It’s the middle of the month. That means that I have the final numbers on October 2018 and can finally put this out there.

October is often a rocky month. (I’ve recently noticed that I say that for almost all the months for one reason or another.) There’s the annual FinCon trip which seems to stretch to a full week with packing, planning, etc. It often takes me a few days after FinCon to get back in the swing of things. My wife’s job is focused on health care open enrollment, so it’s an important time for her.

Fortunately, the kids are settling into their school schedule. October has few travel holidays so it’s a light dog-sitting schedule. It’s almost as if the universe balances itself.

I’ll be randomly adding other personal family events throughout the email.

Let’s get to the good stuff:

Alternative Income Update: October 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, September 2018, my alternative income added up to $6,537.81. That’s a drop-off of around $600 from August, which was a drop in the bucket.

In any case, September is ancient history now, so let’s move on to more recent history… October.

Lazy Man’s Alternative Income – October 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 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.

[I got these those Squirtle and Charizard slippers new on Ebay for the kids. They love everything Pokemon, so I became an instant hero. They were around $8 each including shipping from China. What a great time to be alive!]

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.

October was an extremely weak dog-sitting month as I mentioned at the outset. Not too many people travel on Columbus Day.

Blogging income was a little below average as well. I can’t put my finger one specific reason why. It could be just a blip in radar.

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 September, these two categories combined for a total of $3,312.81. But for October it was…

Total Blogging + Dog Sitting Income: $2,528.83

There’s really nothing positive about the movement of these two numbers. Fortunately, November is looking much better with the dog sitting due to the Thanksgiving holiday. Hopefully we’ll have a strong end to the year.

In addition to the dogs and blogs, October was the third 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 A LOT time that I’m not blogging. Guaranteed income can be a lot better than dogs and blogs. It’s also certainly good to bring in more income than $2,500 even though I’ve got all the other stuff I’m doing.

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 October. We have 51.80% 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.

If you multiply $3,350 by 51.80% you get $1,722 in “fudged” 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 21 months, we’ve seen the number grow $548/mo. That’s like giving ourselves an annual $6500 raise until the end of time.

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.

[TD Bank opened a new branch nearby and had a big party. We got free pumpkins, saving us a couple of dollars from picking them up the grocery store. In related news, I learned that TD Bank is not the same as TD Ameritrade brokerage.]

In the previous report, the rental property income was $1,703. This number usually moves slowly, so we’ll take the $19 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 October.

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 earlier. Maybe we can get to 53% for $1762.25 for fudged money by the end of the of 2018.

Total Rental Property Income: $1,722

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.

[We were invited to a cocktail party at the Ida Lewis’ Yacht Club. Ida Lewis is perhaps the most amazing person you’ve likely never heard of. I know she accomplished more by age 12 than I will in my entire lifetime. It was quite a treat to be in the same building.]

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.

October was a very poor month for our portfolios. The stock market went down quite a bit. We are almost exactly where we started the year with our stock portfolio. Given the big indices, I think most people are probably in the same boat. The end result is:

Total Dividend Income: $1,460

Last month, it was $1522, so we lost $62 of theoretical monthly money from theoretical dividends. That might not seem like a lot, but this number usually doesn’t change much, so a drop of $62 is very significant. We are in it for the long haul, so it isn’t a big deal.

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.)

[We went to the zoo to see hundreds, maybe thousands of carved pumpkin art like the above. It’s amazing. Although it is a little expensive, we saved some money with our zoo membership. Also, the money they raise helps fund the zoo, definitely something worth our money.]

At the start of the year, the dividend income was slightly ahead ($48) of the rental property income. It’s like the stocks vs. real estate debate, but for our personal finances. Now the difference is $312 in favor of the “real property income.” Real estate is starting to decisively pull away.

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.

October’s Very Close to Passive Income: $3,183

Last month it was $3,225, so it’s down $42. That’s the first time this has gone down in 18 months of reports. Overall it has 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 $38,191. It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet. However, I’m looking forward to 9 years from now when the investment properties are paid off. Add in stock market growth (of a conservative 4%) and 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.

I have ignored some minor (but important) details. Details such as our investments being in retirement accounts.

Final Alternative Income

Adding up “dogs and blogs” to the “very close to passive income”, this month we on the investment stuff had $5,710.83 in monthly “alternative” income. That would be $68,529.96 a year. I was more excited when this number was $88,000 and looking like it would only go up from there.

Still, that largely hypothetical $68,529.96 a year on investments, writing on a blog, and taking care of dogs is fantastic. In the long term, we can get by on almost half of that income. That doesn’t include any of my wife’s bread-winning pharmacist income, her potential military pension if she retires next year, or any of that freelance work I’ve been doing I’ve been doing over the last several months.

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 October, our net worth went DOWN 0.90%. Ouch! That’s two consecutive months of going backwards. Don’t the markets know that they always have to go up so I write nothing but positive, encouraging articles?

For the year our net worth is up 8.78%. It’s looking like the goal for the year will be double digits. I use the term goal loosely, because so much of our net worth is invested in markets that we don’t control.

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. You’d rather have 10% growth of a million dollars than 20% growth of a hundred thousand, right?

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