For myself, it was a teacher on some random day in school. She was talking about school supplies or something. I don’t exactly remember. But we’ve all heard it — from our mothers, fathers, extended family… Money doesn’t grow on trees.
And decades later I finally realized that she was wrong. In a way, it kind of does.
No, I’m not talking about cheeky answers like it’s paper so it does. Nor is this about the recent ESG (Environmental, Social, and Governance) investing movement for a greener future. (We’ll talk about this on another day.) Instead, I’m talking about passive income.
Money doesn’t grow on trees?
To be fair, the actual intent of the phrase is great. It’s about rethinking purchases and only getting things you need. It’s a saying driven by disciplined budgets.
But meanings can get lost in translation, and many people associate it with this: If you stop working, you stop earning.
That’s precisely what active income is. And so we get people saying things like stop wasting (correct) because money doesn’t grow on trees (incorrect).
Active income vs. passive income
What’s the difference between active and passive income? Active income requires active work — when you stop working, you stop earning. Your salary, for example, is a form of active income. Commission from sales is also a type of active income because you have to actively look for clients and referrals.
In contrast, passive income brings in money without active work. Examples include rental income, stock dividends, or income from a well-functioning and automated business.
But let’s make one thing clear. Passive income does not mean you don’t work for it. Passive income often means more work. The difference is in the timing of work.
I’d say the tree analogy sounds good here. Building passive income is like planting seeds — it’s all about working now and reaping the benefits later. And this is an absolute rule! There are no get-rich-quick schemes, and the results are directly proportional to your actions.
Small actions lead to small results. Big actions lead to big results!
Even when you consider investing in dividend stocks like REITs (which are very easy to buy), you’d still need to have the large cash upfront if your dividends are to be of any significant amount. And the large cash upfront will require work, either from you or from inheritance.
No matter how you frame it, someone will have to work for it. Someone will have to plant the seeds.
Achieving a level of passive income that’s more than your day-to-day expenses is a step closer to financial freedom. Think about it. That’s having the ability to pay your bills even without actively working.
And that is why I think building passive income is in everyone’s interest. I’m a proponent of working hard now, for passive income, until you eventually don’t have to work. Start small. Get your feet wet. Read about stocks and about making your money work hard.
Money does grow on trees. But you have to be willing to plant the seeds. What have you done lately to grow your trees?
Bio: Dan Dima-ala is a 2-time real estate board exam top-notcher, real estate investor, entrepreneur, and former corporate finance professional. He has a degree in economics & finance and is a certified Accounting & Finance Mentor for GoNegosyo. As a financial freedom advocate, Dan shares his unique insights at freedom locker PH.