While it seems that everyone is searching for the elusive “passive income” these days, in reality, there are very few sources of truly passive income, short of a trust fund that sends you a check at predetermined intervals. The fact is that while alternative income streams can become more passive over time, they almost always require some significant upfront investment, as well as ongoing maintenance. Even real estate syndications or REITs, some of our favorite sources of income that are as close to passive income as most physicians get, require learning how to vet deals and then doing due diligence before investing in each opportunity. Below, we’ll visit the myth of passive income, how to set more realistic expectations regarding these income streams, sources of relatively passive income, how to make income streams more passive, and importantly, why we think side gigs are still a very attractive proposition for most physicians and worth doing even if they’re not completely passive.
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What is passive income, and what are some sources?
Whether or not you believe passive income streams exists depends on your exact definition of passive. If it’s literally to make money while you sleep with no upfront or ongoing effort on your part, you won’t find many sources of passive income. Some that we’d say would count as truly passive income (or as close to passive as you can get) include:
Inheriting a trust fund that writes you checks at a regular cadence
Getting dividends or interest from a high yield savings account or an investment in the stock market
After you’ve put in the upfront effort of learning how to vet a deal and doing due diligence on it, passive real estate investments or angel or venture investments
Some ancillary income streams from your private practice where you’re not involved in the day to day operations, like income from a lab or from employed physicians or other non-physician clinicians or income from an ambulatory surgery center (ASC) – but this typically requires buying into a private practice, which of course achieving is anything but passive
Investing in a friend’s business as a silent partner
As you can see, the list is short, and basically requires having money that’s working for you in the background. And we all know that our saved money didn’t come easy to most physicians.
What sources don’t we consider passive income?
There’s a lot that is often touted as passive income that we certainly do not count as passive income. A lot of people talk about making money while they sleep by doing things like:
Owning active real estate investments: These are living, breathing investments that have both routine maintenance and acute problems associated with them.
Ancillary income streams from your private practice that require your involvement, such as revenue from owning your medical office building, engaging in clinical trials, investing in an ASC, or implementing remote patient monitoring
Being a physician influencer or blogger - content creation is really time consuming, not to mention the time spent getting eyes on that content
Starting a business such as a franchise, a locums company, an expert witness business, or a coaching business
Getting ‘free’ perks like vacations and gift cards by skillfully navigating credit cards and point redemption - you may disagree with this one, but more about that below
Getting a patent or creating a medical device- while this may eventually result in passive income, the process of getting the patient was anything but passive
Doing paid medical surveys, consulting, or startup advising
As you can likely tell, each of these has active components which can add up to lots of hours of work. That said, many of these things can become more passive over time, or eventually turn into residual income, but they’re not passive revenue streams. Below, we’ll discuss how to make an income stream more passive.
How can you make an income stream ‘more’ passive?
Most of you will rightfully discern that the income streams in the last section can vary dramatically in terms of time and effort depending on how you approach them. This is 100% true, and where the concept of the ‘side gig’ comes into play - acknowledging that there is some hustle in all of these ‘passive’ income streams that eventually pays off.
Unlike in most of your work as a physician, there are plenty of ways to make side gigs or income streams more passive.
In active real estate investing where you invest in long term rentals, mid term rentals, and short term rentals for example, you can hire a property manager or management company.
For side businesses that involve content creation, you can hire social media managers, PR firms, copywriters, and virtual assistants.
You can negotiate residual income into your contracts, so that any revenue streams you create continue to pay out dividends beyond the upfront effort you put in. For example, if you create a medical device, sell a business, or publish a book, these can result in long term income that will feel passive.
Similarly, if you put a lot of upfront effort into creating a virtual evergreen course and marketing it, it will feel very active at first, but if it’s successful and gains traction, the effort needed to maintain or update it may feel very passive as people purchase the content and consume it on their own.
In any business, you can hire employees that will help to take work off of your plate, even if you reduce net profit. Of course, having employees has its own hassles, but of course the intention is for them to make your job easier and make that income feel more passive.
And, as with most things, once you figure things out, they get easier. Most businesses take a lot of iteration at the beginning, but once you’ve figured out what works, built a following over years, etc., then you can just focus on doing what you do without all the other things that go into making it successful.
Recognize that most ‘passive’ revenue streams have an opportunity cost and risk associated with them
The main point we emphasize here is that almost everything that you can do to make money outside of your job has its own opportunity cost, and depending on the risk involved, isn’t a sure thing.
You almost certainly spent time researching that investment before making it. You could invest money somewhere and lose that money.
You could spend time developing a product or writing a blog or creating content in hopes that it will lead to revenue down the line, but it may never get to the point where the time that you put in is paid off by the revenue generated.
Let’s look at the example of the credit card point redemptions. First of all, you spent the money (so it’s really just the credit card companies making a little less off of your transaction fees). Secondly, you spend time figuring out how to best utilize the points. Depending on the opportunity cost of your time, in many cases, you could have earned the delta between the value of the cash back offer and the perk in that same amount of time. And unlike investing in real estate syndications or dividend producing assets where after your research and the decision to invest then becomes passive income, each time you do a redemption, you spend that time navigating your points redemption offers, so it’s not just a one time cost.
You get the point - everything you do is time you could be spending doing something else, so anything that requires your time and energy has an opportunity cost. It’s on you to decide when those opportunity costs are worth it.
So, what benefit do these side gigs offer physicians over just making more money at their day job?
We know we just spent a lot of time knocking this idea of ‘passive’ income. But we still believe these alternative income streams have value, and here’s why.
In your day job as a physician, you put in a huge upfront effort to become a physician, but will always put the same effort into making the same money (or more, with how the current healthcare landscape is). We refer to this as. “trading time for money.”
Many other income streams offer the potential for money to flow a little easier after the upfront investment, which is where we think physician side gigs really shine. As we pointed out above, there are ways to make most other businesses or income streams more passive.
This is of course in addition to the other reasons for having a physician side gig, such as:
Diversification of income streams, which allow you to walk away from a bad situation or gives you leverage at a negotiating table
Creation of income streams that will eventually become more passive or create residual income that can last indefinitely
Potential for big returns on investment disproportionate to effort put in if an investment does really well or a business idea takes off
They’re fun, allow you to use a different part of your brain, and introduce you to new people and new ways of thinking (let’s be honest, most of us love learning)
Tax advantages (see tax deductions from 1099 income and avenues such as real estate professional status, which allow you to reduce how much of your physician income is taxable)
Expedite the pathway to financial independence
Conclusion
We are still big believers in side gigs for physicians, but want to do away with the notion that there are plentiful opportunities outside of investing in the stock market that will allow you to make money while you sleep with minimal upfront effort. Realize that almost every side gig or alternative revenue stream will take some (or a lot of) upfront investment of at least time and energy, if not money, and that it may not always pay off. That said, the potential to change the way you make money and how much effort you put into each additional dollar earned is pretty exciting!
Feel free to use our website section on physician side gigs as well as our online physician communities to help you on your side gig journey!
Resources
Want to learn more about side gigs and side income streams for physicians? Here are some places on our website to start.
Common physician side gigs, sorted by clinical and nonclinical, specialty, and stage of practice
The physician’s guide to ‘lazy’ investing in the stock market