I was working in Magic Johnson’s movie theatre as a 20 year old after my first burn out in the music business. I went from thinking I was going to be the next Kris Kross or something to being a “popcorn engineer”. I had one guy who would always come to the movies with the hottest women I ever seen. He was a “baller” by my standards and would always come talk to me because he liked my hustle. One day he pulled me aside and gave me a copy of Robert Keyosaki’s “Rich Dad Poor Dad”. He said, “I don’t work for money. Money works for me!” I had no idea what the hell he was talking about and I didn’t read the book. I was 20 and didn’t know sh*t! Fast forward to 2003. I had worked my ass off and had my studio pumping but HATED IT! The only way it would work is if I was there every waking hour. I was recording what was to become trap music and dealing with the only people who would pay, dope dealers. I was also playing in bands around the city night after night. It seemed cool in the beginning but I had to physically be there to make the money. If I got sick, car broke down, or anything happened to me I was out of business and soon out of money. That’s when one of my best friends and fellow entrepreneur, Nicolas ‘Redd” Scott, told me about “Rich Dad Poor Dad” again. I’m thinking, “Why is this book haunting me!” I decided to read it and that’s when I learned the difference between an asset and a liability. In this book, Keyosaki defines the difference. A liability is anything that requires you physically to be there to earn the money. An asset can create wealth while you sleep and even after you’re dead. I know you’re asking how does this apply to the music business? When considering making a living from making music you have to think about our most valuable asset, TIME. You will have to invest time and money to make your dream a reality but we have to be smart about how we do it.
Active income is income that you make when you trade time for money. That includes live performers, touring musicians, engineering, studio musicians, DJ’s, managers, and so on. If you physically have to be there to make the money that’s a liability. These are great ways to make a living and exciting but remember you are charging people to use your time. As you become more in demand you raise your prices to reflect your value. There’s only so much time in a day so we charge people for access to that. This is what I call daily bread. You will get to travel, experience things no other profession can allow, and be the rock star but there is an often over looked issue with this business. If something happens to you your income is affected. These liability businesses aren’t completely bad as they allow you to make sums of money fairly quickly but its rough on the body and mind.
Passive income is money you make that doesn’t require you to be present. I know you’re asking how can I make money without even being there? Well, in our world there is something called intellectual property. These are defined as patents, trademarks, and copyrights. Everything that we create can be protected and claimed by who holds the rights to this intellectual property. When you write a song, create a brand, or invent something the person who owns that property then holds the right to make money from it. The person who owns the rights to that property does NOT have to be the person who is performing it, reproducing it, or exploiting it. What does that mean? Well, I can create something and let others use this idea and get paid from it with out even being there. That is passive income. That is also an asset that will allow me to make money while I’m sleep and even continue making money even after I’m dead. This can be in the form of songs, recordings, logos, books, inventions, or web content. I can write a song and it can be streamed, played on the radio, in a movie, or in sheet music selling anywhere in the world with out me ever going there. Its incredible but the downside is that it is SLOW money. You have to set your infrastructure up so that you can collect and it may take a while to collect.
Is one better than the other? Well it depends on your skill set. I believe that everyone is different and it will come down to what works for you. My point is to inform you that there is a major difference between the two so that you can make an intelligent choice. Most new people in the business find out about passive forms of income too late after they have either been manipulated out of their intellectual property rights or when they bottom out from pushing on that daily grind. The balance of active and passive income is what will sustain you in this business I promise you.