My one goal in 2008 (or new years resolution if you’d like) was to get to $2,000 per month in passive income. There was hardly a day that went by in 2008 that I didn’t think about this goal actually. I was that obsessed with it.

By the way, in case you’re thinking “$2,000 doesn’t sound like very much income per month”, keep in mind that this is PASSIVE income – income that comes in whether I work or not. In other words, this income cannot come from any hourly or regular “job” type work. It comes from things like real estate rental income, businesses you’ve setup that are running on autopilot, investment income like dividends, royalties from books or products being sold, etc. I was also earning other income during this time from my existing business and consulting which DID require my time and wasn’t passive.

If you are curious why passive income is such a big goal of mine you can read this and this for some background, but essentially it boils down to this: if you no longer have to trade your time for money you have truly broken free and can start to accomplish great things in life.

People in Times Square new years eve reminiscing on their 2008 goals? Photo by amelungc

Real Estate

To be clear, my goal as originally written on this blog December 16th, 2007 was to get to $2,000 per month in passive income VIA REAL ESTATE specifically. At that time I was convinced this was going to be my best path.

The year started out with a bang and in January I closed on 2 rental properties (the process to buy them had been in the works before this). Things seemed to be going along fine – I had actually purchased 5 properties total in the last year and while some of them didn’t turn out so well, others did.

After a court battle with an unscrupulous contractor and dealing with an incompetent/immoral mortgage broker, real estate was beginning to take it’s toll on me stress wise. By this time it was already mid-year and I was not on track to get enough property to accomplish my goal by years end. I was ready to keep pushing on, but at this time the mortgage market dried up (especially for self employed people like myself) which meant the deals kept getting better but I could not get financing to buy any of them.

It was time to re-evaluate my goal. I had 3 properties rented out and cash flowing (with only about $250 per month in passive income after all expenses – I had hoped it would be more) but I was unable to buy more and I wasn’t close to accomplishing my goal. It was time to “adjust” my goal to find another way. Remember, if you want something bad enough there is always another way.

The Blog

Around this time I noticed that this blog had started to pull in some decent money. it wasn’t much yet but it had potential. This got me excited enough to try some other monetization efforts, continue writing, and eventually break the 2,000 subscriber mark.

As I’ve often said about blogging, pick something you love writing about because for the first year it will feel like nobody is reading it. But if you can get through The Dip, then you can wake up with a nice passive income business in a few years.

By the way, blogging isn’t as passive as some other forms, but I still consider it to be quite passive for two reasons: (1) I’d probably do it whether I got money from it or not and (2) when your blog becomes successful your compensation is not tied to the number of hours you put in like a traditional job.

Anyway, the blog began to contribute to my passive income slowly and steadily at this time until it was generating about $400 per month. I was firing on two cylinders now – real estate and blogging – but I felt like I needed to add one more to accomplish my goal in time. The year was running out!

Launching The Tutoring Site

Luckily, earlier in the year I had launched a passive income business as a test. This site matched tutors with students who needed help.

I had experimented with all sorts of business models and finally got one with some potential. It was starting to generate about $300 dollars per month, but at this point it was getting quite late in the year.

So how close did I get?

Well, I just finished putting together my financial statements for December 2008. By the way, if you aren’t looking at your personal and business financial statements monthly you probably should be. This is one of the best things I ever did to start accomplishing financial goals – a very wealthy mentor got me to start doing it and it’s really helped. After all, how can you know if you’re accomplishing something unless you measure it? Here’s an easy way to do it yourself if you don’t have an accountant (I do them myself too).

Anyway, here is how it broke down:

• $250.00 – Real Estate Rental Income (after taking out principal, interest, taxes, insurance, HOA dues, etc – this is true cash flow)
• $1,260.40 – this blog, StartBreakingFree.com from book sales, ads, affiliate commissions, etc
• $129.20 – the tutoring site (after large advertising expenses for the month and a software glitch)

TOTAL: $1,649.60

The real estate income was predictable.

The blog was a big surprise. At the start of 2008 I would not have guessed this would have grown like it did. I should also mention that during December there was higher than normal book sales and affiliate commissions (although lower ad revenue due to decreased traffic during the holidays). December was the blog’s most profitable month ever.

The tutoring site was the greatest disappointment for me. I thought it would completely out-earn the blog, not the other way around. There are two big reasons why the passive income it generated was low for December: (1) I had quite high advertising expenses to drive in new tutors that month, which was an investment in the business but hurt the cash flow and (2) it was suffering from a rather large bug in the software which caused much of the communication on the site to fail. After getting complaints for several months from people using the site, I was FINALLY able to track down what was happening and it is now fixed. (In case you are curious and a geek like me, the reverse DNS on my server was set incorrectly caused a large number of my outgoing emails to be marked as spam).

This was incredibly frustrating because I lost a bunch of paying customers and some people left in frustration. But it is also exciting, because now that the bug is fixed I can see what this baby can really do! I still have big hopes for it – and the number of users plus traffic to the site continue to grow quickly.

Conclusion

Passive income is a funny thing because it requires a disproportionate amount of really hard work up front for very little compensation – and I felt like that was this year for me in some ways. But I’ve laid the foundation for success and now that I’ve gotten the flywheel turning just a little bit, it won’t take much effort to have it REALLY humming in 2009.

The blog and tutoring site will continue to grow at an increasing pace with little additional effort on my part – they are great assets. I’m still fond of real estate as an investment vehicle and will be open to buying more as the lending markets change. I would especially like to invest in a partnership to buy an apartment complex (with the right investor) at some point in the future but financially that is a ways off.

Overall, I’m happy with getting 82% of the way toward my yearly goal ($1,649 out of $2,000). I’ve read before that you’re goals should be ambitious enough that they really push you while at the same time being believable. Put another way, you should have about a 50% chance of achieving it. By that measure I’d say I was spot on.

And since I’m big on PUBLICLY writing my goals, and it worked so well in 2008, here is my goal for 2009: reach $5,000 per month in totally passive income.

I estimate that by the time I reach about $3,000 per month in passive income, I can probably stop doing all other types of earned income and I will effectively be retired at the age of 26 since I will no longer HAVE to work for money. Of course, I still will be working on all sorts of interesting projects – that’s just my nature – but I’ll be able to choose them because I want to not because I need the money. And that’s a very powerful place to be.

Why not state your goals publicly as well? What would you like to accomplish in 2009? Try to make it specific, measurable, and include a deadline if possible – then leave a comment below!