. I had that mentality (inaudible).
The big thing, besides just like if I want to get an appetizer I can do that, is, you know, I’m a little bit flexible so I can travel. I guess my one big luxury would be that I have two apartments. One in San Francisco and one in New York. I can travel back there and I can decide that I want to go tomorrow and go to San Francisco. That is possible. Before I would have never dreamed of doing that. I would have been checking on the prices all the time.
Aside from that, it becomes less about money. I have a huge platform to be able to test my ideas and see if they work. To me, that’s a rich life.
I’ll give you another example of living a rich life:
One of the things I always told my friends was, “When I make it, I’m bringing everyone with me.” So when I finally realized I could leave for 3 weeks this year, I came up with a new motto: “My villa is your villa.” I invited my friends to come, hang out, take a room in one of the hotels I was staying at, and come chill. I flew my brother out. I used my money to live the kind of life I wanted.
To me, the idea of living a rich life transcends passive income, or blogs, or what software you’re using. Instead of being driven by the tactical, you’re deciding how to live. You’re deciding on your values (e.g., frugality and cutting back vs. growth and an abundance mentality).
And here’s the biggest thing I can share with you…
You don’t have to wait until you’re making $100,000, or $500,000, or $1,000,000 to do this. You can decide today. Take out 3 pieces of paper and break it down:
- Where do I think I’m spending my money?
- Where do I want to spend my money?
- Where am I actually spending my money?
This simple exercise will shock you.
For those of you who claim that “family is everything,” how much are you actually spending on visiting your family? If you claim health is important, how much are you spending on a gym/trainer/food/health books?
You can do the same exercise with time, btw. This opened my eyes years ago and I’m still not even close to where I want to be.
This post is different than the ones I usually write, but I think it’s important to sit back and think about why we’re striving to live a rich life. It’s not just to master “passive income” (whatever that is) and sit on a beach and do nothing. To put it bluntly, anyone who has the skills to actually earn a substantial enough passive income to do that would be bored out of his mind after a few weeks of that.
It’s about deciding what money is for. What a rich life means. And how you can start today, instead of a distant “someday” in the future.
If you’re interested in more on this, I recorded an interview with my friend Derek Sivers (who used his skills in systems-building to build the ultimate distributed company…then sold it for $22 million). You can get that interview here.
You can also browse this site or my email list for the “secrets” to living the life you want. My savviest readers will laugh since there really are no secrets. I’ve laid it out, both for free and in my premium material, and the information is out there. Now it’s up to you.
Do you know your earning potential?
Take my earning potential quiz and get a custom report based on your unique strengths, and discover how to start making extra money — in as little as an hour.