Do I Have a Business or a Hobby?

Most people know someone who devotes too much time to a business that has never taken off. Since this type of person sees themselves as a photographer, writer, yoga teacher, or any of type of passion-based profession, it can be hard to admit if their so-called business does not make them a living.

For people following a dream, it can be tough to know if you're moving in the right direction. If you're passionate about what you do, then it can be easy to overvalue small signs of success and ignore obvious warning signs.

If you're following your dream, you have to be honest with yourself and track your progress. You may want to do something very badly, but it's important to figure out if you have a business or a hobby.

Evaluate progress

It's impossible to track your progress if you don't know what your end goal is. In many cases, when someone pursues a job they are passionate about, simply making a living is their definition of success.

Of course, "making a living" means different things to different people. Understand how much income you need to take home to be happy, and regularly track your progress to getting there.

Know the market

In New York, a guitar teacher offering private lessons can make six figures (that's not common, but it's possible). In Texas, the same caliber of teacher may be lucky to pull in $40,000 a year.

Understand how much money successful people in your chosen field make and find out what it took to get them there. Be realistic in judging whether you can get there and whether the amount earned by those who have made it will meet your needs.

Be willing to fail

In the early 2000s, I made a go at being a full-time freelance writer working for multiple clients. I was financially successful at first, but as the internet bubble popped some of my clients went out of business and others began to pay very slowly.

I had been very proud of making it in a difficult field, but at some point, the endless struggle of seeking out work and fighting to get paid made it no longer worth it. At that point, I took a job as editor of the Sunday edition of a weekly newspaper, and freelance writing went back to being my hobby.

Be realistic

Just because you love something does not mean you can make a living doing it, and just because there's some money to be made in your chosen area, that is not a guarantee you can build a career. Look around and see if there are people making a full-time living in the space you have chosen. If you can't find any examples, or only find a few, then you might be better off keeping your interest as a hobby that earns you a little money.

Keep it fun

As a camper at summer camp, I loved shooting target archery. So, when I became a counselor at that same camp, I got certified as an instructor and spent a summer leading the archery program. That put me at the archery range four-to-five hours each day -- and my passion for the sport burned out fast.

I haven't picked up a bow since then. Sometimes, it's OK to leave your hobby as a hobby because there can be too much of good thing.

Set a timeline

If you decide to leave regular work and pursue your passion as a job, give yourself both a timeline and milestones. Set an end date where, if you have not progressed enough, you walk away from trying to turn your hobby into a full-time job. There's no shame in having a hobby that you can't quite turn into a business while there's plenty of shame in not being able to admit that's what's going on.

The $16,728 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,728 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

The Motley Fool has a disclosure policy.