There are a lot of holidays you usually say, “Happy” in front of, but Veteran’s Day isn’t one. Today, we solemnly reflect on all the people who served bravely to give us (Americans) the freedom we enjoy. Fortunately, my wife hasn’t been deployed into any kind of war zone, so she isn’t a veteran. She’s deployed for hurricane relief a couple of times and that’s stressful enough. I can’t imagine what it is like for soldiers and their families deploying into war zones.
On the topic of my wife and veterans, she’s away this weekend enjoying some time with “the girls” – some of whom are veterans.
So I get to celebrate Singles Day, the Chinese version of Black Friday. The boys and I are going to lunch at the Chinese buffet, which is everyone’s favorite. They like it because they get to see the food they are choosing. I like it because I can always find some foods they’ll eat without a fight.
Let’s get back to the month recap. After a lot of travel in August and the difficult transition to the new school year in September, October was relatively quiet. That doesn’t mean it was quiet overall. Our oldest joined the Cub Scouts and it was steep learning curve. Aside from that, there were community street parties, parades, harvest festivals, and at least four different Halloween events.
That was enough to fill the social calendar. At the end of the month, we had our best tenants move out. After four years they seem to have found their “forever house.” It’s sad for me, but I’m happy they are taking advantage of today’s low interest rates. We haven’t found new tenants yet, but hopefully we’ll have it occupied soon.
That’s enough lead-in… let’s get to the Alternative Income report. I’ll mix in some pictures from the month throughout this financial update, because some people find numbers boring. (But not you or you wouldn’t be here!)
If you are a new reader, you’re going to want to refer to my Alternative Income FAQ as you’ll likely have a lot of questions. They way I calculate these numbers does require some explanation.
Lazy Man’s Alternative Income – October 2019
I categorize our alternative income into 3 main sources that are largely represented in my passive income pyramid. I ignore the bottom section of career/job – that’s not passive or alternative. I combine dog sitting and blogging into one section of “slightly active” income. I leave real estate and investment income as their own separate main sources of very passive income.
1. Blogging + Dog Sitting Income
The last month I reported, September, was the worst blogging and dog sitting month I’ve had since the start of the year. Between the start of school, my travel for FinCon, my wife’s travel for work, we were busy.
October’s dog sitting mirrored September – it was bad. The busy summer tourist season of Newport, RI is over. Families are back in school, so they aren’t traveling and leaving their dogs behind with me.
Blogging income for October was also down. If I want to grow blogging income, I need to spend more time blogging. The good news is that I have a number of articles that I want to get out there. The bad news is that we’re going on vacation soon. The holidays at the end of the year are terrible for blog traffic as people are (rightly) spending time with their families. I might have to start focusing on 2020.
In September, these combined for a total of $2,390.35. In October, it was:
Total Blogging + Dog Sitting Income: $2,476.44
So essentially there’s no change there. I wish I could tell a story about how the money is growing and growing and share a special secret so you can do it too. Unfortunately, that’s not the case.
Here’s a historic chart with the red line being a 3-month average:
2. Rental Property Income
Zillow said our rental properties were worth a little more than last month. As with every month, we also paid off a couple thousand of mortgage debt. That helped us gain more than $5,000 in equity. Too bad it isn’t liquid, because then the blogging and dog sitting side hustles wouldn’t matter much.
We now have 59.50% of the equity in our properties with a combined rent of $3,325 after insurance, property taxes, condo fees, and estimated maintenance. I use that number because it represents our net gain.
If you multiply $3,325 by 59.50% you get $1,978 in estimated monthly alternative income. When I started tracking this (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 33 months, we’ve seen the number grow $804/mo. That’s like giving ourselves an annual $9,648 raise until the end of time from where we were nearly 3 years ago.
As the years march on, the ratio will grow to 100% of the $3,325 monthly inflation-resistant rent. That’s what gets us to that annual $40,000 income I mentioned in the FAQ mentioned at the beginning of the article.
In the previous report, the rental property income was $1,958. This number always moves slowly as it only changes if one of two things happen: 1) The properties go up in value. 2) We charge more for rent. We’ve got a change of tenant soon, and we’ll be raising rents to match that. In January, I’ll revisit all the assumptions that go into that $3,325 estimate after insurance, property taxes, condo fees, and estimated maintenance.
Total Rental Property Income: $1,978
3. Dividend Income
The stocks markets have been pretty volatile over the last month. However, by the time was all said and done our investments were worth almost exactly what they were the month before.
For this section, I assume we will earn a 2.5% dividend yield on our holdings. That could be from a high-dividend ETF or from simply holding strong companies that have a long history of dividend growth. For that we’ll look at making passive income with dividend kings. I’ll get Sure Dividend’s newsletter (this link has a special coupon code if you are interested) to try to get closer to a 4% average dividend yield.
In Ocober, I got the first profit sharing check since I bought (a lot of) a company. This investment income is essentially the same as dividend income. It is taxed differently, but for the purposes of this report, it makes sense to group together all stock ownership in this bucket.
Total Dividend Income: $2,789.00
Last month, it was $1,732. So at $2789, it’s a huge jump. Most of that comes from the new investment. However, the stock market has been doing extremely well hitting new highs almost every day.
This would total $33,463 in investment income a year. If our mortgage was paid off, this may cover our necessary expenses alone. Of course, because most of our investments are in retirement accounts, we can’t simply use this income right now.
Very Close to Passive Income
Our “very close to passive income” is a combination of rental property income and dividend income. If there were some royalty income from books, movies, or music, we’d include that here (but my rockstar career hasn’t taken off yet).
The stock market goes up and down fast which makes the dividends calculation fluctuate a bit. The rental property income keeps going up because the mortgages are always getting paid down every month. Unless there’s a housing market crash, this should continue to happen.
It is great to have both types of income working together for us. The diversification gives me great confidence that we’ll be better prepared than most people in the case of an unfortunate event. We’ll still likely get rent checks if the stock market crashes. We’ll still get dividend checks if a tenant is late paying for awhile. Of course a bad economy may impact both at the same time, but that’s what an emergency fund is for.
Very Close to Passive Income: $4,767
Last month it was $3,691, so it’s up $1056. It’s now consistently over the average of my dog sitting and blogging. That’s the goal as more and more income moves to the top of the passive income pyramid.
This very close to passive income has grown from $2,354 in January 2017 – or an annual income of $28,252. Our passive income is now more than double that at $57,204. It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet. However, I’m looking forward to 8 years from now when the mortgages on the investment properties (and our primary residence) are paid off. Add in stock market growth (of a conservative 4%) and this number should be real/non-fudged $100K/year.
Final Alternative Income
When you add up “dogs and blogs” to the “very close to passive income” you get:
October’s Alternative Income: $7,243.44
In September it was a hair over $6000, so this is a nice gain. Everything was a little better this month, plus the new investment income helped a lot.
Annualized, the $7,243.44 in monthly income would be $86,921.28. I have been trying to get this number consistently over $100,000. It doesn’t look it’s going to happen this year. If I can finish above $80K, I’ll consider that a win. Maybe 2020 is the year I average over $100,000.
That largely hypothetical annual income for writing on a blog, taking care of dogs, and investments feels like a dream. In the long term, $80K+ would be a lot more income than we’d need. Here’s what our necessary expenses for the next 45 years roughly look like.
None of the numbers here include my wife’s bread-winning pharmacist income, her vested military pension (more passive income), or the freelance work I’ve been doing over the last year (which isn’t passive at all).
As always, I’m still hoping to write a book someday – just to add some more passive-ish income. I may tip my toe into self-publishing sometime next year. I would love to talk to a real a publisher, but I don’t want to take on the “job” of writing. That’s probably a deal breaker. If you know someone who I could talk to contact me.
Net Worth Update
My net worth updates aren’t very exciting as I don’t share the exact numbers. 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 can be useful, I think.
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. For more full disclosure, I haven’t made a dollar from that suggestion this year so I’m not just suggesting it because I’m getting rich off it.
Our net worth jumped 2.92%. The big reason? The stock market has been hitting new highs almost every day. Also, Zillow gave our primary residence a big boost in value. Some people don’t count primary residence value much in net worth, but I believe it has value. We can always downsize or move to a cheaper place and pocket the difference and get real cash.
Over the entire year our net worth is up 29.36%, which is simply unbelievable. At that rate we’d nearly double our net worth every 2.5 years. This is probably a once-in-a-lifetime year though. Also, at age 43, I’m expecting to live long enough to witness more than a few crashes. When those crashes come, please remind me of this article.
It’s important to remember that everyone is in a different place in their financial journey. I’ve been blogging about personal finance for 13 years. We naturally may be further along in that journey than some younger readers who may be beginning their journey. Don’t be discouraged by some of the numbers above if you are just starting out. Use it as motivation for what may be possible (depending on your circumstances).
There’s a big wild card in calculating our net worth. Now that my wife’s pension is vested, it’s reasonable to ask Should I Include a Pension in Our Net Worth?. I decided that it does make sense to do it. It’s not easy, but I came up with some ways to figure out what a pension is worth. In the end, it seems my wife’s may be worth $2.3 million. However, like most of the money mentioned in this article, it isn’t immediately spendable cash.
That pension would ridiculously dominate our net worth, so I’ll note two separate numbers in my internal spreadsheet. Since I don’t share the numbers anyway, except for these hints, it shouldn’t matter much to you.
How was your October? Let me know in the comments.
Wow, that’s an impressive jump in dividend income. Nice!
The real estate income shows that it’s a long game. Looking good overall.
Love that pic of the fam! Too cute!