It’s not quite the middle of the month, so I’m a little earlier than usual with my update of alternative income for the last month. I don’t know if it’s come across here, but I’ve been a bit of a funk lately. There’s constant talk about my wife’s deployment for the last 6 weeks or so now. The most recent development was her bring told she would ship out to Puerto Rico on a four-hour window last Saturday. The call on Saturday came and said, “We’ll see about Tuesday.”
We’re calling it either the “catfish” or the “cried wolf” deployment. We have to warn everyone what is going on, but then it makes us feel like liars when nothing happens week after week. Obviously, there’s a lot more going on in the big picture. The important thing is that the people who need the help, get it.
Anyway, that’s dominating our lives. It does have a silver lining though. We’ve been motivated to close out as many loose ends (leaky faucets, minor financial things, cleaning and organizing, etc.) before she leaves. So if you’ve been emailing me, I’m sorry if I haven’t gotten back to you. I haven’t been online as much as I’ve wanted too.
Let’s dig into September
Alternative Income Update: September 2017
For those that don’t know the term, “alternative income”, I created it 11 years ago to be purposely vague*. I needed something to cover blogging income. It can be very eratic (Hint: foreshadowing), but there’s a residual nature to it as well. It’s interesting that popular bloggers like Retire By 40 are still struggling to categorize it. I think it was more passive back in 2007 when you didn’t need to Instaface your Snaptweets.
In general, alternative income is everything that comes from passive investment and side hustles. The best way to think of it is as anything where you aren’t directly trading your time for money. This report is about all my alternative income. To work 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.
Last month, August, my alternative income added up to $7,533, which was down nearly a thousand from August. (I know I really need to set up a chart. I am terrible with graphics.) August is always a decent dog sitting month due to summer vacations, but not great due to a lack of major holidays (Memorial Day, Independence Day, Labor Day, etc). August was filled with distractions like extensive water damage at an investment property and the first round of wife deployment “stuff”.
August is ancient history now, so let’s move on to more recent history… September.
Lazy Man’s Alternative Income – September 2017
In looking at our alternative income, I break it down to 3 main sources… each with their own caveats.
1. Blogging + Dog Sitting Income
Some “real world” people ask me, “What do you do?” I’m not a fan of the question… because it’s simply rude. I feel the question is often used to pigeonhole someone. Maybe I’m over-analyzing, but my response of “software engineer” seems to be received very differently than “dog sitter.” Nonetheless, some response is required. I rotate among all the things that I do.
The best answer to the “What do you do?” question may be that I’m a stay-at-home dad. The kids go to school for about 6 hours a day. That gives me time to do some basic family errands (shopping, cooking, dishes, laundry, walking my own dog, etc.). At blogging conventions a popular question is “Are you a full-time blogger?” Technically, I guess I’d say yes, but my full-time may be other people’s part-time. 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.”
Getting back to alternative income, I don’t break out the blogging income vs. the 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 catestrophy going on.
You may be asking right now, “Isn’t alternative income about NOT trading time for money?” This IS trading time for money. 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 a little different than being an Uber driver as 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’ seats.)
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, I don’t necessarily get any signficant 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 11 years of blogging.
September was a great month for dogs, but not for blogs (or at least my blogging). September is back to school for the kids. This season we loaded up on after-school activities like gymnastics, dance, and swimming**. That means I don’t have the opportunity to put on the Best Educational Streaming Shows for Preschoolers and work for a bit after school. Instead, most days, we get back home just in time for me to make 3 dinners (mine, my wife’s, and the kids***) and the kid lunches for the next day. I suppose this normal for many, many people. It’s just something that I haven’t adjusted to… yet. And it’s not something that is conducive to making money.
Dog sitting is usually very good in September due to Labor Day. This wasn’t any different. Dog sitting can be eratic like blogging, but at least there are predictable good months. Also, two eratic incomes tend to balance themselves out. In investment terms we might call it diversifying, right?
September was a big down month for blogging. I haven’t been writing enough and a lot of that is the funk I mentioned in the opening. I also need to revamp a lot of the blog design. I did a little of that, but it didn’t seem to help much. Well, I’ll you be the judge by leaving plentiful comments to this article.
[Side note: As usual, I highly recommend pesonal 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 August, these two categories added up to $4,900. So for September it is…
Total Blogging + Dog Sitting Income: $4,129.71
That’s a tough step backwards, but I have a bunch of advertising deals in my inbox… if only I can get to them and execute. For now, it’s enough for me to know that they are there. I’ve got a moderate-sized writing contract, but the company has been zigging while I’m zagging. If we get on the same page, things will be trending up again.
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 quickly paying down those mortgages. In 10 years or so, we should be able to collect an estimated income of $38,000+ (in today’s dollars, after expenses) on them.
So here’s why I have to fudge the numbers. I think it doesn’t make sense to count them as zero income, because it would make me want to sell them and invest the money differently to count for this. If someone offered you a million dollars in 10 years or $10 a year now, you’d probably wait for the million. It’s an extreme example, but waiting has value. If I don’t fudge the number 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. I then calculate an equity-to-value ratio (which is the opposite of loan-to-value ratio). In short, this is the percentage of the property value that we own. I then calculate the rents of all the properties if they were owned free and clear. Thus we can say that are “banking” (in a completely fudgy sense) a percentage of the rent that we would expect to have in the future.
(I need to write a whole post on this, because I’m not sure Alice could follow those sentences down the rabbit hole.)
Here are the numbers for September. We have 43.1% of equity in our properties with an estimated rent of $3200. That comes out to $1,389.38. At the beginning of the year, we only had a ratio of 36.4% which lead to $1,174.74. As the years march on, this ratio will grow to 100% the rent, which should be more than $3200 a month (due to inflation). That’s what gets us to that annual $38,000 I mentioned above.
Here’s an example of how this tracking may work going forward. We look to be raising our rents to $3500 in the next year. If tenants leave, it will probably be more… otherwise maybe a little less. We’ll probably approach 50% equity as the mortgages are paid down. So that “fudged number” next December would be $1750 a month. If someone can invent the imaginary number, i – (IIRC) the square root of -1, I think I can go forward with this math. What do you think?
In the previous report, the rental property income was $1,364. It had only gone up $5 from the month before which was a let-down. The reason it isn’t more is that Zillow knocked down the value of the properties a little bit. Just paying down the mortgages moves the needle, but the equity-to-value ratio took a hit.
This month, the number is $1,389.38, which is $25 more. It might not seem like much, but $25 of monthly retirement income is a good step forward. Maybe you pay $25 a month for a gym membership. Imagine if the gym just decided to never charge you again? That’s not bad, right?
Total Rental Property Income: $1,389.38
3. Dividend Income
Like the rental property “income”, I’m going to play a game with the numbers. You can decide if the game if 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. Instead we have it in index funds (for the most part). Though the index funds do pay dividends, it’s not the core goal. Also, the money I’m talking about here is in our retirement accounts, so it isn’t something that we would tap as “income” anyway.
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. 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 between 2.30% and and 2.70% in dividends on the portfolio. Most people estimate a 4% safe withdrawal rate, but withdrawal is not our plan here.
I am purposely keeping a wide range because I honestly don’t know what kind of dividends to expect. Also, it conveniently makes it difficult for people to reverse engineer and figure out our retirement portfolios (not that it is a big secret).
Each month, I’ll pick a random number in that range to derive this number. Since it’s “pretend” dividends anyway, there’s nothing lost in being a little vague. The focus is on calculating something that could be accurate if we needed it to be.
The stock market had been amazing well by October 7th when I calculated all these numbers. Last month we had a projected dividend income of $1,268.
This month we have…
Total Dividend Income: $1,315
Are you kidding me!?!? We could have made an extra $47 each money in dividend income by just the value of our portfolio going up? Score!
Very Close to Passive Income
I’m starting a new category here, but it isn’t exactly “new.”
Most people consider rental property income fairly passive income. It’s not. However, for sake of argument, can we agree it is “more” passive than “blogs and dogs” each day? I hope so.
I’m going to combine “rental property income” with “dividend income” to create “very close to passive income.”
Very Close to Passive Income: $2,704
Back in January, my number for this was $2,354. In 9 months we’ve gone from an estimated annual income of $28,252 from these sources to $32,448. The real estate and stock markets may plumet for all I know, but for now this is exciting.
I’m curious to see how this grows. If we get to $1750/mo. in real estate income next year, that’s going to pair well with the $1315 dividend income (assuming that it doesn’t grow.) So maybe it is $3100/mo. next year. That would be $37,200 in expected annual income! That would be a nice jump.
Final Alternative Income
This month I had $6,834 in monthly “alternative” income, which is about $700 less than last month. While I don’t like to see it go backwards, I’m going to focus on the positive of the “very close to passive income” which is growing nicely.
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. 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.
Net Worth Update
Since I don’t share real numbers of our net worth, this may not be 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.
In September, our net worth GREW 3.54%! This year has seen a lot of gains in net worth (thanks to the real estate and stock markets), but we haven’t had a month with such big gains like this one. For the year our net worth has increased 15.39%. Last moth, I wrote, “With the way the year started, I was hoping we’d be able to grow our net worth by 20%. That may have been unrelastic, but the markets were doing so well. I’ve got no complaint in growing our net worth by nearly 11.5% in 8 months.”
So after 9 months, the 15.39% net worth growth is right on track for 20%. Each month, I say it can’t be true and/or can’t continue, but then it does.
How was your September? Let me know in the comments.
* If anyone can lay claim to “alternative income” before 2006, I’ll happily give credit to them.
** This is the point where readers may say, “Wait, I thought you had two boys.” Yes, we do. Unfortunately, there are limited activities that a 3-year and a 4-year old can do at the same time. That’s a key consideration when you’ve got two kids and one parent/car. Swimming is a very important skill when you live on an island in the Ocean State. The gymnastics and dance classes should help them in team sports when that’s logistically easier.
*** I’m your typical meat-and-potatoes man. My wife is all about the vegetables (with meat mixed in). The kids eat “kid food.” It’s a balance and I try to make food that works with all of them. I’m not a cook and not interested in being one.
**** Zillow has recently decided that it can’t give a number for one of the condos. After years of getting it close to spot on, they’ve completely forgot I guess. They asked for more data, but whatever I give them doesn’t seem to be enough. I tried to contact them to get to the bottom of the problem, but they’ve ignored me. So now I’m using an average of what the Zillow was in the past and what Redfin says now.