We’ve got a few more days of the “summer hole” that I’ve mentioned in the last couple of posts. Come the 18th, the kids have camp and I’ll start to focus on making money again. In the meantime, we’re enjoying an extremely relaxing vacation. One could mistake it for retirement, but even in retirement there’s a need to tend to some “life stuff.” For a few days, all that is getting put on hold. I hope to share some stories and pictures next week when I catch up.
In the meantime, it’s the time of the month where I review last month’s alternative income.
May should have been a typical month and maybe it was. We started off with several social commitments where we usually have very few. I also focused my attention on other life “to do” things that weren’t “money makers.” Those were things like cleaning the clutter and organizing around the house. For example the cleaning before Mother’s Day was several days. Around the middle of the month, we got a surge of dogs to sit. By the end of the month, we were focused on the kids graduating school and some more organizing. (I’ve fallen in love with IKEA Kallax to store the kids toys. They really didn’t have storage before.)
In other words, there was a focus on “life” in the “work/life” balance. Also, I watched a LOT of the Bruins and Celtics postseason runs. It wasn’t unusual to have three Boston-based games on a night. I also binged 13 Reasons Why and caught Black Panther on Redbox. I’m usually not a big television watcher, but for one month I was.
Enough about my non-financial may, let’s dig into the money details!
Alternative Income Update: May 2018
For those that don’t know the term, “alternative income”, I started using it 11 years ago to be purposely vague. I needed something to cover blogging income. Blogging income can be very erratic, but there’s a residual nature to it as well. Some popular bloggers are still struggling to categorize it. 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.
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, April, my alternative income added up to $5,934.46. (I know I really need to set up a chart. I am certainly living up to my Lazy name here.) April was a strong dog sitting month, which often leads to less than stellar blogging month, which I will get into later.
In any case, April is ancient history now, so let’s move on to more recent history… May.
Lazy Man’s Alternative Income – May 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 to read more of what I’m doing check out my “Now” page.
I don’t break out 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. (Sometimes it feels like life is a series of catastrophes. Fortunately, for me, they’ve been minor. I’m sure I’m not alone in feeling that it’s just one thing after another derailing your progress.)
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 the recent MIT report shows that Uber drivers make far below minimum wage.)
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 (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.
May was a slightly below average month for sitting dogs. That’s typical since it isn’t a big family travel month with school in session. There were times where there were no dogs (Mother’s Day) and times where there were many dogs. It almost averaged out.
Blogging income was its worst of the year in May. Ugh! I’m a kidding a bit there. After years of blogging, I realize that’s how the cookie crumbles some months. With the benefit of almost half of June in the books, I can say that things are going in the right direction again.
While on the topic of blogging, I’d like to add that it isn’t 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 April, these two categories combined to a total of $2,992.54. But for April it is…
Total Blogging + Dog Sitting Income: $2,047.30
That’s far below what I’m used to earning, but again, June is already looking up and I’ve only had the “summer hole” time where I’m either 100% kid care or on vacation (which is also kid care). In addition to this, I’m adding some part time work that won’t be included in this mix as it is mostly regular income.
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 (in today’s dollars, after expenses) on them.
So here’s why I have to fudge the numbers. For the purposes of this report, I think 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 to make it better. If someone offered you a million dollars in 10 years or $10 per year right now, you’d wait for the million (I hope). It’s an extreme example, but it shows how the short-term plan should be pushed aside for the benefit of the long-term plan. If I don’t fudge the numbers, 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. Next I calculate an equity-to-value ratio. In short, this is the percentage of the property value that we own vs. the bank. I then 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.
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 May. We have 47.28% of equity in our properties with an estimated combined rent of $3,325. (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 $3,325 by 47.28% you get $1,572 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 17 months, we’ve seen the number grow around $398/mo. As the years march on, the ratio will grow to 100% of the $3,325 month rent. That’s what gets us to that annual $40,000 I mentioned above.
In the previous report, the rental property income was $1,533. This number usually moves slowly, but a $39 jump is significant. 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.
Slow and steady wins this race. My hope is that by the end of this year, we’ll be looking at having 50% of the equity with $3,325 in rent or $1662.50 a month in fudged alternative income. It should be close as we’ve moved from 43.32% at the beginning of the year to 47.28% in 5 months.
Total Rental Property Income: $1,572
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.
May was another tremendous month for our portfolios. I have written about buying Twitter stock back in 2014. I grossly overpaid back then, but I kept dollar cost averaging as it went down and bought a lot under $18. With it around $44, I’m up nearly 100%. So the stock picking is working, but the general markets are doing tremendously too.
Total Dividend Income: $1,497
Last month, it was $1449, so we gained $48 of theoretical monthly money from theoretical dividends. That’s the biggest gain of the year, so it worth celebrating.
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 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. 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 March it fell behind real property income by more than $100. It’s closed the gap and now there’s only it’s only an $75 advantage for real estate.
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 more a lot faster than the housing market. In any case, I like having both of them working for us.
April’s Very Close to Passive Income: $3,069
Last month it was $2,981, so it’s time to celebrate crossing the big $3K! 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 sources to $36,832. Investing (in this bull market) is awesome! 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, so we should be firmly in the positive side of things.
Final Alternative Income
Adding up “dogs and blogs” to the “very close to passive income”, this month we on the investment stuff had $5,116.30 in monthly “alternative” income. That would be $61,395.60 a year. It was trending towards over $100,000 last year, so seeing this go down is a little depressing. The dogs and blogs aren’t pulling their weight while I focus on more family things. On the other hand, by adding that other income opportunity, things could move back up.
Also, $61,000 a year on investments, writing on a blog, and taking care of dogs is nothing to complain about. 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 or her potential military pension if she retires next year.
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. 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 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.
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 May, our net worth grew 2.28%. That’s even better than April’s great gain of 1.73%.
Our net worth for the first five months of the year is 6.88%. If it continues, that would be 16.5% for the year. We’ll take that any year!
How was your May? Let me know in the comments.