We’re well into 2020, but I have to take one last look at 2019 to close it out. It always takes some time to get the final numbers together, especially when a tenant puts her rent check in the mail on the 11th. Usually, I can get this report together a little earlier, but at day 16, we’re having arguably our second day of health this year in the family. We’ve already been to the hospital 3 times, which was about 2 more times than 2019.
I’m sure that December is a busy month for everyone. For us, it’s no exception. My wife’s birthday starts the month and the rest of family’s follows. With the holidays happening in the middle of the week this year, it seemed like all the time before and after were days off. By the time everything was done, it seemed like the entire month was one week. And of course that week I had a mental breakdown. All this means that I have more pictures than usual this month.
That’s enough lead-in… let’s get to the Alternative Income report. I’ll mix in some personal 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 Alternative Income – Novemeber 2019
I categorize our alternative 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 or alternative. 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, November, was the worst blogging and dog sitting month I’ve had since the start of the year. We traveled to Aruba and didn’t take dogs over Thanksgiving – one of the busiest dog sitting times.
December’s dog sitting was simply below average. I’ll take it because it was much, much better than November.
Blogging income for December rebounded as well and was just slightly below average for the year. Part of me feels like it should be easy to make money as the end of the year has a rush of advertisers spending money. Another part of me is realistic that website traffic takes a nosedive because people are living their very busy lives.
In November, these combined for a total of $1,570.39. In December, it was:
Total Blogging + Dog Sitting Income: $2,605.87
I’ll take the thousand dollar rebound. It brings things closer to the average that I expect. This kind of income jumps all over the place, which is why I include a 3-month average (in red) in the chart below.
2. Rental Property Income
Zillow estimated our rental properties were worth a little more than last month. We saw a lot of appreciation in 2019 – about 10%. As with every month, we paid off a few thousand dollars of mortgage debt.
We now have 60.20% 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. Very soon, I’ll need to update that number since we get more in rent now… but the condo fees are more.
If you multiply $3,325 by 60.20% you get $2,002 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 35 months, we’ve seen the number grow $828/mo. That’s like giving ourselves an annual $9,936 raise until the end of time from where we were nearly 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.
In the previous report, the rental property income was $1,983. 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. We had a change of tenant and raised rates, but I need to do the math to see if the $3,325 number is still accurate. To come up with that number, I make some assumptions in estimating after insurance, property taxes, condo fees, and estimated maintenance.
Total Rental Property Income: $2,002
3. Dividend Income
The stocks markets have been doing so well that even my wife has noticed. That has happened only about 3 times in the decade… and the stock markets had done very well overall. However, by the time was all said and done our investments were worth almost exactly what they were the month before. Of course we all knew the end of the year was going to do well. It certainly feels like the markets went up at least the 5% that was predicted.
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.
In December, we continued to get a profit sharing check since I bought (a lot of) a company. 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: $2,896.00
Last month, it was $2,813. So at $2,896, we’ve got a huge jump of $83. The stock market continues to hit new highs all the time. This can’t continue forever, but I’ll enjoy it while it lasts.
Annualized, this is $34,755. If our mortgage was paid off, this could cover all our necessary expenses by itself. Of course, because most of our investments are in retirement accounts, we can’t use this income for now. We’ll let 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, we’d include that here (but my rockstar career hasn’t taken off yet).
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 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. 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: $4,898
Last month it was $4,796, so it’s up $102. Most good months, this goes up $15-$30 a month. This is a huge, huge jump, especially in terms of passive income. 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 $58,773 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. 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 Alternative Income
When you add up “dogs and blogs” to the “very close to passive income” you get:
Alternative Income: $7,503.87
In November it was $6,366.39, so this is a solid step forward. Annualized, the $7,503.87 in monthly income is $90,046.44. I have been trying to get this number consistently over $100,000. It didn’t happen in 2019, but it’s great upward momentum heading into 2020.
That largely hypothetical annual income for writing on a blog, taking care of dogs, and investments feels like a dream. In the long term, $90K+ 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.
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 – just to add some more passive-ish income. 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.
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.
Our net worth jumped 2.73% for the month. The stock market has been hitting new highs almost every day. For the 3rd or 4th months, Zillow gave our primary residence a big boost in value. After years of it feeling vastly undervalued to other areas locally, we’re starting see the gap close. Our primary residence has jumped over 11% for the year and about 6% in the last few months. Some people don’t count primary residence value much in net worth, but I believe it has value. We can always downsize or move to a cheaper place and pocket the difference.
Over the entire year our net worth is up 34.49%. That’s clearly banana pants crazy. At that rate we’d double our net worth every 2 years (rule of 69). And in fewer than 20 years, we’d be billionaires. These years are rare, so I’ll take it for what it is. Also, at age 43, I’m expecting to live long enough to witness more than a few crashes. When those crashes come, please remind me about 2019.
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 13 years. FIRE wasn’t a thing back then, but it’s in the news all the time now. We naturally may be further along in that journey than some younger readers who may be beginning their journey. Don’t be discouraged by some of the numbers above if you are just starting out. Pleaes 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 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 $2.28 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 internal 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 financial based on a pension.
How was your December? Let me know in the comments.