Blog - Lazy Man and Money

Passive Income Update: February 2020

March 11, 2020 by Lazy Man 3 Comments

It seems like I start off every report by writing “[x] month was a difficult month.” February was (unfortunately) no exception. My Seasonal Affective Disorder (SAD) kicked in like it usually does.

The odd thing is that when I look back at the pictures in my phone, there are so many great memories. It’s strange that it feels bad in hindsight, but reflecting back with pictures makes it all better.

Some highlights:

– The kids started skiing. The youngest (6) loves it and is great at it. The oldest (7) is going to try snowboarding next year. It’s hard to get them to stick with activities, so I’ll take a 50% success rate with some upside here.

– I did a deep clean of the basement. It used to be a pile of Amazon boxes, but now it’s a real basement. I did some minor repairs around the house too.

– The youngest started to learn electric engineering. We worked with our Snap Circuits Kit (affiliate link) that I got him for his birthday. I just showed him a couple of things and he went nuts with it. He can’t figure out which shoe goes on which foot, but he can build anything you can imagine with some blocks.

– The oldest had a classmate’s birthday at Home Depot. I want him to learn to fix stuff – it’s a great life skill. However, birthday parties at Home Depot are a terrible idea – 15 kids hammering at the same time. It should have been sponsored by Bayer Aspirin.

– My wife helped the oldest make a pinewood derby car for Boy Scouts. A first grader can’t really do much when it comes to pinewood derby stuff. We were happy that we didn’t come in last. It’s just watching and learning. I’ll do better next year and learn myself. I’ve already been researching a bit. You’d be surprised, but people pay nearly $30 for the fastest wheels.

– My wife and I shared a romantic Valentine’s Day dinner at the Navy Base. We might be getting old. It was 3 hours long and we ran out of conversation a few minutes in. Maybe we just talk a lot and didn’t have much else to catch up on. We also did a romantic getaway at one of the local picturesque bread and breakfasts.

– We went to a party on the Navy Base to celebrate Mardi Gras. My wife thought that it sounded boring, but I bought tickets anyway. The other option on a Friday night was just to do the same old routine at home. It’s good to get out and about. Mardi Gras was AMAZING. The DJ was great and we all danced all night. They had to kick us out because we didn’t want to leave.

– The kids had the school’s annual ice skating party. They hadn’t skated much this year and didn’t want to do it. I promised them that if they went out on the ice, I would too. Curse their memory, they called me out on it.

That’s enough lead-in… let’s get to the Passive Income report. In the past, I called it the Alternative Income report, but it seems like that’s not catching on. Everyone like passive income better. While I transition to the new terminology, there may be some “alternative income” mentions including the FAQ.

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 Passive Income – February 2020

I categorize our passive 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 at all. 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, January, was a terrible month. That’s par for the course, it’s just a slow month. With everyone being sick, it didn’t help matters. February is usually better and last month was no exception. I had a lot of advertising on the blog, more than in a long time. I thought that I’d get a lot of dogs to sit with February school vacation, but it didn’t work out that way.

In January, dogs and blogs combined for a total of $2,043.72. In February, it was:

Total Blogging + Dog Sitting Income: $2,945.40

One of the things that I like about dog sitting is that my kids are old enough to pitch in and help. I can pay them a legitimate earned income (a small percentage of the overall income). This allows them to save money in their kid Roth IRAs, money that they’ll never pay tax on.

2. Rental Property Income

Zillow estimated our rental properties were worth a lot more than last month. That helps this number a lot. As with every month, we paid off a few thousand dollars of mortgage debt.

We now have 61.49% 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 61.49% you get $2,045 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 37 months, we’ve seen the number grow $871/mo. That’s like giving ourselves an annual $10,452 raise until the end of time. It’s a very nice gain from 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 above. I may need to update that $40,000 number as well – it’s looking closer to $30,000.

In the previous report, the rental property income was $2,024. 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.

Total Rental Property Income: $2,045

3. Dividend Income

The stocks markets went to hell in February. The corona virus has everyone concerned. Many companies are saying that they won’t earn money next quarter. This snapshot of finances is from March 5 – the markets have been all over the map. This may be a good time to buy stock as you can get a high yield on cost. For example, Ford is paying nearly a 10% dividend. (Who knows if that’s safe?

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. If I wanted to simply retire on this dividend income, I would get Sure Dividend’s newsletter to try to get closer to a 4% average dividend yield. That link to the newsletter has a special discount rate and in full disclosure I make a few dollars if you sign up for it.

Last month, we continued to get a profit sharing check since I bought (a lot of) a company. In fact, the company upped it significantly. Business must be good. 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-ish Income: $2,991

Last month, it was $2,940. We would have a seen big losses in this number, but the profit sharing came through with a surprise. We can’t always be this lucky, but I’ll enjoy it while lasts. Even in a bad-case scenario, we’d be north of $2500.

Annualized, this is $35,887. If our mortgage was paid off, this would cover all our necessary expenses by itself. However, because most of our investments are in retirement accounts, we can’t use much of this income for now. (We can use the profit sharing check as it goes straight to our checking account.) We’ll let the rest of this income continue to compound for at least another 15 years, but hopefully a lot longer.

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, I’d include that here. I’m too tone-deaf to have a rockstar music career, but maybe there’s room to have a book someday.

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.

I love having both types of income working together for us. I think everyone interested in FIRE should have stocks and real estate income streams. The diversification gives me great confidence that we’ll be better prepared than most people in the case of an unfortunate economic event. That’s especially important nowadays. 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: $5,035

We crossed the $5000 mark! Last month it was $4,964, so it’s up $71. Most good months, this goes up $15-$30 a month. This is a big jump in terms of passive income. Again, we got lucky with the profit sharing company. I started Lazy Man and Money with the tagline of “Making my money work, so I don’t have to” and it is working overtime. A passive income of $60,423 is incredible. It’s about double what I estimate we’d need to live on.

This “very close to passive income” has grown from $2,354 in January 2017 – or an annual income of $28,252. It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet (except for that profit sharing check). However, I’m looking forward to 7 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 could be real, non-fudged $100K/year.

Final Passive Income

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

Passive Income: $7,981.40

I’ve been stuck around the $7000 mark for quite a few months now. While I’d love to see good growth, it’s worth taking a minute to acknowlege that money isn’t everything. I focus most of my attention on family. The pictures in this article are priceless to me.

This nearly $8000/mo income is close to $95K a year. That largely hypothetical annual income for writing on a blog, taking care of dogs, and investing feels like a dream. In the long term, $95K would be a lot more income than we’d need. Here’s what our necessary expenses look like… for the next 45 years.

You never know what bad news is lurking around the corner, but this gives us the financial flexibility to fight it. The kids school may be closed due to the corona virus, so it’s helpful that I can stay home if necessary.

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). That’s the fuel that drives the passive income engine.

As always, I’m still hoping to write a book someday. That would add some more passive income. My wife will probably get her book out first. She had an incredibly interesting life until she met me – I am so boring. 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.

My favorite thing about the graph below is that it doesn’t dip down too far. It’s been above $6,000 for awhile now.

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.

Like many investors in the crash, our net worth took a hit. We lost 3.37%, which has us up 0.69% for the year overall. That was on March 5th, so it’s probably worse now. We’ll continue to plug away and do our best. We can’t control the market, but we can be happy that it has been working well for us over the years. Maybe next month, we’ll experience the amazing river of compound interest. It can’t go up every month forever, right?

I feel it’s important to acknowledge that everyone is in a different place in their financial journey. I’ve been blogging about personal finance for 14 years. FIRE wasn’t a thing back then, but it’s in the news all the time now. We naturally are further along in that journey than some younger readers who may be beginning their journey. I hope you won’t be discouraged by some of the numbers above if you are just starting out. Please try to use it as motivation for what may be possible (depending on your circumstances). I had a number of years where I was ecstatic simply to save ANY money for retirement. May the markets be forever in your favor (ummm… maybe not the best reference).

There’s a big wild card in calculating our net worth. Now that my wife’s pension is vested, it’s reasonable to ask whether to include a pension in your net worth. I decided that it does make sense to include it. She could have earned more direct monetary compensation 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. In the end, it seems my wife’s pension may be worth $2.3 million. However, like most of the money mentioned in this article, this isn’t money we can spend.

Because the pension would ridiculously dominate our net worth, I’ll note two separate numbers in my personal spreadsheet. I don’t share the numbers anyway, aside from these hints, so I don’t think it should matter much to you. It’s not like I’m suggesting that you might want to make a financial based decision on a pension.

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

Eight Ways to be Financially Responsible

March 8, 2020 by Lazy Man 2 Comments

Today I’d like to take a step back and review a few personal finance basics. Consider it a special bonus weekend article. I’ve been writing about investing a lot this year. The stock market has been the big financial news and it’s captured my attention more than ever before. However, I had to learn some important skills before I could turn my attention to investing.

For most people, graduating college comes with a lot of student debt. With a strong combination of luck and hard work, I earned a big scholarship. I also managed to go to college in my hometown, which allowed me to keep my high-paying pharmacy technician job. My peers, without that kind of income, turned to credit cards. They reasoned that once they made money in the real world, it would be easier to pay them off. It’s true that it is easier with income, but there were also more expenses. It took at lot longer than they thought to pay off all the debt.

A little fiscal responsibility may have gone a long way to getting them started on the road to financial freedom. Here are eight habits to start with.

1. Create a Budget

The first step to becoming financially responsible is to create a budget. Once you analyze your expenses over a few months, you’ll know what to expect. This way, you can see how much you spend on bills each month versus the amount you spend on frivolous items. This information shows you how you can trim expenses so you can save money.

Personally, this has never worked well for me. It’s just too much work, even though credit card categorizations can make it much easier. Instead, I developed a frugal mindset, which has helped me keep expenses low.

2. Start Paying Off Debt

Paying off debt can be daunting challenge, if you owe a significant amount. Paying extra toward your credit card debt each month is always best. Credit card expert, Donald Gayhardt of CURO Financial Technology Corporation always says the more money you can put on your card, the faster you will pay it off. Make it a habit to pay your cards and loans extra each month, even if you can only afford an extra five dollars a month.

Of course, the best plan is to avoid carrying credit card debt in the first place.

3. Live Below Your Means

It’s always best to spend less than you make. That’s why I adopted a really frugal mindset. It works even if you aren’t currently making much money. In some cases, it may be helpful to pick up a second job. In others, it simply means you need to cut out some of the things you spend money on. Cutting out subscriptions, shopping for cheaper services and buying food in bulk are all easy ways to save money.

4. Avoid Impulse Spending

Many people buy items as soon as they think of them, but this practice can be harmful to your wallet. When you are considering making a purchase, as yourself a series of questions to determine if you really need the item. If you answer “no” to any of the following questions, you shouldn’t buy the item.

Is the item a good value for the price?
Do you need the item immediately?
Will the item make life easier?
Is it a good investment?

My secret to avoid impulse buying is to spend a lot of thinking about expensive purchases. I often find that I didn’t need it after all.

5. Automate Savings

It’s never too early to start saving for the future. Even if you can only afford to put ten dollars a month into a savings account, set up an automatic process to do it. Set a calendar alert for every 3 months and review whether you can increase the monthly savings.

Put Money Aside for Emergencies

While savings are meant to help you if you want to reroof your house, an emergency fund is meant to help you with unexpected expenses. In a perfect world, you will always have extra money to repair your car, buy new tires or replace your HVAC system, but unfortunately, many people have to put these expenses on credit cards. Get into the habit of setting a small amount of money aside each month so you can dip into the emergency fund whenever and unexpected expense pops up. This way, you can avoid adding new credit card debt.

Cut Down On Living Expenses

Make it a habit to shop around for different services every few months to see if you can find them cheaper. You will often find a better price for gym memberships, insurance premiums, and cable subscriptions. Decide which expenses you don’t need and cut them when you can. For example, you may be able to call your cable company and negotiate the same package for less money. If you rely on your cell phone, you may be able to save a few dollars by eliminating a home phone. You can even save money by bundling several services together with the same company.

Cook at Home

If you don’t like to cook, you might be tempted to order out for every meal but this is one of the fastest ways to drain your wallet. On the weekends I’m always slow cooking something for the week. Boneless chicken thighs, onions, and some Thai sauces go a long way. Not only does this habit help you save time and money, but it is also a wonderful way to establish healthy eating habits.

These Millionaires Made Their 7-Year-Old Buy His Own School Lunch

March 6, 2020 by Lazy Man 3 Comments

This is the first edition of Kid’s Corner. I hope to do use one or two Fridays a month to write about issues of money and kids.

That’s probably the worst headline I’ve ever written. It’s terrible. What ARE these @#$*!$% thinking!

We’re the villains in our own story. Yep, we’re pure, pure evil.

Let me tell the tale of how we arrived at such a dastardly act.

Every day we pack a lunch for our kids school. You could say it’s the typical brown bag lunch, but we of course use reusable bags nowadays. Our kids are picky eaters (aren’t they all?), so it’s taken awhile to find some foods that they’ll eat. Figuring out what they are going to eat each day takes more hours than I care to admit.

We often sacrafice nutrition for our sanity. One such compromise we make is buying Lunchables. We’re not proud, but we are able to supplement them with some healthy foods. At the local military commissary they are around $1.25. That’s a great price compared to what they cost at the grocery store. With the other healthy snacks that they eat at lunch, our total lunch cost is probably around $2 a day. We spend probably another $1 or $1.50 on snacks for before and after lunch at school.

The other day our 7-year-old says that he wants the pizza hot lunch at school. He doesn’t want the spaghetti and meatballs lunch though, because that has tomato sauce on it. I’m sure that every parent is familiar with this kind of logic.

Kid Context: I interviewed my 7-year-old about the differences of tomato sauces of pizza and pasta. It seems that pizza cheese covers up the sauce taste, making it clearly edible where pasta with sauce is not.

The Pizza Connundrum

If it was as simple as pizza always being safe this story wouldn’t be less interesting. Pizza is a safe food only about 75% of the time. Those are actually very good odds in comparison to other foods.

The hot lunch at school has to be bought by the semester and paid in advance. There are no refunds and no exchanges. That’s the deal the school had to make with the outside vendor to reduce complexity. Essentially we have to make the decision to pay $60 for 10 pizza days to finish out the school year… or skip the pizza all together.

The math is easy – it’s $6 a day for hot pizza lunch. That seems like a lot to me, but I guess that’s what happens when you have to outsource catering because the school doesn’t have a functional cafeteria. Obviously, I’d rather continue to pay the $2 a day, but spending $4 more once a week isn’t going to make a dent in our budget.

However, what if this pizza falls in the 25% of bad pizza? Then we threw all $60 down the drain. My 7-year-old doesn’t care if we lose $60. It’s not his money…

… but what if it was?

That’s what I asked myself. What if he had to put some of his own money on the line? Would he be so quick to throw it in the trash? Would it taste better because he earned it?

Now, of course we wouldn’t make him pay for all $60. We wouldn’t even make him pay the difference. However, one dollar a day could work. He’s good at math for his age, so we could lay out what we currently spend and what the hot lunch costs.

The final aspect to this is that we haven’t set up an allowance policy yet. I’ve got a lot of unorganized ideas. I don’t want it to be, here’s money for free every week. I want to set up a base of chores for the money. I want to set up some extra chores he can do to earn more money. I want to have charts to track the chores so that at the end of the week he can cash in.

I also want someone who is awesome at graphics to create the chart for me. I’m joking, of course. There are a lot of chore charts on Pinterest, but so many of them are not quite right and customizing them to remove a chore or add a chore is not easy (for me at least).

There are a lot of money lessons to be learned here and this seems like a good time to start laying down that foundation.

Be Happy With However the Market Moves

March 4, 2020 by Lazy Man 2 Comments

“Any way the wind blows doesn’t really matter to me” – Freddie Mercury

I’ve been writing about investing a lot this year. I don’t usually focus so much on one area of personal finance. The year started with quite a run and now the markets are fluctuating a lot as news of the COVID-19 starts to directly impact the world’s economy.

Beach Dog doesn’t care about the markets at all.

I was talking with a friend last week and she said something that shocked me. We talk about investing a lot. We talk so much that we probably don’t need to talk about it because we know what the other person’s philosophy is. What I found shocking was something that I knew about her, but I had forgotten.

It was (paraphrased):

I set up my asset allocation so that I don’t care what the markets do.

This may be an easy thing to say. It might be tougher to follow. There are also extreme unlikely cases (for example: Dow 1,000) that she would care about. I’ll get to those in a minute, but first…

… what a goal!

I had never thought about not caring about the markets, because I do care about the markets. We’ve watched our net worth quadruple over the last decade and are arguably financially independent (or FIRE as the cool kids say nowadays).

I couldn’t imagine not caring about the markets until I remembered the time I didn’t. That was the crash of September 2008. My wife and I were on a trip to Thailand and Australia. I was honestly more concerned about the state of Tom Brady’s knee than anything financial.

In trying to analyze why that was, I think it was a few factors:

1. I never get to travel the world, so I wasn’t going to mess up this chance.
2. I couldn’t do anything about it anyway.
3. Tom Brady’s knee (worth mentioning again)
4. We were 32 years old. Old enough to have some nice savings, but young enough to accumulate shares at low prices before we’d need to use the money for retirement.

At 44 years old, my outlook has changed. We have more money in the market now. We have less time in our career.

My friend is older than me. Her investing strategies are more advanced than mine. I used to be a 100% stock person and now I’m a 88%/12% bond person. She’s probably closer to 50% stocks/40% bonds/10% treasuries-cash-gold. (This is a little over-simplified as we both have some REITs and other investments like that.)

She has written an investment policy statement (IPS) that balances her allocations whenever the market goes up or down. For example, with stocks dropping about 12-15% last week, it triggered and event to sell some bonds or treasuries and buy the cheaper stocks. I did the same myself.

It actually felt good to sell bonds and buy stocks at a lower price. It certainly feels than when I was in 100% stocks and having nothing I can do to buy on the dip.

Do I Care What the Markets Do?

That’s the key question you want to ask yourself. It’s okay to care. It’s okay not to care. This is a judgment-free zone. Personally, I like the idea of having diversification to limit losses and give me options if the market moves down. I’ll always root for it to go up, but I’m finding it more important to feel okay when it goes down.

Of course the famous Mike Tyson quote applies here:

Everyone has a plan until they get punched in the mouth

With the market down 12-15%, it has felt a little more like a love tap than a punch to me. I don’t know how I’d feel if the market goes down 40% like in 2008. I know I won’t sell. I probably will not be very fun to be around.

I think that answers the question for myself. I do care what the markets do, but I have much more flexibility so I don’t care as much. I have some work to do before I feel like I can get my friend’s philosophical place.

Should you have a goal to not care what the markets do? Let me know in the comments.

Two Ways to View the Coronavirus and Financial Markets

February 28, 2020 by Lazy Man 1 Comment

Unless you’ve had your head over the last couple of weeks, you’ve read the coronavirus is spreading. (If you have had your head buried in the sand, please tell me where, because I want an invite.)

You’ve probably also heard the headlines about the market crashing. I’ve seen some people reminding people not to look at their 401k plans. I see the market down about 12% from its highs and it is set to drop another couple percent today. For most people, especially if you are still contributing to 401k plans, not looking and staying the course is likely the best path foward. It’s a good time to buy in low since the markets have been up so much over the last few months.

Some of the people I’m talking to are doing something a little different. I’m doing something different too.

Last month, I wrote about how I’m managing stock market risk in 2020. Specifically, the stock market was hitting new highs almost every day. What a different a month makes! I was getting nervous that the Shiller P/E was high (around 34) and the markets were up 30% for the year. Since I still hope to be invested for decades of life, I didn’t want to exit the market even though it seemed risky. I thought the market seemed risky back in 2015, so staying invested is important.

I decided to manage risk by selling some international stocks and using the money to buy bonds. That has been very helpful this week. The bonds have been holding up very well while the rest of the market goes down. I also sold off half of my diversified VTI total stock market index and bought HDV, a high dividend ETF. That didn’t work so well as HDV has been hit just like the general stock market. At least I’ll get a dividend check to buy at these reduced levels.

With the market down 10% in such a short time, I took the opportunity yesterday to sell a little of those bonds and buy in. It wasn’t much, but it was enough to make me feel better about the down market. I also bought oil (Ticker: USO). It’s down 30% from its highs. Long term I’m more interested in solar, but oil was just too cheap for me to ignore.

The market continued to go down yesterday and today it’s looking like it’s going to be around 15% off its highs. I’m debating about cashing in some of those bonds and buying again. If I liked a 10% off sale, a 15% off is even better, right? Well, I can only sell off bonds for so long. I have only about 12% of my portfolio in them. I was thinking about selling off 2% or 3% at a time, so I can buy in 4 or 5 times if things continue to drop.

In market times like these, I find it’s best to focus on accumulating shares of indexes and companies. If you focus on the money you’ve lost, you’ll probably be sad. If you look at it as your money buying more shares, you’ll feel better. I was paying $170 for a share of VTI not too long ago, and now I’m paying $150. I am able to get more shares. Over the long run of a decades, more shares is going to equal more wealth.

Of course the big tragedy here is not related to the financial markets at all. It’s the people who are getting sick. I wish I could something about that and I feel a guilty about “profiting” (accumulating shares at lower prices, but I am definitely losing money like most everyone) from such a terrible circumstance. At some level, I just have to focus on controlling what (little) I can control and remembering that I write a financial blog. It’s okay to write about financial things at a time like this, because that matters too, right?

Passive Income Update: February 2020