You can’t see your hair and fingernails grow, but each month they require your attention for some trimming.

To you it’s just a home, but due to appreciation it could magically be worth $100,000 more when you wake up five years later.

      Photo by brtsergio

What’s the point? There is great power in things which “just happen” whether you focus on them or not - even if they happen very slowly.

This is true because we have a limited amount of time and mental energy to use each day. It is our most precious resource.

Most people use that time and mental energy in exchange for money. The problem is that they must continue to trade their time and energy every time they want to earn more money. Why don’t more people focus it on building something that will generate passive income - income that happens whether they focus on it or not?

The answer is simple, they don’t do it because the initial results are pitiful! You could spend a TON of time finding/buying/fixing/leasing the right piece of investment real estate or getting a passive income business going, and in the first month be left with a measly $50 in cash flow. It hardly seems to make sense. Meanwhile someone else working a job that month could have brought home $5,000 for the same amount of hours and made you look like a fool!

But they would have missed the power in what you did, and that’s why most people will never be rich. Sure, it’s only $50. But you’ve now created something that will happen passively. It will happen whether you pay attention to it or not. You have created that leaky pipe - except now instead of ruining the floor it is filling up a bath tub (your bank account). You’ll come back some time later and that drip will have been working for you the whole time.

Here’s the best part: your time has been preserved. Since you still have all your time and mental energy at your disposal, you can go off and create another drip. With two drips working for you, you can go off and create a third, etc.

One day you’ll wake up with an army of drips working for you generating all the cash you’ll ever need, and your unfortunate counterpart will still be spending his time and mental energy to get a paycheck that month. Meanwhile, your time and energy will still be preserved to focus on whatever you’d like (more drips, charity, culinary school, curing cancer, writing your auto-biography etc).

You might look like a fool up front, but preserving your most precious resource (time and mental energy) by building passive income streams is the besy way to get rich.

In the past it took me about 4 hours using Wordpress and I thought that proved how easy it was. Well now you can do it in about 30 MINUTES!

I came across an really cool service yesterday called Weebly. It does the Wordpress technical mumbo jumbo for you (uploading files with FTP, etc) and gives you a totally graphical way to install and build the site!

It is super easy and well designed. In about 10 minutes I was able to create this test site with a professional layout, contact forum, blog, complete forum, and blocks for Google Adsense.

They will host the site for you for about $4/month and you can pick your own domain name. Now you have NO EXCUSE not to get your business idea going!

One final bonus trick: pick a domain name that contains the primary keyword you’d like to rank for in Google. This will help you get on the first page of Google for that search term - which means customers! Boom, you have your own business.

Hi Brian,
I really enjoyed reading your articles! Thanks! What type of advice would you give for someone who is about to graduate college…go out into the workforce first to get “established?” Or take the entrepreneurial route from the beginning? Any advice would be much appreciated. Thanks so much.
Katie

Hi Katie,

I struggled with that too when I graduated. Basically, I took the money and after college went to do consulting. I only lasted there 3 months before I quit to work for myself. But in a way I’m glad I did it, because at least I knew what I was missing by quitting. If I had just gone right into entrepreneurship, then when the going got tough (and it will) I probably would have questioned my decision more.

I also had an insecurity I think that people would say “he became an entrepreneur because he COULDN’T get a job”. It sounds silly, but I think this was a fear that I had and I wanted to prove them wrong.

Your friends will probably be out driving fancy new cars, using company credit cards, and traveling for their jobs, etc. This can be intimidating if you are just starting out in your own business and are feeling broke. You’ll start to second guess your decision.

The benefits of entrepreneurship might not be as obvious up front, but pay off in spades later. For example, you haven’t given up 40-80 hours of your life each week for another person’s goals, you won’t have to sacrifice health/sleep/freedom for a paycheck, and you can eventually end up much wealthier than your friends.

So I guess I’d say if you are on the fence, going to get a job for a while can be beneficial in the sense that it can reaffirm your belief about what you DON’T want to go back to. This can be the motivation that helps you really get your own business going. It can be the reason why you must.

Just don’t get STUCK in that job by going out and spending the new money you’re earning with big expenses like car payments and house payments. You can just as easily become a slave to your job by having such high expenses that you CAN’T quit. If you decide to, try setting a specific date in your mind when you will force yourself to quit. This will help you prepare for the transition and encourage you to take action.

Until next time, keep breaking free!
Brian Armstrong

“Junk in the trunk”.

These popular phrases spread throughout our culture like wildfire. Why?

It has something to do with the repetitive sounds in the phrase. It rhymes and is melodic. Rappers have stumbled on an interesting psychological effect with phrases like these: they bounce around in your head and get stuck there. They’re impossible to forget!

It’s not just rappers either. Have you noticed that a lot of popular brands also have repetitive sounds? How about Coca Cola (the ‘c’ sound), Google (the ‘g’ sound), or Toyota (the ‘t’ sound).

Celebrities often change their names for a similar effect. Marilyn Monroe, Jon Bon Jovi, and Chevy Chase are all examples.

It could be the vowel sound that repeats (assonance), the consonant sounds (consonance), or just the beginning letter (alliteration).

You can even win a trial by making sure “if the glove doesn’t fit, you can’t convict” is the last thing to stick in the jury’s mind.

I’ve been trying to think of a slogan or description for my tutoring business which uses the same principles. Super duper tutors? Not sure, it’s still a work in progress.

But what’s clear is that repetition of sounds is a great marketing tool.

What other examples can you think of? More importantly, how can you use this in your own business to build your brand and stick in people’s minds? Brainstorm for a second and leave us a comment below!

Instead, you should be pursuing “financial freedom” - the moment when your passive income exceeds your living expenses - because then you can really start to do your life’s work. Maybe you’ll try to cure malaria like Bill Gates. Or maybe your “work” will be for a charity that doesn’t pay a dime. Whatever it is, I guarantee you won’t have retirement on your mind because you’ll enjoy it too much.

Brian,

I’ve noticed that wealth generation falls into one of two categories: Income and Growth.

Income puts food on the table today.

Growth builds over time until your net worth itself becomes income (by interest from investments).

Growth is almost always passive by nature. INCOME usually requires some kind of sweat equity, at least up front.

The two are often inverse compliments of each other. If you own a rental free and clear, you maximize INCOME (pure cashflow). If you fully leverage the equity of the property instead, you may end up with negative cashflow, but now you own more than 10 times as much real estate, all appreciating (GROWTH).

You cannot have growth without income first to pay the bills. So I am focusing my study and learning on INCOME-type methods.

I’ve noticed you’ve dipped into Real Estate, Blogging, Speaking, and other forms of INCOME methods. Could you please do a comparison of all the income methods you’ve explored, with a by-number breakdown of how profitable they have been? I suspect your Real Estate deals win hands down, but I’d happily be proven wrong…

I’m probably not alone in still exploring all the different INCOME options out there, without having yet settled on which one to devote my full time to learning.

Thanks for the great blog.

Hi Caleb, good points. You’re right there is often a trade off between income and growing net worth. I see this especially in real estate (where, as you pointed out, it’s referred to as equity vs. cash flow).

I try to mix both in my real estate deals. They all cash flow a little bit, while capturing some nice equity.

I can’t say for sure yet which method is best for passive income generation since I basically try a bunch of things and some work out better than others. Every business I start has varying degrees of success and every real estate deal gets different results.

But when I have a bit of capital, I invest in real estate. When I don’t have capital to play with I try other methods of generating passive income like starting web businesses or bloggin (which don’t require much capital).

That’s a big point actually. You don’t have to wait until you have large amount of capital or net worth to get passive income.

Blogging I see as passive income because although it takes “work” to write, it takes the same amount of work whether 100 people read it or 100,000 people read it. So there isn’t a direct correlation between time & income like a salary job. In a regular salary job, you’re unlikely to get a 1000% raise for doing the same amount of work, but it can happen in blogging just by your number of readers growing over time.

The other type of passive income businesses I like (which don’t take much capital) are web businesses like my tutoring site (www.universitytutor.com). It was started with very little capital ($100 and my own time) but provides passive income.

So to sum it up, I guess I think about it more in terms of 3 categories. (1) growth or net worth (2) passive income, and (3) regular income from a job.

Most people start at #3 and that is the lowest level. There is no doubt that the best source of regular income is a typical 9-to-5 job. It’s stable and far less risky than being an entrepreneur.

But while at that job you should try transitioning to passive income so you aren’t stuck there forever. If you have capital, invest in income generating assets like real estate. If you don’t, you can try building a passive income business which doesn’t require capital. Web businesses, blogs, review sites, etc. Reinvest what income you do have to keep the cycle going.

Eventually, you should reach a point where your job income has been replaced by your passive income and you will never have to work again (or more accurately, your REAL life’s work can begin because you won’t be working for money anymore). This is the definition of financial freedom.

Thanks for bringing up this great question! It helped clarify it in my own mind as well.
Brian Armstrong

Case in point: someone recently started spamming my tutoring site with messages like these:

This type of scam shows up often on CraigsList.com and it just recently hit my site for the first time.

By the way, if you haven’t seen it before it goes like this: the person makes an offer to pre-pay a large amount up front. They send you a phony money order. After you’ve received the fake money order they say they are going to have to cancel and ask for a partial refund. You send them a refund (with real money), and a week later the bank comes back to inform you that the money order you tried to deposit was fake.

You can spot these because usually (1) the person is out of country (2) the grammar is poor (3) they will refuse to talk to you on the phone (3) they want to make a large payment up front.

Manual Process vs. Automated Process

It’s annoying for the tutors to receive these messages, and it might be tempting at this point to create a “manual review” process where a human being would look at each tutor request before it gets sent.

This however, wouldn’t be very passive.

Instead, you can often use your “community” of users to be a police force for you. Wikipedia (and a number of other sites) have employed this model very successfully with a self policing community.

The solution I came up with was to add this line to the end of all emails:

Then I built a little system so that if enough people report the spammer, the account will get deleted and they won’t be able to bother anyone else.

Some interesting things to think about when building a system like this:

1. If you notify the spammer that their account has been banned/blocked. They will probably start using new email addresses or be more motivated to get around your system. Instead, I set it up so the spammer gets NO INDICATION that their messages are being blocked. That means they will happily go about trying to send new messages and working hard…UTTERLY WASTING THEIR TIME as punishment. Maybe this subtle form of punishment will eventually cause them to reconsider their line of work since it will accomplish nothing.
2. You don’t want to ban the person if just one person flags them as a spammer. The tutor could use this maliciously if they want to avoid getting negative reviews or block the user for any other reason. Therefore you must try to get a “consensus” from the community by getting a few different opinions. The exact right number is debatable, but the more people mark them as a spammer the more confident you can be about banning them.

Most business owners don’t think about the cost of answering one extra phone or email. “It will just take a second” they say. It makes them feel busy (which is very different than being productive) to solve easy problems. Instead, they should be working “on” their business, not “in” it.

If you want to make a truly passive business, you need to put systems in place to handle 99% of whatever might happen automatically. Even if your automated solution works only 90% as well as the human solution, it will still be worth it. Every phone call or email DOES count, because you want to scale your business up to 100 or 1,000 times it’s current level without hiring any employees. Hiring employees isn’t the answer (managing/hiring/firing them is just another job and isn’t passive). Instead, focus on building business systems to automate as many tasks as possible.

Until next time, keep breaking free!
Brian Armstrong

What part of your business do you wish you could automate? Post a comment below.

Inside it, I’ve written down (over the last year or so) the reasons why I must become financially independent working for myself.

There are about 20 reasons (some of them personal), but for example, I know that I can never really contribute to the world if I have to spend 40 hours a week working for someone else. There just isn’t enough time. I also know that it is the only way I’ll be able to travel the world for a year and continue to earn money. These are important goals in my mind.

Why is it so important to have a reason you MUST? Well, if it’s just something you WANT, instead of a MUST, then when you hit the first setback (and there will be many) you’ll give up.

What is your reason? Is it spending more time with your kids? Is it building your dream house? Is it being financially able to provide for your family? Whatever it is please take a moment to write it down (in the comments if it isn’t too personal). If you don’t write it down, it doesn’t count.

That way, when you hit your first setback and stop to ask yourself “why am I doing this?”, you’ll have an answer.

Everything - from meetings with important people to free press any time you launch a new project - is yours if you’re known for something that people love.

So how do you do it? Start publishing your ideas. You need distribution.

In Ben Franklin’s time, distribution was expensive. Now all you need is a blog, a YouTube video, or a self published book to get started. It’s free, what are you waiting for?

Today we’re going to talk about the correct way to decide if something is true: the scientific method.

The scientific method is an entire process with plenty of steps. But I’m just going to show you 3 pieces of it which you may not know about or have forgotten since high school.

The scientific method is AWESOME because it filters out bullshit. No longer can someone make a claim without backing it up and going through the right steps. In fact, that’s why I think it’s so important to understand this: if you see someone skipping the steps they are most likely LYING to you.

1. Double Blind Experiments

   Human being’s have biases. Even when you think you don’t have a bias, you might. For example, you may have heard of the “placebo effect” where people who take sugar pills (which do nothing) say they feel better. People who are given taste tests usually choose their regular brand, but when the brands are hidden they choose differently. Even more shockingly, you might think you don’t have any race or gender biases but you can take this test as many times as you like and you probably do.

   So this means proper experiments must have a “control”. If you are going to give a pill to one group, then you should have another group of the same size that you give the placebo too. They are the “control” group and only by comparing the results of the two can you isolate one variable to test without bias.

   In a true double blind experiment, the person being tested doesn’t know which group they are in (the “real” one or the control) and neither does the researcher.

   Double blinds experiments provide great evidence that Astrology is bullshit. As you can probably guess, all you have to do is not tell the test subject which month or “sign” you’re reading from and ask them if it applies to them. They end up saying yes or no just as often no matter what their sign is.

2. Peer Review

   Peer review means that if you want to claim something is true, you have to document the steps of your experiment and other scientists around the world have to be able to duplicate your results.

   If other people can’t duplicate your results then you are probably full of shit.

   For example, you’ve probably heard of people trying to run a car on water. Water has hydrogen in it and hydrogen is a good fuel, so it would be great if we could get the hydrogen out of the water. The problem is that it takes more energy to separate the oxygen from the hydrogen than you get out of the hydrogen so it doesn’t work.

   Yet this doesn’t stop some lunatic from coming out (probably every year) claiming they’ve invented a car that runs on water. Even major news organizations get duped occasionally like when FOX News in Houston ran this video segment giving one such lunatic a lot of press. It turns out that the guy is using an Oxyhydrogen torch which has been around since 1977 (and still uses more energy than it produces in hydrogen).

   From peer review of his patent application we now know him to be full of shit, and his “company” Hydrogen Technology Applications is a scam. The FOX News reporters should have read this blog article so they understood peer review :)

3. Sample Size

   This is also sometimes called “statistical significance” and basically means you need to run your tests enough times (or with enough people) to show the result didn’t happen from chance.

   Interestingly, this also shows why anecdotal evidence is not evidence at all. Your sample size isn’t large enough if “everyone I talked to” means five people.

   For example, let’s say that you want to test how often a flipped coin comes up heads vs. tails (which we know to be 50/50). Well if you did the test 1 time, that obviously wouldn’t be enough. But what if you flipped the coin say 5 times. Would that be enough?

   Well it depends. There is about a 3% chance you’d get 5 tails in a row, and a 3% chance you’d get 5 heads in a row (which is no where near the true answer) and a range of other possibilities.

   Would 10 be enough? 20? Without getting into the math, the main point to take away is that you must have a large enough sample size to be “confident” about your answer. Any claim which isn’t based on statistically significant data is meaningless.

So to review, what is wrong with this statement:

I’ve developed an incredible new weight loss pill! Of the 10 people I gave it to 10 of them lost weight and no one died. Buy it now!!!

I’m exaggerating a little of course :) But this should raise your bullshit detectors because:

• There was no “control group” of people who DIDN’T take the pill (Double Blind)
• The claim has not been verified by anyone else (Peer Review).
• Testing 10 people is not enough to draw any meaningful conclusions. (Sample Size)

A Pigeon Video

Finally, I’ll leave you with this interesting pigeon video as promised. This is from Richard Dawkin’s excellent documentary called Enemies of Reason.

It shows an experiment done by B.F. Skinner which gives some shocking insight into human behavior. If you can’t see the video below click here. I suggest watching the whole thing if you have time, it’s excellent.

The pigeon part is around the 36 minute mark.

What do those pigeons remind you of? Sports fans at a game who wear their “lucky” hat? Something more serious like gambling? And the scariest of all: perhaps a belief that you have?

Conclusion

It bothers me that more people don’t understand these sorts of things. In the dark ages we were primitive people running around naked, dirty, and ignorant - slaves to superstitions and scam artists making false claims. Blood letting was common medical practice. Then in the enlightenment we developed these brilliant tools (double blind experiments, peer review, and statistical significance are just 3 examples) that allowed us to do a very important thing: TELL BULLSHIT FROM THE TRUTH.

This lead to science which has allowed us to get a heart transplant, email people around the world, and travel to the moon.

But sometimes it feels like we’re heading back to the dark ages. I heard someone remark one time that:

The last time I went into a book store there were 10 books on astrology and 2 on astronomy.

Hopefully this article will help someone people make educated decisions about the truth.

Until next time, keep breaking free!
Brian Armstrong