The One Passive Income Trap You Might Fall Into -- and How to Avoid It

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In my 20s, I was no stranger to working a side hustle on top of my regular job. Often, that meant sacrificing evenings and chunks of my weekends. But it was worth doing for the extra savings I built up.

These days, I don't have as much time for side gigs thanks to my busy parenting schedule. But thankfully, I don't have to push myself to take on side jobs like I did in my 20s because I'm able to earn a decent amount of money passively through my savings and investments .

You may be eager to swap your side hustle for passive income, too. And who could blame you? Who wouldn't want to earn interest in the bank or dividend payments in a brokerage account instead of spending hours each week earning extra money?

But while passive income is a great thing in theory, it's not so easy to earn in practice. So it's important to be realistic in your approach to it.

It takes time to set yourself up with passive income

I knew about the concept of passive income in my 20s. The reason I worked a side hustle instead back then? I was earning hundreds of dollars a month -- and sometimes $1,000 or more. And there was no way my savings account was going to pay me that much in interest, nor was that doable with a portfolio of dividend stocks.

Granted, in my 20s, savings accounts weren't paying what they are today. But let's consider today's rates for a minute.

In a savings account, you can still snag 4% to 4.5% on your money. if you have $10,000 in savings, that gives you an extra $400 to $450 per year, or about $33 to $37 more per month. That's probably not going to make a huge difference in your finances.

The same applies to a stock portfolio. If you want to earn $100 a month in passive income with a dividend portfolio that has an average 4% yield, you need $30,000 in stocks. If you want to earn $200 a month, you need $60,000 invested.

I wasn't there in my 20s, so passive income wasn't a viable means of supplementing my regular paycheck. But now, a good number of years later, I'm in a place where I'm able to earn a decent chunk of passive income. And I credit my side-hustling back then to get me to a place where I was able to build my savings and investment portfolio.

Be patient and do the extra work while you can

The sooner you start saving money and investing, the more passive income you can earn in your lifetime. But if you're looking for passive income you can use to improve your life, know that it takes time to get to a place where your money is working for you to that degree.

I suggest working a side hustle in your 20s when you may have more energy to do so. At that age, you may not be encumbered by other responsibilities, like taking care of a house or being a parent (not that people don't buy homes or have kids in their 20s, but you may not do those things until a bit later). That way, you can stop side-hustling in your 30s or 40s and beyond, all the while enjoying the extra money your savings and investments pay you.

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