Is it November already? How did that happen?

Last month, I mentioned that my dog looked like he was on the last of days a few months before his 14th birthday. He continues to get better. It might be 1% a day, but it’s noticeable.
October started with us going to a local brewery that was having an Oktoberfest. It was too loud, so we didn’t stay long, but I noticed they had a classic Nintendo game set-up. It inspired me to set up an old Sega system I bought a few years ago. The games are terrible, and the kids confirmed that. It’s hard for old games to compete with new games unless there’s nostalgia involved.

Our basement project still needs work as you can tell. We’re getting it painted in January. In the meantime, it’s great to have this space that isn’t defined.

One of the Newport Mansions had a Halloween event. You walk through in costume, and they give you candy at certain stations. They didn’t do much decorating, though, and instead of candy, it was mostly unsharpened pencils and superballs (in an eyeball design). It was very disappointing, but the mansions are always still impressive.

There was a Scouting event in our town, and Scouts came from all over New England. There were great stations like knots typing, a climbing wall, fire safety, etc. It was also by the ocean, which makes it a little more special.

We went to the annual pumpkin display at the Roger Williams Zoo in Providence. That was with the Scouts as well. The kids got to have some animal encounters. The only problem was that it was from 4-8, and there was no food available until around 7:30. We have gone to the pumpkins every year for about $18 a person, but the Scouting event was about $35 each. We’ll just do the pumpkins on our next year.

The theme of the pumpkin display was the history of television and I was happy to find that Buffy made it. Seinfeld had it’s own section, but Friends was nowhere to be seen.

When Halloween came, one kid was sick. He got to do some trunk or treats before, and we got him plenty of candy. However, he never wore his intended costume and just went as a soccer player. What kind of 8-year-old doesn’t like costumes on Halloween?

On the school front, our youngest kid won scientist of the week for grades K-4. It wasn’t explained what he did to earn it, but it’s fun nonetheless. My older kid completed a sailing program that the school has. Fourth graders go sailing on Tuesdays and Thursdays for six weeks. While one group is sailing, the other is learning science through sailing. It’s a cool program – very Rhode Island-y.

Let’s start the Passive Income report. I used to call this the Alternative Income Report because some of this income has an active component. However, that idea isn’t catching on, and everyone loves “passive income” better. If you are a new reader, you’re going to want to refer to my Alternative Income FAQ as you may have some questions about the math.

The way I calculate these numbers requires that little explanation – it isn’t intuitive. I do things a little differently to show the journey. For example, we don’t have real passive income from our rental properties. We still have mortgages to pay off. Instead, I calculate the percentage of equity we have to show where on that journey we are. You’ll see that the bank owns less, and we own more each month. There will be no mortgages when we own 100%, and all that rental income can be used for living expenses. When calculating the percentage of rental income, I take the rent (minus estimated expenses) and multiply it by the portion of equity we own. Think of it like you and a friend owning a property 50/50. This would be how you’d handle it, with each of you splitting the profits at the end 50/50.

Lazy Man’s Passive Income

I categorize our passive income into three primary sources that are represented mainly in my passive income pyramid. For this report, I ignore the bottom section, “career/job,” – that’s not passive at all. (I have some income in that area, but that’s not the focus of this report.) I combine dog-sitting and blogging into one section of my “somewhat active” income. They are a little passive because I can make money even when I’m not immediately tending to them. I leave real estate and investment income as their separate main sources of very passive income. This way, if you want only to count those, you can do that.

For 2023, I’m only going to count 50% of blogging and dog-sitting income, 80% of real estate, and 100% of dividend income. That’s more realistic of what counts as passive. Until then, I’ll continue the way I’ve been doing it. However, I’ll add this new calculation as well.

1. Blogging + Dog Sitting Income

Surprisingly, October is sometimes one of our best months for dog boarding. It seems to have unique circumstances every year. One year, we had a family with three dogs leave for a long time. Another year we had a couple of other dogs stay with us for most of the month. Also, October has always been boosted by holiday rates on Columbus/Indigenous Peoples’ Day. For some reason, Rover.com did NOT apply it this year – specifically calling out that it wouldn’t be a Rover holiday.

This October, we had an all-time record month of dog boarding! It beat our April month by 5%. That’s the good news. The bad news is that it was a ton of work. It was much less work when I started including this in my passive income report. I want to raise prices to limit the number of dogs, but I love our regular customers. I don’t want to lose them. I’ve also raised rates a lot already.

Scouting event with a real fire hose!

Blogging income was a virtual tie for the yearly record! I got lucky with some good advertisements. I should refocus and see what I can do to increase blog income. I’ve got some ideas of what I’d do, but it takes time that I simply don’t have.

In September, “dogs and blogs” combined for $5,506.35. In October, it was:

Total Blogging + Dog Sitting Income: $8,844.18

That number is banana pants crazy. It’s a record of more than $1,000. It may even be more than I made at the height of my software engineering career. (I was never paid that well. I also wasn’t very good. Finally, it was 2006.)

My kids help with the dog sitting. My 10-year-old is extremely good with dogs at this point. He can feed them, let them out, and play with them in the yard. He’s spending more time in front of the clients as a helper at pick-ups and drop-offs. My 8-year-old was a little slower to develop dog skills, but he’s carved out a household niche catering to the smaller dogs – he just loves them. This year they finished up vet summer camp at the local animal shelter.

Their help means I can pay them a legitimately earned income (a percentage of the overall dog-sitting income). Because the income is earned, they can save money in their kid Roth IRAs and it will be money that they’ll never pay tax on. Here’s why kids should start a Roth IRA as soon as possible.

(Note: The blue line is the monthly number. The red line is a 3-month average which helps smooth the curve.)

2. Rental Property Income

Sometimes I feel like we still have three properties. I still need to adjust. We sold one, and now we’re down to two. It seems like the market is shifting to buyers, so maybe we’ll pick up a rental property later. That should be at least a couple of years away, though.

It’s great to move from semi-passive to fully passive income. We’ve finally got all the money invested. We have a diverse portfolio at Vanguard, and I put some leftover cash in Ally, where it can earn 2.5%. I left some more money at our local bank (which doesn’t make much interest). Between Ally and the local bank, we have about four months of an emergency fund.

This was extremely popular at the early Halloween events, but it seems like everyone had them at bigger gatherings. It’s still a lot of fun.

Let’s get back to the remaining two rental properties. We have less potential rental income than before. However, we also have lower liabilities as our mortgage debt on them is significantly reduced.

Zillow decided our remaining properties were worth a tiny bit more this month. So much for the buyers’ market. We are still paying off our mortgages, and that’s building equity.

We went from 74.89% to 75.35% ownership of the equity in our properties. It’s very slow and steady at this point. One of the properties is on a new 20-year mortgage because we did a 1031 exchange (selling one property and buying another to avoid taxes). I wasn’t a fan of “starting over” with this mortgage, as it pays more interest upfront before earning equity, but the 4% interest rate seems very good now. Also, the payments are really low now, so we’re making money.

If we owned both remaining rental properties with no mortgages (100% of the equity), we’d make about $2,200 a month after insurance, property taxes, condo fees, and estimated condo maintenance.

I like to use an “expected rent” as we’re currently trying to catch up from years of very low rents. We liked our tenants, so we’ve kept them at a discount. However, with housing and rents going up so quickly, there’s a massive gap between what we could reasonably be bringing in and what we are bringing in.

If you multiply our expected net rent of $2,200 by the amount of equity we have, 75.35%, you get $1,658/mo. in estimated passive income. When I started tracking this (January 2017), we only owned 36.4% of the properties, and the properties had lower rents. The math worked out to $1,174 back then. In 5.5 years, it grew it a ton, even after cashing out of our biggest rental property.

When we get 100% ownership, it should bring about $25,000 after expenses. Rent is inflation resistant as it’ll rise over time. That means that even though this is $25,000 in today’s dollars, it will still have that buying power.

Total Rental Property Income: $1,658

3. Dividend Income

For this section, I assume we could earn a 2.5% dividend yield on our equities – even if I may choose to invest differently. That 2.5% could be from a high-dividend ETF. For example, HDV is currently paying about a 4.59% yield, but it has been much less in the past. The 2.5% dividend assumption is a conservative number that helps us think about what kind of cash we can expect.

I previous wrote some income investing ideas here. Using those, I started implementing our investment plan with the money from the sale of the condo earlier this year. We’re building a runway.

I guess they can’t do too much with a historic mansion, but they basically put a small skeleton on a table and called it Halloween. It just seemed… disproportionate.

We can also look at making passive income with Dividend Kings. If we wanted to simply retire on this dividend income, I would get Sure Dividend’s newsletter to try to get a 5-6% average dividend yield. (That link to the newsletter has a special discount rate; in full disclosure, I make a few dollars if you sign up for it.)

Most bloggers use the actual dividends they earned, but I figure we can always move the money around from growth to dividends. A vast majority of our money is in retirement accounts, so we are more focused on growth for now. In this section, we include all the taxable and retirement numbers – breaking them down would be too complex.

The stock market had a minor recovery. It didn’t move the needle too much for us.

We continue to get a profit-sharing check since I bought (a lot of) a company. The company is doing well, and they occasionally throw an extra profit-sharing check to me. The investment income from this is essentially the same as dividend income. It is taxed differently, but for this report, it makes sense to group all stock ownership in this bucket.

Total Dividend-ish Income: $4,113

Last month it was $4,247. It looks like a big drop, but it’s actually a little loose accounting on my part. After the condo sale, we had a lot of cash to invest, and I counted this as money that could easily earn dividends. Our tax people got back to us about the bill we owe the IRS, and we wrote a big tax check. So, in reality, I was counting money that I shouldn’t have. That problem is corrected now.

When I started tracking this number in January 2017, we were at $1,180/mo. It’s been a tremendous, nearly six years.

For the 25th month in a row (?), we’re looking into estate planning, but they gave us a lot of paperwork to do before we can move forward. I’m still not making any progress on this. For the first time in about 15 months, I got to a point where I thought I might be able to get the paperwork back out. Maybe when the dog boarding dies down in January.

Very Close to Passive Income

Our “very close to passive income” combines rental property income and dividend income. If we had any royalty income from books, movies, or music, I’d also include that. I’m too tone-deaf to have a rockstar music career, but I may write a book someday. This is important to separate from the dogs and blogs’ income. That takes some active work to keep up. Rental property requires a little work, but not nearly as much.

I love having both the rental properties and stock market income working together. With the stock market dropping recently, our real estate has kept our net worth fairly high. We locked in some real estate gains by selling and investing in this “cheap” market. It was the opposite for the last decade – real estate didn’t do much while stocks quadrupled. Everyone interested in FIRE should consider having stock market and real estate income streams. The diversification gives me great confidence that we’ll be better prepared than most FIRE folks in the case of an unfortunate economic 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 a while. Of course a bad economy may impact both at the same time, but that’s what an emergency fund is for.

This rope bridge was a lot harder to cross than it looks. I think about 75% of people fell off, but my son went through it without much of a problem.

There’s not a lot happening with this number. The reason for the change (a drop) was just my poor job of not accounting for taxes.

Very Close to Passive Income: $5,771.00

This would be nearly $70,000 a year of passive-ish income. We wouldn’t have to sell stocks or have a “withdrawal rate” – simply live off dividends. We wouldn’t have to get a reverse mortgage on our home or investment properties. Property maintenance and property taxes for rental properties are already factored in. We would still have all the underlying assets (property, stocks, etc.) and be able to pass these on to the kids for them to build on – unless we draw them down for more fun, charity, or other spending.

When I started this blog, I aimed to have around $75,000 in passive income. That was my definition of winning the money game. It would be enough to cover our needs and most of our wants. We’re not quite there, but we are close. If you count us being able to draw down on our accounts a little or get more than a 2.5% dividend return, we’re there.

This $5,771 of “very close to passive income” has grown from $2,354/month in January 2017. So in less than six years, we’ve more than doubled our passive income (an extra $1,000 from the double). It’s an excellent income for many, even in their top earning years. This is one of the reasons why I went with the “Lazy” name; it shows that investing money can do more “work” (or somehow produce more value) than active working can. It’s a crazy system. I’m just doing my best to work within it.

Remember, these numbers are fudged and aren’t “real” because much of the money isn’t liquid. We can’t spend those retirement investments or the equity we have in properties. However, we can make money moves if my wife chooses to retire and we get into a lower tax bracket.

We don’t feel “rich” by any stretch – especially because our social circle tends to have generationally rich people. However, we are “rich” relative to many people’s circumstances. Sometimes money is relative.

I want to get to $8,000/month in passive income by the end of 2024. However, I know it’s almost all about the market’s performance. If the stock market gets to new highs, we should be close.

Final Passive-ish Income

When you add up “dogs and blogs” to the “very close to passive income,” you get:

Passive-ish Income: $14,615.18

Last month it was $11,372.53. That would be over $175k a year. That (hypothetical) annual income for writing on a blog, taking care of dogs, investing, and landlording is very nice. That $135k is much more than for our average necessary expenses for the next 45 years. Of course, those necessary expenses aren’t going to cover all our spending, but they are a large percentage.

None of the numbers here include my wife’s bread-winning day job as a pharmacist or the minor freelance work I’ve been doing over the last few years – neither is passive at all. When my wife retires, we can count her vested military pension as more passive income. Since it is vested, should I count that now?

For now, this active income (including the dog boarding) are the fuel that drives the passive income engine – it allows us to live well, pay off our mortgages, and invest. My income doesn’t match my wife’s, but the flexibility gives me the time to stretch almost every dollar in much of our spending. It also allows me the flexibility to bring the kids to school and after-school activities.

This is what the special animal encounters were at the zoo. You get to watch the elephants eat closer than you would when they are outside I guess. They had set up a petting zoo with goats, but they also fed them dinner during the time we were allowed to see them… and we couldn’t go into the feeding area. So that was a big bust.

I love two things about the graph below. First, there’s a definite trend of the numbers staying high for several months. Second, it doesn’t dip down too far. We should be able to count on at least $8,000, maybe $9,000 a month. The big bump you see is mostly due to the dog boarding business.

(The blue line is the monthly number. The red line is a 3-month average which helps smooth the curve.)

Adjusted Passive Income

I mentioned above that I shouldn’t count dog boarding and landlording as completely passive income. For 2023, I’m only going to count 50% of blogging and dog-sitting income, 80% of real estate, and 100% of dividend income.

Thanks to the power of spreadsheets, I can bring you these numbers now. This adjusted passive income would be $9,861.49 or nearly $120,000 a year. That’s up from $8,289.67 last month. I don’t know if it’s fair that it’s up when the big difference was a ton of non-passive dog boarding. However, I think I could raise prices and do limited dog boarding. That would pay well and be more passive.

Net Worth Update

My net worth updates aren’t fascinating as I don’t share the exact numbers. That’s why it’s just a footnote, not its own article.

I truly believe that net worth is one of the most critical numbers in personal finance, so it is worth sharing in some way. Showing relative growth can be helpful.

In the last report, we saw our net worth drop by 3.01%. This month it fell by another 0.16%. That’s mostly a round-off error. The markets did well, but we wrote that big check to the IRS, so it mostly balanced out. For the year, our net worth is down 4.79%. That’s still really good, considering how far down the markets are.

It’s important to recognize that everyone is in a different place in their financial journey. I’ve been blogging about personal finance for almost 16 years. FIRE wasn’t a “thing” back in 2006. We naturally are further along in that journey than some younger readers who may be just starting. Some of those readers are saddled with huge student loans that we didn’t have to deal with. If you are one of these readers, I hope you won’t be discouraged by some of the numbers above. I didn’t start many of these graphs until year 10 of blogging and early retirement planning. Please try to use it as motivation for what may be possible (depending on your circumstances and market luck) over 15-20 years.

There’s a big wild card in calculating our net worth. Now that my wife’s military pension is vested, it’s reasonable to ask whether we should include it in our net worth. If the US government didn’t back it like treasuries or FDIC, I may feel I should account for some uncertainty. I decided that it does make sense to include it. She could have earned a larger immediate salary if she didn’t work for the government. That would have boosted all the numbers across the board. Calculating pension value is not easy, but here’s the best way to know what a pension is worth. However, like most of the money mentioned in this article, this isn’t money we can spend right now.

How was your month? Let me know in the comments.