It’s the middle of the month. That means that I have the final numbers on September 2018 and can finally put this out there.
September is always the “month of change” for us. The boys transition from summer camp to school, which dictates a whole new schedule. It’s also the busy season at my wife’s work. I think there was a span of two weeks where she was home for four consecutive waking hours only once.
While my wife was away, I took the kids to an extreme bouncy event on the military base. A dozen bouncy houses… and they bounced for hours. The kids also learned to swim! I’m not sure there’s a point in time that “swimming” happens, but the new swim school is amazing and it looks like swimming to me.
September was also the month our whole family went to FinCon in Orlando. Financially, it was a less-than-ideal plan. However, I wasn’t going to miss my son turning 6. It’s strange, but sometimes less-than-ideal plans work out far better than one could hope for. The kids got to spend a lot of time with mom, which was important after that busy stretch. They got to do the Crayola Experience and Legoland. We also put in nearly a full day at the hotel pool as a family.
Unfortunately we didn’t get to ride on that Patriots’ Jet.
There’s some truth to the rumors that I wore my bathing suit to a couple FinCon sessions. (It was dry.) One of the transformative things that happened when I turned 40 is that I stopped caring so much what other people thought. The FinCon sessions should have been in the pool anyway, right?
That’s a whole of TMI (on so many levels), so let’s get to the good stuff:
Alternative Income Update: September 2018
For those that don’t know the term, “alternative income”, I started using it around 12 years ago to be purposely vague. I needed something to cover the small amount of blogging income I was making, while I growing my peer-to-peer lending portfolio as an income stream. (The P2P worked for a bit, but I’ve soured on it over the last few years.) Blogging income can be very erratic, but there’s a residual nature to it as well. Some popular bloggers are still struggling to categorize the nature of the income. 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.
Last month I sprinkled in images from the past month for the first time. I’ve seen other bloggers do it and readers tend to love it. My only rule here is that I’ll show pictures of food if the presentation is amazing, such as an actual size Leaning Tower of Pisa made of grapes and toothpicks. (I will never understand why people take pictures of their food.)
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, August 2018, my alternative income added up to $7,104.78. August was just a $25 drop off from July, which was a drop in the bucket.
In any case, August is ancient history now, so let’s move on to more recent history… September.
Lazy Man’s Alternative Income – September 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.
Sneaking a picture of the kids in here, just to make sure you are awake. Southwest made them a crown out of pretzel bags and dirty martini olive spikes (not sure there’s a name for them). In any case: LUV, right? (Not a sponsored post and I’m not a shareholder.)
At blogging conventions a popular question is “Are you a full-time blogger?” I say yes, but then explain that I spend many more hours doing things other than 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 very short list of what I’m doing check out my “Now” page.
I don’t publicly break out the difference between 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.
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 usually much more time-intensive than sitting dogs. (The summer months are the exception). 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.
September was a weak dog-sitting month. Labor Day was busy, but after that people didn’t seem to go on vacation much. I also lost out on some business with FinCon and another weekend I had to take off.
Blogging income was above average in September. August was poor, so maybe advertisers were just waiting for the summer to end?
While on the topic of blogging, I’d like to add that it isn’t all 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 August, these two categories combined for a year high of $3,888.78. But for September it was…
Total Blogging + Dog Sitting Income: $3,312.81
While that’s a step backwards, it’s very close to the average for the year. It’s amazing to me with the two types of income complement each other.
In addition to the dogs and blogs, September was the second month where I spent significant time on the two new ongoing freelance jobs. The income from them is similar to the blogging and dog sitting, but I don’t include them, because there’s really nothing alternative about them at all. I still feel the need to mention them, because it’s time that I’m not blogging.
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, 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 just to make the numbers look better. For example, if someone offered you a million dollars in 10 years or $10 per year right now, you’d wait for the million (I hope). However, for this report, the $10 per year would give you better numbers.
It’s an extreme example, but it shows how sometimes the short-term plan is the enemy of the long-term plan.
Here’s how I’ve decided to fudge the numbers.
I add up all the properties equity and values. Zillow is 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. Then I 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 (rents are typically in line with inflation in the simplest sense).
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 September. We have 51.21% of the equity in our properties with an estimated combined rent of $3,350. (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.
Yay, we own more than 50% of our rental properties.
If you multiply $3,350 by 51.21% you get $1,703 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 20 months, we’ve seen the number grow $529/mo. As the years march on, the ratio will grow to 100% of the $3,350 monthly inflation-resistant rent. That’s what gets us to that annual $40,000 I mentioned above.
In the previous report, the rental property income was $1,685. This number usually moves slowly, so we’ll take the $18 increase. 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. That’s where we saw the gains in September.
Slow and steady wins the real estate race. In previous reports, I hoped that by the end of this year, we’d be looking at having 50% of the equity with $3,325 in rent or $1662.50 a month in fudged alternative income. As the properties have appreciated we’ve passed that mark a little early. Maybe we can get to 53% for $1762.25 for fudged money by the end of the of 2018 and push for 62% by the end of 2019.
Total Rental Property Income: $1,703
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.
September was a poor month for our portfolios. The stock market went down a little bit. These numbers are from October 6th, so it’s before the big crash that we’ve seen lately. (October isn’t looking good.) The end result is:
Total Dividend Income: $1,522
Last month, it was $1531, so we lost $8 of theoretical monthly money from theoretical dividends. Yes, this is boring, but that’s the nature of this beast. Like the rental property number, slow and steady wins this race.
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 can 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 move a lot faster than the housing market. In any case, I like having both of them working for us.
September’s Very Close to Passive Income: $3,225
Last month it was $3,216, so it’s up $9 in total. 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 two sources to $38,700. 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).
Yes 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).
Final Alternative Income
Adding up “dogs and blogs” to the “very close to passive income”, this month we on the investment stuff had $6,537.81 in monthly “alternative” income. That would be $78,453.74 a year. I’m excited even if it is a little fudgey math. That number is down nearly $600 from last month. I couldn’t have gotten it so consistent if I had tried.
That largely hypothetical $78,453.74 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, her potential military pension if she retires next year, or any of the freelance work I’ve been doing.
This is the part of the article where I mention that I’m still hoping to write 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.
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.
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? (Let me know in the comments.)
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 September, our net worth went DOWN 0.53%. Boo! This is the first time it’s gone down in awhile. Almost all of it can be attributed to Zillow changing its view of the value of our primary residence. In other words, nothing that really means anything for us for the foreseeable future.
For the year our net worth is up 9.76%. With the market going south right now, this will probably go down quite a bit when I look at how October went.
As a reminder, percentages can be weird… Imagine with someone with a net worth of $100 finds a $100 bill on the ground. Instantly it doubles his net worth. As our net worth grows larger, the percentage of growth will come down too.
How was your September? Let me know in the comments.