Written By: Steve Pavlina
As we transition into the how-to aspect of passive income creation, let’s begin by having you set a goal for what you want to accomplish here.
Why are you reading this series? Is it just for entertainment’s sake? Do you hope to learn something that you might apply later? Or do you actually want to create at least one new stream of passive income this year?
Let me suggest a simple meta-goal for starters: By the time you’re done reading this post, set a clear goal for what you want to gain from this series.
Do not close your browser window or move on to something else until you’ve set a clear and specific passive income goal.
No feeble excuses. No vacillating. No “I think about it later” B.S. And please no lame ass “I want more money” vague answers.
Whatever excuse you come up with as to why you can’t set a clear goal right now, we both know it’s stupid, so let’s not even go there. Not setting a goal is a waste of time.
If your actual desire is to create a new stream of passive income, then let’s make sure your goal includes 3 aspects:
- how much money you want to earn per month from your next stream of passive income (specific dollar amount)
- how long you expect that stream to last (number of years)
- your deadline for receiving your first month’s income from that stream
This isn’t your ultimate goal we’re talking about here. It’s the goal for your first (or your next, if you’ve done this before) stream of passive income.
If you have something different in mind that doesn’t really fit the parameters above, then by all means set the goal you feel is best for you. At the end of the year, when other people are enjoying their new streams of passive income, you can see how your own goal worked out.
The idea is to set a goal that’s motivating but that’s also believable for you.
If you’re telling yourself that you can’t earn any passive income because it’s too much for you, then your imagination needs work. You could put $100 in a free savings account and earn a trickle of passive income each year for decades. So don’t be lazy here. Don’t let yourself off the hook. Set a goal.
Goal setting is a skill that takes practice. If you fumble this initially and set a goal that’s too big and unbelievable for you, you won’t achieve it. If you set an unrealistic deadline, you’ll blow the deadline. How do you know what’s realistic? You calibrate with practice, just like you learned to walk and talk.
I don’t expect your goal to be perfect. That isn’t the point. The goal is just the first step to get you moving forward and taking this seriously. And the ultimate goal is to get good at setting achieving your goals. This means you have to risk making mistakes in the beginning.
As the saying goes, There never was a winner who wasn’t at some point a beginner. So begin by setting a goal.
My First Passive Income Streams
Other than earning interest on my savings account, my first real experience with long-term passive income was when I wrote and self-published a computer game for MS-Windows. I think I released it in 1995. It was a simple side-scrolling shoot-em-up game. I did the programming and artwork for it myself (I wasn’t much of an artist though), and my girlfriend at the time did the music and helped out with the sound effects.
The game didn’t sell particularly well. I put it up on my website, by my website had virtually no traffic. I also uploaded it to a bunch of free download software sites. I had a free demo with a couple of levels, and then people would get more levels if they bought the full version. Initially most of my sales came from people finding the demo on a game download site, and the demo would refer them to my website to buy the game.
I opened a Post Office box and started receiving mail orders for the game. Later I got a merchant account, so I could take credit card orders. Then I started accepting online orders. Eventually I set things up so that orders could be processed and fulfilled automatically.
On average I earned about $75 per month from this game. I didn’t do much in terms of marketing, other than posting it on my website and submitting it to those download sites, which was a one-time effort. Once the game started selling, I moved on to other projects.
This was a Windows 3.1 game with a fixed 640×480 resolution. It was strictly 2D, so there were no fancy 3D graphics or anything like that.
A year after I released it, the game was still earning about $75 per month.
Five years after its release, it was still earning about the same.
Ten years after its release, it was still earning about the same.
I varied the price of the game over the years, testing $9.95, $14.95, and $19.95. It earned roughly the same amount of money regardless of the price. I could sell 10 copies for $10 each or 5 copies for $20 each.
The game was initially available on 3.5″ diskettes, then on CD-ROM. More than 90% of the customers bought the instant download version.
I also did some licensing deals for this game with LCR publishers (LCR = low cost retail). These publishers found me as a result of finding my game on some download site. They’d put together collections of cheap games and sell them on CDs for under $10. I didn’t earn much money from these deals, but they gave my game wider distribution, and every copy included a link to my website.
Occasionally the game got some special attention, and there was a surge in sales where it might do double sales for a month. So overall it probably earned in the range of $10-15K over its lifetime.
It took me about 6 months to write and release this game. I had a lot to learn, so it was slow going. I got much faster as I learned and practiced. Writing a similar shoot-em-up game in 1998 only took me about 2 weeks, including the design, programming, artwork, and sound effects.
Eventually I released three more games at about the same level of quality. And again, each of these added another $75 month in passive income, so with 4 of these titles, I was up to $300 per month.
Finally I got smart and spent 6 months creating a much better game and put more effort into marketing it. It did $500 in sales its first month and was up to $2K per month a few months later. I kept building it up from there with two expansion packs and a deluxe version that sold for $24.95. The game did very well and dwarfed the results of my previous games. I also did more licensing deals for it, including one that had a minimum guarantee of $5K per month just from that one source.
I developed this hit game with a $0 budget. I did the design and programming, the artist worked for a percentage of royalties, so I created a passive income stream for him.
Then I went on to license and republish games from other developers, which created new passive income streams for them and me. Eventually I built up a suite of about two dozen games, which means two dozen streams of mostly passive income. Some streams were pretty good. Others were just a trickle.
In 2006 I finally took my games off the market when I shut down my games business. By this point I was earning so much more from StevePavlina.com that I didn’t want to divide my focus by keeping my games business going. But the passive income stream from these games helped me launch my personal growth business. My games income covered all my expenses while I got StevePavlina.com up and running.
Taking the Long View
Is $10K spread out over 10 years a good paycheck for 6 months of work? No, I could easily have earned more money working at a job. I was already earning more than that from contract programming work before I wrote my first independent game.
The point of creating your first passive income stream isn’t to achieve that big payout right away. The point is to learn how to create passive income streams, so you can get better at it. Then you can create bigger streams as your skills increase. Don’t expect your first effort to be your masterpiece.
Today I can create new streams of passive income with a lot less effort than I had to exert in the 1990s. The reason I can do this is because I put in the time to learn how to do this, and I’ve continued to refine my skills over time.
Don’t worry about how big your streams are in the beginning. If you can create a $50 per month passive income stream this year, I think that’s great. And it’s so much easier to do this today than it was back in 1995 when I first started, so you have it much easier than I did. Your cell phone is probably 100 times more powerful than the computer I used back then.
You also have me coaching you along the way. I didn’t have anyone coaching me at the time. Sometimes the people in my life suggested that I should get a job. They don’t say that anymore though.
Do set goals, but be patient with your progress. This is a skill that will benefit you your whole life. Even if you work on this for 10 years, there will still be plenty more to learn.
My Passive Income Goal
As I mentioned previously, as part of this passive income series, I’ll walk you through the process of creating a new stream of passive income. And I’ll create a new stream for myself in the process. I haven’t decided what that will be yet, but I’m sure I’ll come up with something. Coming up with ideas is easy.
But for now, the goal has to come first. Since I want to keep this simple and not overcomplicate things, I’m going to set what is for me a relatively conservative goal:
I create a new stream of passive income by September 30, 2012, that generates at least $2000 per month on average and endures for a minimum of 10 years.
So this means creating a new stream that earns at least $240,000 over the next decade.
This seems like an achievable goal for me. I’ve already created multiple streams of this size and larger, so it’s not a stretch to believe that I can do it again. In this case the challenge will be to explain all the steps as I go along, which I’ve never done before. I want to keep this goal fairly basic, so I can focus on the teaching aspect.
Having a clear and specific goal helps me transition to thinking about the how. Now I can start pondering ways to do this.
This also helps me rule out what I can’t do to create this income stream. I can’t just do more public workshops or paid speaking since that’s active income. I want to set something up once and have it generate monthly income for at least a decade.
What happens if I don’t make the deadline? Nothing. I’ll set a new deadline. The deadline is a focusing mechanism. I could create a new passive income stream within a couple weeks if I want to. And I’ll probably create other streams along the way that I don’t blog about. But for this stream, I want to take it slow and explain the process in detail, so you can follow along. But I also want to keep moving towards some kind of release. I don’t want to get stuck in perpetual idea mode.
Your Passive Income Goal
The key to goal setting is to get into the habit of setting and achieving goals. It’s not to set aggressive targets that you never reach. You can always set a bigger goal later once you achieve the original goal.
Sometimes I’ve set a big goal with a 2-month deadline, and I achieved it during the first week or two. So I celebrated that. Then I set a new goal with a new deadline.
As long as the goal seems motivating to you and it helps you get into action, then I’d say it a good goal for you.
My suggestion would be to set a goal something like this:
I create a new stream of passive income by December 31, 2012, that generates at least $100 per month on average and endures for a minimum of 5 years.
I think this is a very achievable goal for most people. You don’t need your own website to earn this much.
Now some people will blow this goal out of the water; it will be way too easy for them. Other people will find it a serious challenge. Feel free to adjust the goal to something that feels good to you.
If you were to achieve the goal above, you’d put at least $6K in your pocket, but it’s not the amount that matters. The real aim is for you to learn how to create a $100 per month stream of passive income. Once you learn how to do that, you can surely do it again. Do it 10 times, and you’ll earn $60K passively.
Once you learn how to earn $100 per month in passive income — by actually doing it, not by reading about it — then it’s not that difficult to learn to create bigger streams. So instead of creating 10 streams that collectively generate $60K, you might learn how to earn that much with just one or two streams. As you continue to develop your skills in this area, you’ll discover how to earn larger sums with fewer streams and less effort. If one stream dies, you’ll also know how to replace it with a new one.
I’m pretty comfortable creating streams that earn around $50K per year. When I had third-party ads on this website several years ago, one of those streams was earning more than $100K per year. Once you get the hang of this, I think you’ll find it a fun challenge to create new streams of income and to experiment with different approaches.
If you want more long-term financial security, you won’t find it in the money or even in the streams of passive income. You’ll find it in building your own knowledge and skills. You can take away all my streams of income, my website, my assets, etc, and I’ll be able to recreate the same level of financial abundance in a relatively short period of time because I already know how to do it.
This is what I want for you as well. I want you to learn how to do this, so then you’ll always have that option available. This know-how will relieve you of much financial pressure. You won’t have to scramble to get a job to pay your bills. You can just create more passive income streams if you want more money.
Do It Now
You are NOT done reading this post until you’ve set your goal and have written it down. If you haven’t done this yet, do it right now.
Once you’ve done that, I encourage you to also post your goal in public — IF you can do this in a place where you feel that people will support and encourage you.
I’m sharing my goal publicly since I expect that many people will want me to succeed since they’ll benefit from the educational value. Watching me try and fail wouldn’t make for a very interesting series. I’ve also seen plenty of positive feedback popping up already, so I know that there’s a lot of interest in this series.
If you expect mostly positive support, then share your goal on your blog, your Facebook page, etc. Add some accountability and commitment like I’m doing. This can help motivate you to succeed, and you’ll inspire others to develop this skill too.
If, on the other hand, you anticipate a largely negative response if you share your goal publicly, then you have a different challenge to address. This means your life is filled with too many incompatible people. You have too much social drag. These people are only going to get in your way, so if you don’t think you can win them over, then drop them. Block them, unfriend them, etc.
If other people have a problem with your setting a goal in this area, what are they going to be like when you actually succeed? They’ll probably get worse, and then you’ll have to deal with problems like pettiness, jealousy, sarcasm, neediness, and more. Better to cut them out now and fill your life with positive support. Let them learn from your example… from a distance.
Prepare to succeed. Expect to succeed. Know that once you’ve set this goal, you’re going to achieve it. And if you’re going to achieve it, then you need to start shedding from your life whatever would otherwise get in the way of your goal. Whoever can’t handle it, drop them. This will create space to invite much better relationships with people who will support you on this path. The dead weight must be shed, so that positive support can come through.