I’ve (finally) got graphs for you! This article should be much easier to follow now.
We’re into the second half of the year. I’d say that it went by quickly, but for some reason it doesn’t feel like it. The strange thing is that I find myself each month saying that I didn’t get much accomplished because of some series of events (usually vacations).
June is always the “summer hole” month… the kids having two weeks of no school and no camp. It’s a good dry run for what a financial independent life might look like, especially with my wife taking almost all of the two weeks off.
Sadly, I’ve already heard people say that summer is almost over. I’ve wanted to snap back at them that it is barely 2 weeks old, we don’t need to rush it yet.
June should have been a poor month when it comes income. However, the income gods decided that they’d continue to be unpredictable.
Let’s cut right to the chase. (Regular readers may notice that I have a template for this article, but new readers will need all this information.)
Alternative Income Update: June 2018
For those that don’t know the term, “alternative income”, I started using it 11 years ago to be purposely vague. I needed something to cover blogging income. Blogging income can be very erratic, but there’s a residual nature to it as well. Some popular bloggers are still struggling to categorize it. I think alternative income was more passive back in 2007 before social media, podcasting, and video. Today it seems like every blogger talks of hustling (as in moving quickly, not grifting people) and by that they mean “being everywhere.” I feel like the only one dumb enough to just keep writing blog posts… blog posts that often don’t have cool “pinnable” images.
In general, I call alternative income everything that comes from passive investment and these side hustles. The best way to think of it is income where you aren’t directly trading your time for money. This report is about all my alternative income. To include my investments into that paradigm, I have to fudge the numbers a bit. You’ll see what I mean as we go along… or you can see a more detailed explanation back in January, 2017.
The last month I reported, May, my alternative income added up to $5,116.67. May was a little below average in every area as we were focusing on winding down the school year. It was a little below average in dog sitting and blogging income.
In any case, May is ancient history now, so let’s move on to more recent history… June.
Lazy Man’s Alternative Income – June 2018
In looking at our alternative income, I break it down to 3 main sources… each with their own caveats.
1. Blogging + Dog Sitting Income
My “real world” friends have asked me, “What do you do?” I’m not a fan of the question… because it’s simply rude. I feel it’s used to size up or pigeonhole someone. My responses of “software engineer” has received very differently reactions than “dog sitter.” Nonetheless, some response is required. I rotate among all the things that I do. What are those things:
I suppose the best answer is that I’m a stay-at-home dad. The kids go to school for about 6 hours a day. So my “non-Dad stuff” is 30 hours a week. That gives me time to do some basic family errands (shopping, cooking, dishes, laundry, walking my own dog, etc.) and dog sitting and blogging fills in the gaps.
At blogging conventions a popular question is “Are you a full-time blogger?” I say yes, but then explain that I spend very few hours blogging. I don’t think most people grasp the concept of not having a full-time job, but still having a full slate of activity. I’m doing much, much more now than I ever did at a full-time job. If you really cared to read much more this gives you even more on that. I think everyone assumes that Boss Lazy Man will tell Employee Lazy Man to take the day off from the blog to do non-blogging stuff. That’s not really how it works. People with standard jobs have a lot of insulation where they can say, “See, my boss says that I’m not available.”
I’ve spent too many words on it, but if you want a short list of what I’m doing check out my “Now” page.
I don’t break out blogging income vs. dog sitting income. One impacts the other. When I have a lot of dogs, I don’t have as much time or the focus to blog. When I’m blogging a lot, it’s usually because I don’t have too many dogs to sit… and there isn’t some other great catastrophe going on. (Sometimes it feels like life is a series of catastrophes. Fortunately, for me, they’ve been minor. I’m sure I’m not alone in feeling that it’s just one thing after another derailing your progress.)
You may be asking right now, “Isn’t alternative income about NOT trading time for money?” Isn’t dog sitting and blogging TRADING time for money? That’s a solid point. However, I don’t do it directly. Let me explain:
Sitting dogs itself isn’t a time-intensive job… at least with the number of dogs I typically have. However, there is considerably more overhead than you might think between booking dogs and meeting dogs for suitability. The important differentiation with dog sitting is that I can “double-dip” and earn money from another side hustle, such as blogging, at the same time. It’s very different than being an Uber driver. The police tend to frown on blogging and driving. (Hmmm, maybe if I had a voice recorder and translation software I could compose some rough drafts. Nah… I’m sure clients wouldn’t want to climb over my kids’ child seats. Also studies show that Uber drivers make far below minimum wage when accounting for their expenses.)
If you are interested in dog sitting, I wrote a very detailed article on the subject: Pros and Cons of Dog Sitting on Rover.
Blogging is much more time-intensive than sitting dogs. However, it isn’t directly trading time for money either. If I write an article for the blog today (such as this one!), I don’t necessarily get any significant money for it. The money I make from blogging now is a direct result of having built a reputation and a collection of nearly 2500 articles over 12 years of blogging.
June was a great month for sitting dogs. The locals took advantage of kids being out of school, while the strong tourist season brought in more business. June has always been one of the best months, so this was no surprise.
Blogging income was solidly above average in June. I got a little advice on how to be more efficient with ads and had more contracts coming out of the woodwork.
While on the topic of blogging, I’d like to add that it isn’t about the money. I highly recommend personal finance blogging. I wouldn’t aim for creating the greatest blog in the world. Instead, I’d think of it as a way to keep yourself accountable. That’s worked for me. Here’s how to get started blogging with any type blog you might be interested in.
In May, these two categories combined for a year low of $2,047.30. But for June it was…
Total Blogging + Dog Sitting Income: $4,280.06
I literally went from the worst month to the best month. I wish I could say that there was some kind of repeatable magic, but it was mostly luck of opportunities that fell into my lap. I had to be available and execute, but that’s not much different than any other month..
In addition to the dogs and blogs, in June I added some straight-up, part-time work. I’m not including that into this mix as it is mostly plain old, regular income. I feel it is important to mention it, because my time is going elsewhere and earning money in a different way for the first time in awhile.
Blog and Dog Income since January 2017:
2. Rental Property Income
Here is where I need to fudge the numbers. Sorry, but it’s necessary.
We have three rental properties in our real estate accidental “empire”. (“Empire” is in quotes for a reason – it is a joke.) They are all on 15-year fixed mortgages. This means that we don’t make money on them now, but we are paying down those mortgages more quickly than most people. In 9 years, we should be able to collect an estimated income of $40,000 a year (in today’s dollars, after expenses) on them.
So here’s why I have to fudge the numbers. For the purposes of this report, I think it doesn’t make sense to count the properties as zero income. I don’t want this report to push me towards a bad decision. It might make me sell them and invest the money differently to make it better. If someone offered you a million dollars in 10 years or $10 per year right now, you’d wait for the million (I hope). It’s an extreme example, but it shows how the short-term plan should be pushed aside for the benefit of the long-term plan. If I don’t fudge the numbers, the $10 is the better deal.
Here’s how I’ve decided to fudge the numbers.
I add up all the properties equity and values. Zillow is fairly accurate for these condos as it has a lot of data points to work with. Next I calculate an equity-to-value ratio. In short, this is the percentage of the property value that we own vs. the bank. I then calculate the rents of all the properties as if they were owned free and clear. Thus we can say that we are “banking” (in a completely fudgey sense) a percentage of the rent that we would expect to have in the future.
If you are confused (and you probably are), this article on calculating cash flow of cash flowless real estate explains it in more detail.
Here are the numbers for June. We have 48.54% of equity in our properties with an estimated combined rent of $3,325. (This number is after insurance, property taxes, and condo fees.) We were able to raise the rents earlier this year a little bit as the rental market has been good and we turned over to new tenants.
If you multiply $3,325 by 48.54% you get $1,614 in fudged monthly alternative income. At the beginning of 2017, we only owned 36.4% of the properties and they had lower rents. The math worked out to $1,174 back then. So in 18 months, we’ve seen the number grow around $440/mo. As the years march on, the ratio will grow to 100% of the $3,325 month rent. That’s what gets us to that annual $40,000 I mentioned above.
In the previous report, the rental property income was $1,572. This number usually moves slowly, but a $42 jump is significant. This number only changes if one of two things happen: 1) The properties go up in value. 2) We charge more for rent. I don’t control the housing market, so I can’t change much here. Tenants are typically locked in for at least a year. The monthly paying down of the mortgages creates some equity each month.
In June, Zillow upped the value of the properties solidly. It’s about time since they’ve been slow to recover since the crash in 2009.
Slow and steady wins this race. My hope is that by the end of this year, we’ll be looking at having 50% of the equity with $3,325 in rent or $1662.50 a month in fudged alternative income. It looks like we’ll make it as we’ve gone from 43.32% at the beginning of the year to 48.54% in 6 months. I’ll knock on wood, but we might blow it away if the housing market continues to appreciate.
Total Rental Property Income: $1,614
Rental Income since January 2017:
3. Dividend Income
Like the rental property “income”, I’m going to play a game with the numbers. You can decide if the game is fair. I always appreciate comments!
We don’t focus on putting our money in dividend stocks, but I’m going to imagine that we do for sake of this exercise. In reality we a vast majority in index funds, but I do some stock picking with a small percentage of our portfolio. Though the index funds do pay dividends, it’s not their core goal. I’m also fudging the numbers in another way. The money I’m referring to here is in our retirement accounts, so it isn’t something that we would tap as “income.”
Even though all this money is in retirement accounts, we could pull the money out and use it. We’d get tax penalties so we won’t do that. However, like the mortgages on the rental property, there’s real value here that I feel should be accounted for. My goal here is to capture the nearly 20 years of mostly maxing out retirement contributions.
Just like the rental income, we can pretend what the portfolio would earn if we moved all the money into dividend stocks or indexes. For the sake of pretending, I estimated that we could earn 2.50% in dividends. Most people estimate a 4% safe withdrawal rate, but withdrawal is not our plan here. We are only thinking about the cash that these investments could yield to pay for our living expenses.
June was another solid month for our portfolios. I have written about dollar cost averaging Twitter and oil stocks and how it has paid off. The general markets seem to be going up on their own just as well.
Total Dividend Income: $1,509
Last month, it was $1497, so we gained $12 of theoretical monthly money from theoretical dividends. Like the rental property number, slow and steady wins this race. This keeps moving in the right direction.
Dividend Income since January 2017:
Very Close to Passive Income
Most people consider rental property income fairly passive income. It’s not, because you have to deal with tenants. However, when things are going well, there might only be “work” every couple of months. For sake of argument, I think we agree it is “more” passive than writing blog posts and sitting dogs. I spend a lot more time on the later than the former.
Of course dividend income is completely passive, so I don’t need to argue much there.
This “very close to passive income” category is a combination of “rental property income” with “dividend income.” (Yes, that’s a lot of quotes.)
It’s interesting to me that these two numbers are so close for us. It’s like the stocks vs. real estate debate, but for our personal finances. I think of it as putting them in an arena to fight out which is the strongest. The dividend income started out the year with a big, nearly $50, lead. In June the real property income is up over the dividends by $105.
The stock market goes up and down which makes the dividends fluctuate as well. The rental property income keeps going up, because the mortgages are always getting paid down every month. The stock market can more a lot faster than the housing market. In any case, I like having both of them working for us.
April’s Very Close to Passive Income: $3,123
Last month it was $3,069, so it’s up another $54! That’s grown from a combined $2,354 in January 2017. Since then, this has gone from an estimated annual income of $28,252 from these sources to $37,479. Investing (in this bull market) is awesome! It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet. However, looking forward to 9 years from now when the investment properties are paid off and how the stock market might grow (assuming a conservative 4%), this number could reach 80K a year. I estimate our long-term expenses to be around $35,000 a year (with the house paid off).
What if we ignored some minor (but important) details? Details such as our investments being in retirement accounts and an unwillingness to sell some rental properties to pay off others? It’s possible that these two could cover our future expenses (without drawing down on principle).
Very Close to Passive Income since January 2017:
Final Alternative Income
Adding up “dogs and blogs” to the “very close to passive income”, this month we on the investment stuff had $7,403.28 in monthly “alternative” income. That would be $88,839.36 a year. That’s the strongest number this year, which was to be expected since all 3 areas were highs for the year.
That largely hypothetical $88,839 a year on investments, writing on a blog, and taking care of dogs is fantastic. In the long term, we can get by on half of that income, and it doesn’t include any of my wife’s bread-winning pharmacist income or her potential military pension if she retires next year.
Just like every month, I’m still hoping to writing a book to boost my alternative income. I had always planned it to be an eBook, but if any readers out there know a publisher, I’d appreciate the hook-up. Seriously… it seems everyone in personal finance is getting a book deal except for me. I think I can make a compelling argument for a book that you’d see in a bookstore… that is if bookstores still exist by the time I’m done writing it.
Total Alternative Income since January 2017:
Net Worth Update
Since I don’t share real numbers of our net worth, this isn’t very exciting. That’s why it’s just a footnote here.
I truly believe that net worth is one of the most important numbers in personal finance so it is worth sharing in some way. Showing relative growth is still fun.
I use Personal Capital to track my net worth and it makes everything easy. It’s free and you should give it a try. For full disclosure, I might make a few dollars if you do.
In June, our net worth grew 1.64%. That’s an annual 20% which is around what we’ve averaged during the last few years of this bull market.
Our net worth for the first six months of the year is 8.63%. For a year where the stock market has been close to flat, this is a very strong number.
How was your June? Let me know in the comments.