Zero Passive Income

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October was a big month for us and for the Zero Passive Income Experiment. It marks the first full month of a radical change we’ve made in our finances that has made a world of difference. See how far we’ve come in this month’s wealth report!

Check out our October 2011 wealth report and get the details of what we did with our money and the lessons we’ve learned throughout the way:

Earned Income - Thank God my wife and I are gainfully employed. The truth is, we started the Zero Passive Income Experiment because we realized that we weren’t in good financial condition. We would have been bankrupt if either of us lost our jobs. I know that there are a lot of people out there that are still hurting with the way that the economy is. I encourage you to hang in there. Basic financial principles are the same whether you’re making $10K per year or whether you’re making $100K per year. Learn to be content. Live below your means. Make sacrifices. If you’re not working, don’t be afraid to get dirty or work harder than everyone else. It’s time to get out of your comfortable zone.

Passive Income – Most people want to get rich and make a boat load of money so that they can stop working. That’s not the case for us. For us it’s not about getting rich or famous. The reason that we have been trying to build quality, lasting, passive income sources is so that we can be financially secure and comfortable. I want to be sure that if either of us stop working (God forbid) for one reason or another, we’ll still be fine.

Google AdSense - AdSense was my first stream of making extra money. It’s a great way for someone to start earning a few extra dollars a month. Technically AdSense isn’t really passive income (it’s actually residual income). You’ve got to put a lot of hard work and time into it in the beginning before you start making any kind of money. The beauty of AdSense is that once you invest the time to set up a high quality site with systems in place, it requires virtually no maintenance. This month I didn’t spend any time on any of my AdSense sites and we still made money.

This month we only earned $217.69 Last month we earned $438.52 It was a significant reduction in income. From what I understand, Google did another update to its algorithm that really affected several niche sites including mine. I’ve been reading reports that other niche site owners have been seeing their site traffic return to normal. Hopefully, that happens to me too. (For more information about how I make money with AdSense check out my adsense story and my niche site update)

ClickBank – 3 of my ClickBank sites each made a sale this month. This is my highest grossing month to date for ClickBank revenue. The best part was that these sales happened when I was out on vacation. It wasn’t very much, but the feeling you get when you know that you’re still making money when you’re out sitting on a private white sandy beach is extremely satisfying.

Net Worth - 10 months ago we  had negative net worth. We were in pretty bad shape, so we started this blog to give us some accountability as we got serious about being financially responsible. At first our emphasis was on building forms of passive income. Surely that was the answer right? Well, what we found was that even though we were successful in increasing our income were still spending thousands of dollars on “debt service”. Month after month we were obligated to make monthly payments to banks, credit cards, and student loans. We decided that enough was enough.

We didn’t have an income problem – we had a debt problem. This month marks the first full month where our focus has changed. Instead of trying to make more money. We’re paying off debt to get rid of those monthly payments that were making the banks rich and us poor.

With these radical changes our net worth sits at $56,206.07 this month. That’s a $2,943.17 increase over last month.

Change in Presentation – This month I changed the presentation of the assets slightly. You’ll see that the assets have been divided into two classes: “current assets” + “property & equipment”. Over the last several months we’ve acquired several new assets and interests in assets, so I’ve done this simply to make things easier for me to read (and hopefully easier for others to understand).

Checking and Savings - One of the biggest changes you’ll see in our assets this month is the fact that we our checking/savings accounts have gone down quite a bit. That’s because we decided to take out $5,000 and use it pay off the timeshare loan. While it was tough to part with all that money, it was an investment well worth it.

You might be wondering, “Why not take all our savings and pay off the rest of your debts?” The problem is that the way that our investments are structured we’re obligated to have a certain amount of liquid funds available at all times. That makes it prohibitive for us to take out any more from our savings account. Sigh… it would be great to be debt free. (“Soon, patience.” says the wife in the background)

Typically, we would be accumulating cash so that we can roll it into another investment. But our focus has changed. Instead of buying assets we’re getting rid of debt.

Real Estate Partnerships – Right now the real estate partnerships are doing very well – but looking at these numbers you’d never be able to tell. The reason is that there are a large amount of rents due to us that Sect 8 (government program) is withholding until they’ve finished processing paperwork on their side. So while these rents are being accrued, I don’t show them on these cash basis reports because we haven’t received them yet.

Depreciating Assets – One new thing I’m doing in these reports is depreciating the vehicles that we own. I’m using 3 year straight line depreciation on the purchase price of the scooter and the Jeep. Which simply means that using this calculation, in 3 years those assets are going to be worthless on my books.

Timeshare Loan – We officially paid off our timeshare loan this month! Along with scrimping and saving, we also made a big decision to draw from our savings so that we could finally pay off this timeshare in full. That means no more timeshare loan payments!  Look at the dip in our total liabilities =) That should lighten the load! Wooohooo!

The sad part is realizing that if we never bought that timeshare to begin with, we would probably be out of debt by now (or pretty close to it).

Student Loan 3 - Our next debt target is student loan 3. With a balance of $5,567.71 (the US Dept of Education changed their website and have had some problems with reporting so I’ll have to verify the accuracy of this number) this bad boy sports an interest rate of 6% and a monthly payment of about $60 bucks. While we don’t think we’ll be able to pay it off in full next month, we’re revving up to take a big bite out of it. Let’s get ready to ruuuumble.

Goals Completed This Month

I publish all our goals here. These are the goals that we completed this month:

• Make more than $100 in a single month through ClickBank
• Pay off loan on timeshare completely
• Reduce total unsecured debt to less than $17,000
• Reduce total debt to less than $275,000
• Have more than 600 Facebook fans
• Visit the Carribean together

Other Happenings

Vacation - This month we went on an all-inclusive vacation to the Dominican Republic. We started our total money makeover and dedicated our extra funds to getting rid of debt so a lot of you are probably thinking it was premature of us to go on a vacation. But the truth is we had already paid for this vacation before we started our TMM and to cancel it would have cost us an arm and a leg in fees.

Perhaps the most important thing I realized was that it was the prudent financial decisions we’ve been making over the last several months that allowed us to take such a lavish vacation to begin with. It’s because of the investments we’ve made, the savings we’ve amassed, and the debts we’ve paid off that we have the security to feel comfortable to take 1-2 weeks off of work and not break the bank. It bought us a degree of freedom. All in all it was well worth going. We work hard so that we play hard.

First Giveaway – This month we rolled out our first giveaway. The gift was 5 free copies of Dave Ramsey’s book “Entreleadership” and we got tons of interest. We’ve picked our winners and have sent you out an email to congratulate you and to get your shipping information! You’re stories were touching and inspirational and I hope that the book will help to bring you much success. All the best!

This Month’s Lessons

Focus on keeping money before you focus on making money. When you think about making money, are your thoughts about how you can keep it, invest it, grow it? Or are your thoughts about how you can spend it? There are way too many people out there who are trying to make a quick buck or are trying to make it big. The problem is, you’ll handle you’re finances later the same way you’re handling your finances now. That means if you’re racking up debt, spending unwisely, and living above your means – you’ll be living the same way when you’re making more money. What’s more, with bad financial habits you run a greater risk of loosing it all if you ever become rich.

Break the cycle now. Learn to be a good steward with your money. Spend frugally, stay out of debt, and invest wisely. People who learn these lessons and apply it to their lives now will be setting a good foundation for building lasting wealth. Focus on learning how to keep your money before you focus on how to make more.

Oh, and one last thing… Smoking Kills

To all the Mad Men fans out there - here's a little something I found in the Duty Free in Punta Cana.

Now it’s your turn. Tell us what you think? How are we doing so far? What could we be doing better?

See last month’s September 2011 wealth report!

Related posts:

1. February 2011 Wealth Reports
2. April 2011 Wealth Reports
3. May 2011 Wealth Reports
4. June 2011 Wealth Reports
5. July 2011 Wealth Reports