This article is an excerpt from the Shortform book guide to "Unscripted" by MJ DeMarco. Shortform has the world's best summaries and analyses of books you should be reading.
Like this article? Sign up for a free trial here.
Do you want to know how to earn money while you sleep? What is the best way to generate passive income?
Investing time in work that generates passive income—by creating a product or system that’s capable of earning an income long after your original time investment—is the key to financial freedom. Without a source of passive income, you are practically trapped—once you stop working, the cash stops flowing.
Here’s why you should leverage your time to learn how to make money while you sleep.
Leverage Time to Create Passive Income
The fastest way to acquire wealth isn’t by saving every cent, but by developing a business that generates recurrent income without your direct involvement.
Relying on a wage or salary limits how much you can earn and subsequently save because you only receive money based on how many hours you work or how much you produce. For example, you work for an online publisher and either get paid $20 an hour or $20 for each article you submit. So you must work five hours or submit five articles to generate $100—both methods restrict your income to how much time you contribute and limit the amount of money you can save.
(Shortform note: While DeMarco claims that working for others automatically restricts income, Robert Kiyosaki (Rich Dad Poor Dad) argues that employees can surpass income limits by opting to receive a commission for the value they produce. He explains that when you work for an employer, you’re only paid a fraction of your generated value. For example, you earn $20 an hour working 40 hours a week—$800 a week. However, your work generates $5,000 in sales for your employer per week. If you ask for a 25% commission, you’ll receive $1,250 a week (a $450 increase). Unlike standard wages, the more sales you generate, the more income you receive. Since you can theoretically generate infinite sales, your income is no longer capped.)
On the other hand, learning how to make money while you sleep increases your ability to accumulate large sums of money. For example, you invest your time into creating a $20 book that sells in global markets. The ongoing sales of this product generate an income far beyond the hourly wage you would’ve received for your original time investment.
Consequently, DeMarco insists that investing your time and money in assets that appreciate over time—such as physical or intellectual property that you can lease, sell, or distribute—is the only way to grow your net worth and earn millions.
| The Disadvantages of Relying on Passive Income According to DeMarco, assets that generate an ongoing income without your direct involvement create unlimited passive income and remove your need to work. While this may seem like an ideal way to create financial freedom, there are five factors to consider before foregoing your job to take this route. 1) Time investment: Creating a reliable and consistent source of passive income is a slow process—it takes a great deal of research, trial, and error. 2) Financial investment: Many passive income projects require significant upfront costs. 3) Delayed (or no) income: Your product or service can’t generate an income until it’s ready to enter the market—it could take months or years to build up awareness and build traction. Despite your time and effort, your project may never generate an income. 4) Relying on a single source of income is a gamble: It takes several diverse income streams to reliably sustain a comfortable lifestyle—each requiring an initial investment of time and money to establish. 5) Ongoing management: Many passive income streams don’t last without your direct involvement due to a number of variables. |
———End of Preview———
Like what you just read? Read the rest of the world's best book summary and analysis of MJ DeMarco's "Unscripted" at Shortform.
Here's what you'll find in our full Unscripted summary:
- Why the only way to achieve financial success is to adopt an entrepreneurial mindset
- Eight beliefs about money that prevent you from achieving wealth
- Actionable ways to adopt an entrepreneurial mindset
