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Comment by dev_jim | Hacker News Reader

All of these passive income stories fall into three buckets:

1) The passive income these people generate is from selling suckers who want to believe in free money a book for $9.95.

2) Their definition of a good passive income is at or near the poverty line in the U.S (That mustache guy?). That's fine, there's nothing wrong with that, but it's not the life most people want to live.

3) The person got massively lucky with a startup (lots of hours invested there) or real estate and think that idea is easily translatable into a few blog posts. These stories are all survivorship bias and don't account the 1,000 people who failed.

Everyone wants to believe that there's a free lunch out there. That's why scams like stock trading apps, time shares, ponzi home marketing schemes, etc. are so prevalent.

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This is not accurate. A lot of people fail, that's true. So do a lot of people drop out of CS programs and never achieve their goal of becoming a lawyer or doctor.

On the "all the stories" part, there are a couple of things here worth teasoing out. First, it is worth separating out the information marketers, affiliate marketers and SaaS, etc. They're different businesses. Second, the public success stories go through a spin cycle, but there are many more quiet successes that never get above the radar. Why? Niches are small and take a single human's effort to capture. No need to publicize that you're pulling in $300k/yr doing this specific thing in this specific way 1000 other people here could do. Many are a winner take all and you'd have to be a complete idiot to share. That's like posting your credit card number on the web. I am not going to tell anyone here what I do, but I will be happy to share how it impacts my life.

So that's why it feels that way. The actual reality is very different.

You are absolutely right about the small niches. What the public hears about is a tiny fraction of the successes (and failures) that are actually out there. If you are lucky enough to find a profitable niche then you don't invite competition to take it away from you. There are several examples that I personally know about that have never been shared with the public.

One example is a personal friend of mine. He developed a B2C software product for a particular niche that you wouldn't think was very large or profitable. He doesn't talk about what he does publicly or even read entrepreneur sites like Hacker News. If someone were to show me his app and ask me how long it would take for me to develop it I would say "three weeks: two to code it and one more to make it that ugly". And yet this guy makes a ton of money (much more than a typical software engineer) essentially for just handling the occasional support or billing issue.

Another example was a guy I worked for in college in the early 2000s. He got in early in the business sending out e-mail newsletters for professional organizations. He bought a license of a high-end e-mail program for about $15k, bought about $5k in server hardware and spent about $750/mo. in co-location fees. Then he hired me and another college student to work remotely part-time at $15-$20/hr. to handle the server administration and support. Add all that up and his total costs were about $20k up front and $2500/mo. The only work he would do is go to conferences a couple times a year and do a couple of sales calls a month. He generally kept the details of his financials hidden from me, but I know that at least a couple of his clients were paying over $5000/mo. each. When you consider he had a couple dozen organizations as customers, that is very impressive for something that is almost completely passive with no technical skills required.

In affiliate marketing, the only time methods are shared is if they have been dried up for months or years before by the author. I never shared any of my methods until I knew they were no longer valid.

Well you are forgetting the stories about how a person worked for a decade or two (or more), spending less than they earned and making basic investment choices which are pretty boring.

I have been doing this the past few years and while initially my "passive income" was around $50 each month it grows each month and at some point in the future (years away) it will be larger than my current expenses. I would be okay with writing it up, but I am guessing that the story of maxing out my 401k, installed insulation to reduce my heating costs and taking the time to read a company's 10-K and learn that I do or (usually) do not want to invest in is no where near as exciting as the 22 year old that made 30K a month for the last three months on an iOS game and spent it all on a new car before he remembered to pay off his credit card and student loans.

You're right that there's no free lunch out there, but compounding is pretty close.

Could you please tell more about how you invest into your passive income? IMO, stocks, are a bad idea, real estate as well. What else?

Lots of boring and small ways, just a few of them include: - Some CD's that were opened back when the rates were actually paying decent amounts. - I live in MA so I put solar panels on my roof. They not only result in my electric bill being zero, but because I live in MA I get paid for the electricity they generate (that I use) until 2020. They will pay for themselves in about 3 1/2 years, after which they will continue generate a passive income until 2020 (and still no electric bill). - As for stocks I have a few that are provide dividends. - Like most company 401k's one of the options is an index fund which is where that all goes. - Simply having cash in a savings accounts generates a small amount of monthly interest. - Putting this years passive income back into next years IRA/Roth makes that passive income "worth more" come tax time v.s. just spending it. - Contributing to my child's 529 - Real Estate in the sense that I have a mortgage I am paying it down - various other similar smaller items

But a chunk of it is indeed in stocks. I have spent the past few years learning and very much lean to the Benjamin Graham / Warren Buffett teachings. Under the assumption that I plan on retiring some day that means at some point between now and then I will either want to be able to handle my own finances or pay someone to. As it isn't that much right now and I wanted to learn anyway I started hitting the books, reading corporate finance reports, etc and have been selectively choosing boring, safe and undervalued companies (much easier the last few years compared to now) that I would like to hold for several years at least to not keep giving the profit away in taxes.

As long as I don't overspend having a buffer of extra cash means I can take advantage of deals when buying larger items be it a new car at Christmas or a $5K tool that I was planning on getting some day that suddenly shows up on craigslist for only a few hundred or even small things like stocking up on basic supplies when they are sale at the grocery store. This isn't directly "passive income", but if I was living paycheck to paycheck on my passive income it would have to be larger because you would miss out on the deals. Being able to max out my 401k as early in the year as possible is another long term strategy to get a little more that you can only do if you can afford to put down that money right away each year.

At the end of the day it is about total personal net return. I would put down a number of other "investments" that generate long term net returns, but perhaps not in cash to me, but smaller bills. First paying off credit cards or school loans (or really any loans) means that future earned income will go to generating income for me and not for the owner of the loan so at the end of the year I will have more left over each year. Same goes for simple fixes around my house to improve my heating and cooling (oh and for the curious from the article the other day yeah my solar panels help keep my house cooler in the summer)

So pretty boring wouldn't you say? "Guy saves some money each paycheck!" It isn't exactly headline grabbing. Spending less than I earn, saving and re-investing when the right opportunity comes around combined with some time and you should be able to become financially independent, not overnight, but not that long either.

As long as I don't overspend having a buffer of extra cash means I can take advantage of deals...

You've hit the nail on the head with how the rich can get richer (or conversely, how low cash can make you have less cash). If you have spare cash you can buy things that you need when they are cheap, you can buy in bulk and get economies of scale. It's similar to the "Samuel Vimes 'Boots' theory of socioeconomic unfairness." http://www.goodreads.com/quotes/72745-the-reason-that-the-ri...

equity income Investment Trusts and decent dividend paying blue chips eg RDSB and BT.A for me

Non-scammy people tend to use the term "lifestyle business", because they're painfully aware of the number of hucksters promoting the idea of passive income. The obvious example in these parts is patio11, who has described and exemplified a straightforward and non-scammy way of building a sustainable business that pays the bills and doesn't place huge demands on your time.

Your list misses:

4) Build a quality product that serves and established need for a niche market and market it directly, using scalable methods

Actually patio11 makes most of his cash from his personal consulting gigs, rather than his lifestyle businesses[1] and thus he falls into the category of people who make money advising you how to make money, which treads the scammy line in my opinion.

[1] http://www.kalzumeus.com/2012/12/29/bingo-card-creator-and-o...

He doesn't do consulting any more: http://www.kalzumeus.com/2013/07/17/kalzumeus-podcast-5-quit...

which treads the scammy line in my opinion.

which of course is your prerogative, although I fail too see how it's scammy if you're actually making money following his advice, which his clients reportedly do

Yes, in fact they seem to make so much money that he's able to increase his consulting rates after almost every engagement!

I and many people like me make large (six-figure annual) passive* income streams from selling information products online. My flagship product is a book/video bundle to teach web development with Ruby on Rails, and sells for $159 (http://railstutorial.org/). Many people who use it go on to get new jobs paying them 50%–200% more money, which makes the product an easy sell to the right market.

*Of course, it's not perfectly passive, but it's pretty darn close: ~2 hrs per week (for customer service) plus ~3 months full-time every 15–18 months (to make a new edition).

There are lots of opportunities to make product businesses like mine. It's not a startup in the traditional sense; I think of it as a medium risk, medium reward business. It can also free you up to take bigger risks, such as starting a full-blown startup, which is what I'm doing now. In particular, I'm working on a publishing platform to allow technical authors to make profitable information-product businesses. (I love meta.)

I recommend reading Amy Hoy's blog [Unicornfree](http://unicornfree.com/) for ideas and suggestions, and maybe take her 30x500 course some time. You may find yourself surprised that it's not snake oil or Ponzi schemes—you can earn an honest, healthy living while still having a huge amount of time and freedom.

Sure there are info product salesmen out there but you're missing the forest for the trees. I really think this PIH stuff boils down to familiar ideas like a MVP challenge. Build a product(SaaS usually) that people will pay $99 for and that you purposefully do not add features to. You support it a few hours a week, hopefully 10 or less and you make some income by solving a particular business problem. Then you make another, and another. Hopefully you can make enough to eat and travel if you choose, which would put you above the poverty line. I think MVPs can be done during hobby time if you aren't trying to 'build a startup'. I don't think the expectation should be to replace your $70k income with one MVP to be honest.

I think the characterization of #2 is way off. As others have pointed out, you're talking about mrmoneymustache.com but you're not very accurate. The guy/family essentially has $1 Million (probably more) in assets (paid-off house, rental properties, stock accounts, etc.) and lives off of $25-30K that these assets generates. Given that he doesn't have the worries of paying a rent or mortgage, that he has optimized his location for quality of life, he shows how a basic middle-class life, but with total freedom from work, can be had on that budget. But he's also the first to tell you he actually likes to "work" on his own terms (house renovation, blogging, etc.) and that these things bring him income that is just further accumulating. He actually could draw more to live every year, but doesn't. So in addition to a decent lifestyle, he also has financial security, which I bet a lot of people would want.

I do think there are some aspects of MMM's success that are not generalizable, mostly the carpentry/contracting skills and the rental property income that are a direct result of them. But the idea that on a 100K salary (say 70K after taxes), you live on 30K and save 40K for 10 years gives you a very comfortable nest egg that will compound and generate income for you is very real.

Another part of MMM's message, if I may, is that a non-consumer, active lifestyle (during both the savings phase or the "retirement" phase) is more rewarding personally and more sustainable socially. You say "it's not the life most people want to live," but one argument is that they haven't tried it because they are steeped in the mass-media consumer culture.

Personally, the OP ("a passive income hacker's view on wealth") is a no brainer (of course we all want time, and maybe a meaningful task in life), and I was really surprised he didn't tell us how to obtain that time. Because there's the difficulty, and I agree that most people peddling passive income solutions are your 1 and 3. #2 might not be for everyone, but I see it as an honest, viable alternative to the swindles and luck stories.

Rent (or mortgage) are usually the largest part of someone's expenses. Having those paid off it like a massive pay rise for a lot of people.

My wife isn't a hacker but she works around 10 hours a week on http://www.lucieslist.com. Her effective hourly rate is probably $200 to $300. She doesn't even monetize aggressively (just affiliate links).

These opportunities are everywhere if you're willing to solve important niche problems that companies don't go after effectively.

We used your wife's site when prepping for the arrival of our twins. It was great. Hope she made some good $$$ off of our purchases - we bought double of everything.

Awesome! She'll be psyched to hear this.

I hope so too. Preschool is expensive :-S

I probably should have pointed out that that was two years ago... but I do tell friends about the site!

The mustache guy is at the poverty line? You have read http://www.mrmoneymustache.com/2012/06/01/raising-a-family-o... right? To quote the Princess Bride, "I do not think that word means what you think it means."

To be fair to your actual point though, he is in your third category considering some great luck on cashing in startup options and other investments. Although he lost a lot on real estate too.

I agree passive income has much more of a luck/hard to define or acquire skill element than its proponents are letting on.

I've read that article, and I still believe that their income classifies them as near poverty. They have two "tricks" that give them that lifestyle:

(1) Prior to 'retiring' they were making upwards of $200k combined (IIRC), and this is probably what allowed them to purchase the house. So they weren't always near or at poverty.

(2) The house was renovated by hand, every single meal is cooked by hand, and in general they are so tight with money that the wife wrote an extremely anxious post once about the crazy expensive experience she had when her father took her and her son out to get ice cream one day. Having to be super anxious about very minor expenses is pushing you close to poverty in terms of income.

It's also worth noting that he only says the home is presently worth $400k, not that they gave $400k for it. They may have purchased it for half that or less and did significant personal renovation to raise its value.

I also read "the mustache guy" blog and a perspective that might help you understand him better is he's all about controlling the location of his personal poverty line, not convincing himself that living at some supposedly universal poverty line is cool. By working the system and thinking really hard (well, by median american standards) his personal poverty line is probably a quarter of mine. That's how both of us live pretty well, despite him getting only about 1/4 what I do. He travels around the world about as much as I do, we both have similar goal of eating high quality food.

The other thing he's really hot for is self control. He spends like a drunken sailor; its just he only spends like a drunken sailor on things that are worth spending like a drunken sailor on. There's a lot of insight in the old unsourced W C Fields quote "I spent half my money on gambling, alcohol, and wild women. The other half I wasted." Ice cream just shows up on the "wasted" list.

The saga of the ice cream is a perfect example of sophistry as an attack mode. He was using it as a great individual example about philosophy. The folks attacking him piled onto the tree and completely missed the forest. For our educated HN readers, imagine a modern Plato telling the "allegory of the cave" and a bunch of people declaring Plato an idiot because they personally don't live in a cave and they use lightbulbs not camp fires, therefore the whole story and everything it implies is completely useless to everyone. That's a pretty good summary of the negative reaction to the ice cream saga.

I don't think that flexible creative thinking, and self control, fit in very well with the modern mass media advertising narrative; Its an existential threat to them. Can predict he would get intense pushback from the drones, and in practice, he does.

There's an old saying about Americans would rather die than think. Well, if you make fun of them for doing something stupid, the loud ones get belligerent.

I appreciate your offering an alternative perspective, but I disagree with almost everything you've written.

> By working the system and thinking really hard (well, by median american standards) his personal poverty line is probably a quarter of mine. That's how both of us live pretty well, despite him getting only about 1/4 what I do. He travels around the world about as much as I do, we both have similar goal of eating high quality food.

This sounds unreasonable and incorrect. I've read a lot of his blog and I don't think he has discovered some obscure loopholes or anything like that. He just lives very frugally.

I trust that you're a smart fellow, so I believe that if you were given the same base amount of money as MMM you could easily replicate his lifestyle. You know how to cook your own food. I'm sure you could figure out how to maintain your home and renovate it, especially with all the extra time you'd have to focus on that. If you quit your job, you wouldn't have to live wherever you're currently at, so if it's an expensive area you could move to a cheap area.

The only thing holding you back is desire. Your "poverty line" isn't at the same place as his because you don't actually desire the life he leads.

> He spends like a drunken sailor

I have to disagree with this as well. I don't think I could ever regard somebody living on at most $27k for a family of three in a medium COL city in the United States as spending like a drunken sailor. You'd have to change the usual meaning of that phrase. To me, this is just simply not true. It doesn't matter if he spends most of that money on just a small number of things important to him. The set of medium COL cities in the US is sufficiently well-defined that $27k for a family of three is under no circumstances spending like a drunken sailor.

> "I spent half my money on gambling, alcohol, and wild women. The other half I wasted."

This is a funny quote, but I disagree with you that it's actually practically useful. If you take it too literally, you'll realize it's just a tautology. This justifies any and all spending and therefore cannot possibly be a discriminating strategy for personal finance that applies to multiple people. But the exploration of such strategies is exactly the purpose of MMM's blog, so I think there's a bit of irony in relating MMM to a quote which, if taken too literally, undermines his own blog.

> The saga of the ice cream is a perfect example of sophistry as an attack mode.

Except it's not, because I wasn't attacking anybody. The ice cream "saga" comes up often because it shows a lot of people that they don't actually desire the lifestyle he and his family lead. It takes all the persuasive rhetoric of the site and really brings it down to reality, showing the reader what the lifestyle is really like.

People reacting strongly to that "saga" are, in general, not being judgmental at all, not on a personal level anyway. They're simply having the epiphany that this isn't the lifestyle they want.

> Plato telling the "allegory of the cave" and a bunch of people declaring Plato an idiot because they personally don't live in a cave and they use lightbulbs not camp fires, therefore the whole story and everything it implies is completely useless to everyone. That's a pretty good summary of the negative reaction to the ice cream saga.

This is all overly dramatized and, as I explained above, I don't think it's a good summary either. I for one have gained a lot of benefit from MMM's blog and regard it as having very high value, but I still don't covet his actual lifestyle. I've also never declared MMM an idiot. I wouldn't even consider myself a detractor, but I imagine that even among his true detractors very few would go so far as to call him an idiot or not appreciate any of the personal finance lessons he has to teach.

We'll have to agree to disagree in that our initial perspectives are far too different, with the exception of:

"Except it's not, because I wasn't attacking anybody."

And in that case I was wrong not to point out he got huge heat from many people way back when that issue was new, like a year or two ago; was not trying to imply its solely you. This also applies to the Plato's cave dramatization where of his zillions of detractors, your particular example was not as severe as the majority of those who disagree with him. At least intended to comment more on the history and social phenomena of the relatively sever backlash as actually originally happened at that time rather than on your comments at this time.

I don't think they are "tricks"; they're sensible money management strategies that enable them to be rich and missing them causes other people to be poor whilst still having a larger income.

(1) I think this is a basic terms/mindset issue. Income is not wealth. Most things you own are liabities (costing you to keep them), instead of assets (earning you money by keeping them.) The point is, they aren't and never were near poverty. But now they invested enough of their income so that they don't need to work to live comfortably, they are pretty much rich. For example, they purchased their house. They actually own it, so they are never going to get kicked out of it, even if they never work again. What proportion of people you know with >$20-30K incomes own their home outright? Still sure your measure of poverty is correct?

(2) The return on doing those kinds of things is great, and as MMM says, you learn useful skills, get fit, and most people find the activities enjoyable. You can always subcontract some of it without really changing the thesis, just not all of it [1].

On the ice cream, I got the impression she was anxious because it was super weird to waste all that money on extremely fleeting and pointless pleasures, but I'll give you that attitude might be unpleasant and socially awkward. Still don't think I'd call it poverty though; more like extreme thrift/being a tight bastard.

$400k - so? What relevance does its market value have? I think it makes much more sense to see a house as a useful liability (everyone's got to live somewhere, and you've got to pay taxes and upkeep even when you own it, so its costing you, not making you money), instead of pretending it's an asset (and it's a shitty one due to lack of diversification even if you were happy to sell it tomorrow and live under a bridge).

Genuine point: do you really think this? What's your financial education/understanding like? MMM being rich just seemed obvious to me, which is why I'm arguing so hard. Thanks for joining in!

[1] http://www.ribbonfarm.com/2011/12/08/acting-dead-trading-up-... for an interesting take on the collapse of the middle class and trick of mixing fancy with not.

> MMM being rich just seemed obvious to me,

Do you actually believe he is rich or are you just saying this to be contradictory?

You make a big deal of owning his home outright, but it's actually not that much money when you think about it. A $320k mortgage for a $400k home is $1,200 in interest a month at 4.5%. That's an extra $15k a year and that's not nothing, but even adding that to his $27k puts him below the U.S. median family income. And that's why things like ice cream freak them out. $27k/year, even with a paid for home, is not a lot of money.

Another way to think about this is seniors. Social security isn't too far off his income level. A lot seniors own their home outright. If that's your only source of income then sure you can live a simple life in Florida, but no one would call this "rich".

We're running into sociological class issues WRT definitions. These are generalizations, but pretty accurate:

Lower class people in the USA think being rich is high spending.

Middle class people in the USA (a shrinking breed...) think being rich is having a high income.

Upper class people in the USA think being rich is owning nice assets.

Its funny how if you look at an economics equation like "assets" = "sum of income" - "sum of spending" each social class thinks success for everyone (although actually only valid within their own class) is maxing out a different variable.

Its no great surprise they're confused as heck when they talk to and with each other.

For example this is the legendary tightwad rich dude trope. Poor dude doesn't understand why rich dude doesn't spend constantly like a drunken sailor because thats how he defines success. On the other hand, rich dude doesn't care about spending, it doesn't show up on his cultural radar, all that matters to him is nice assets. And thats why all of us have to sit thru the tiring stereotype whenever hollywood wants. Boring!

Look at attitudes toward higher ed. Lower class doesn't see poor starving students spending bling, therefore its a negative to be avoided. Middle class fixates in it as a high income jobs program, all that matters is getting the credential for the job. Upper class sees an education as a lifetime asset, gives you something to think about for the rest of your life, if you do it right. The three usually don't understand each other or their desires at all.

As VLM pointed out, our definitions of rich appear not match at all, hence my question earlier in the thread "do you really think this?" and your "are you just saying this to be contradictory?"

So, my definition: being rich is having enough assets that I can comfortably provide for myself and my family without needing to work ever again. To me, being rich is about freedom, not about having lots of expensive toys or habits.

In my definition, income level is entirely irrelevant, which is why we are talking past each other, because that appears to be the focus of your definition.

As to seniors: exactly – don't most people look forward to retirement? Except he's getting to do it with his children as well as grandchildren, with his youthful health, 30 years earlier and for 330%† more of his life (never mind that he also manages his money a lot better than the average person so it provides more than a simple life in Florida.)

† Life expectancy (LE): 78 years. Retirement age (RA): 65. MMM retirement age (MA): 35. (LE-MA) / (LE-RA) = 43 / 13 ≈ 3.3 = 330%

> our definitions of rich appear not match at all

This is why discussions regarding MMM are unnecessarily controversial. While I can sympathize with and appreciate your view of "rich," I don't think that the typical usage of the word is in agreement with you. You're waxing philosophical here, and even if I might agree with you on this definition (I do) this just doesn't chime with the everyday usage of "rich."

I think an article like this much more closely captures what is normally meant by a word like rich, at least in the US: http://en.wikipedia.org/wiki/American_upper_class

If you have enough money to do what you want for the rest of your life, I'd call that "rich" by your own personal value function.

For me, that number is amassed wealth sufficient to provide income nearly an order of magnitude north of $27K/year, but that still means that when I'm halfway to my personal goal, I'll have 5x what MMM has and he'll be rich and I won't.

He's rich because he lives simply. I have more than he does, and I'm not rich because I have expensive hobbies (and a desire to fully pay for top tier undergrad college for both of my young kids).

And that's OK.

Thank you for saying this. It's important not to be suckered into the get rich-enough-without-much-work/4 hr work week dream.

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