Wow, this may be the latest I’ve ever put out a monthly review. Amazon Prime Day threw me a curve ball. I was going to publish this at the end of last week, but I got busy.
We went from the unofficial start of summer in May to full-blown summer in June. However, now that I’m catching up, it seems like summer is half over. It’s upsetting me to think that way, so let’s keep the focus on June.
In June, the kids went out of school for ten days and then right back into school. I sent them to summer school because I’m the ultimate tiger dad. I’m joking! They went back to their school to do theater camp. My oldest loves acting – it was his favorite camp last year. My youngest did stage crew, building and painting sets. He loves that kind of thing, so it was perfect for him.
We started the month with my wife on work travel. I took kids to a charity bingo event to support a friend’s non-profit. The youngest kid had a birthday party to go to, so I had a lunch date with my 10-year-old. Halfway through the date, one his friends’ mothers asked about a playdate. That never happens for him, so we picked up his friend on the back, and played Wii in our finished basement.
We went to a church fundraiser. We had gone since the kids were 3-4. We always get a few books, and my wife wins some wine in a ring toss game. The kids’ school had a big milestone gala and we celebrated my wife’s recent promotion a little too much.
My 9-year-old ended his first baseball season. They had a party at end with a wiffleball game. My 10-year-old had previously decided that baseball wasn’t for him, but had so much fun, he decided to sign up for the fall! There were a billion parties to end the school year. The kids got their report cards – they did awesome!
We went to Block Island for a couple of days. I got taken out to dinner for Father’s Day and my son and I tried octopus. Crazy! (It wasn’t bad, but not great either.)
Finally, we out to a random dinner and my kids found their first threak. They were super excited. This is where you ask, “What’s a threak?” Well, it’s a fork, but with only three prongs. Sometimes, it’s the little things.
Wow, it feels like each day had a new thing. I’m getting tired reliving it, so let’s move on.
Let’s start the new and improved Passive Income report. I’ve streamlined this a bit, so hopefully, it will be a faster, easier read. I’ll try to continue to trim it down through the year.
I used to call it alternative income, but that idea didn’t catch on as it did when I used it back in 2008. 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 that I’m going to use in this post.
The way I calculate these numbers requires that little explanation . I do things differently to show the journey. Following the progress keeps me motivated. For example, we don’t have much 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 we are on that journey. Over time, the bank owns less of the properties, and we own more of them. There will be no mortgages when this number gets to 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 apply it to 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. If your friend is the bank and it owns 80%, you should only count on 20% of that net rental income. We used to be in that 20% range, but now it’s closer to 75%.
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 can do other money-making activities while I board dogs. When I’m on vacation, some blog money still comes in. I combine 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.
New for this year, my passive income is only going to be 50% of blogging and dog-sitting income, 80% of real estate, and 100% of dividend income. That rewards types of income that are truly passive and punishes my quasi-passive sources like blogging.
1. Blogging + Dog Sitting Income
There is always a high demand for dog boarding in June. Everyone wants to travel and they leave their dogs behind with me. A lot of tourists are coming here to Newport, RI who leave their dogs while they visit the beach or mansions.
The only problem is that we travel in June. Our June travel was cut a little short because we couldn’t get our preferred bed and breakfast on Block Island. We were late and had to settle for a different place that had less availability. I learned my lesson and booked our stay for next year already.
We ended up making 65% more money than last June. Our June was pretty good last year, so this was a nice surprise.
(You get a dog. You get a dog. Everyone gets a dog.)
The blogging for June wasn’t too good. I’ve noticed a lot of financial bloggers are saying that their income is way down. At least I know it’s not just that I’m being too “Lazy.” I also got stiffed out of a big check when an advertiser ghosted me. They worked hard and wasted a lot of both of our time to get a couple of days of free advertising.
In May, “dogs and blogs” combined for $5,938.04. In June, it was:
Total Blogging + Dog Sitting Income: $6,544.02
The blue line is the monthly income. The red line is the 3-month average.
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 9-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.
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. Kids should start a Roth IRA as soon as possible.
2. Rental Property Income
The real estate market is on fire again. I guess the home builders haven’t caught up with demand yet? Zillow said our rental properties were worth more than $20,000 of what they were last month.
Last month we owned 77.14% of our properties, but this month we are up to 78.56%. The big gain is due to increase in overall equity. For the first six months of the year, our two properties are up $50,000.
If we owned both of our rental properties with no mortgages (100% of the equity), we’d make about $2,218 a month after insurance, property taxes, condo fees, and estimated condo maintenance. I know the $2218 number is kind of specific, but that’s the way the rents came out to be with the fraction taking away the condo maintenance.
If you multiply our rents of $2,218 by the amount of equity we have, 78.56%, you get $1,742/mo. in estimated passive-ish income. Last month it was $1,721/mo. This month we added $23 in passive income. This number usually moves very slowly, so $23 is actually a very good number.
(Sunset at our hotel in Block Island)
When I started tracking rental property income this way (January 2017), we only owned 36.4% of the properties, and the properties had lower rents. The math worked out to $1,174 of passive income back then. In six years, it grew a ton. We sold off a property to invest it in the stock market and still have about 50% more income after expenses.
Eventually, these properties should bring about $25K-30K after expenses. Rent is inflation resistant as it’ll rise over time. That means that even though this is $25K in today’s dollars, it will still have that buying power in the future.
Total Rental Property Income: $1,742
3. Dividend Income
For this section, I look at our stock market investments. I assume we could earn a 2.5% dividend yield on those investments. That assumption is a conservative number that helps us think about what kind of cash we can expect. It should be easy to get that 2.5% number as we could simply put all of our portfolios in a high-dividend ETF. For example, the high-yield ETF, iShares Core High Dividend ETF (HDV), is currently paying a 4.26% yield.
Most bloggers use the actual dividends they earned that month. I have quite a few accounts, and I’m too “Lazy” to add up the dividends on them. Even if we aren’t getting the 2.5% number now, we could always move the money around from growth to dividends if we needed to live off the cash flow. A vast majority of our money is in retirement accounts, so cash flow isn’t important to us now. I also combine all the taxable and retirement account numbers. It’s too much work to separate them out.
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.
(At the bingo event, a vendor was selling Dorito bag nachos, which I had never heard of before. She put a scoop of taco meat and cheese in the bag and… perfect kid dinner.)
The markets are doing well. It feels like technology is really driving things. Maybe it’s another year of putting COVID behind us. Maybe it’s the banks settling down. Maybe it’s averting the debt ceiling crash. Maybe it’s a little of all the above.
For the first time in a couple of months, my wife has been home. It’s great to have her back. However, more relevant to this section is that I don’t have to estimate her numbers.
Total Dividend-ish Income: $4,138.00
Last month it was $4,111.
In January 2017, the dividend income was at $1,180/mo. Now, we’re almost at $50,000 a year – enough for us to live fairly well, especially if we paid off our mortgage.
For the 78th 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’ve got to finish our taxes first before I can look into this. We made a lot of progress on taxes, so hopefully we can just finish off a few things and have a productive second half of the year.
Adjusted Passive Income
I used to combine real estate and dividend income into “very close to passive income.” However, now I’ll simply add up the 50% dogs/blogs, 80% real estate, and 100% dividend income. This makes things a lot easier.
Dog/Blogs: $6,544.02 – Adjusted to $3,272.01
Rentals: $1,742 – Adjusted to $1,393.60
Dividends: $4,138.00 – Remains at $4,138.00
Dogs/Blogs Blue Line
Rental – Red Line
Dividend – Yellow Line
Total Adjusted Passive Income: $8,803.61
Last month it was $8,456.82. We had a big month of growth in dog boarding, but the rentals and dividends grow too.
This $8,800 is about $105,000 of passive-ish income annually. That’s almost exactly what we need to live on all our necessary expenses (including private school and mortgages). Eventually the two biggest expenses will go away and we’ll make a lot more than we really need. I guess that means we’ll be able to spend on a lot more fun stuff.
It’s incredibly useful to have different income streams. As making money from blogging becomes more difficult, dog boarding income has grown to supplement it. For a long time, real estate didn’t grow much at all; then, in the last couple of years, it grew a ton. The stock market grew for more than a decade from 2010 to 2021 but had a little setback last year. When something goes down, it seems another thing jumps up.
(When you live on an island, the end of year school parties tend to be at the beach)
Over a span of a few years, the dog boarding income will probably go down. We’ll travel more or perhaps there will be more competition. Maybe I’ll just want to take care of fewer dogs.
The chance of all the income streams falling on hard times is low, but anything is possible. If we had another event like the Great Recession in 2008, they’d all be impacted quite a bit. In that case, we’d have to rely more on active income that I’m not reporting here. We might also have to rely on savings for a while. Dog boarding went away completely with COVID, so something like that can be just around the corner.
It’s also important to remember that these numbers aren’t “real” because much of the money isn’t liquid. We can’t spend those retirement investments without taxes and penalties. We can’t access the equity we have in properties without selling them or opening a HELOC. We can do some things to get to this money, but it only makes sense when my wife retires and we are in a lower tax bracket.
You’d think we’d feel “rich” having “won” the money game. Most of the time we don’t feel rich at all. Our social circle tends to have generationally rich people. Nearly every of my son’s classmates lives in a $2-3 million dollar house. Dog boarding is definitely looked down upon in the private school society. However, we are “rich” relative to many people’s circumstances. Money is relative. There’s a lot of value to being able to laugh at emergency bills and make reasonable splurges.
(The blue line represents the total adjusted passive income. The Red Line represents the three-month average.)
The three-month average in June 2021 was $7,504.23. In June 2022, it was $8,665.62. Now in May of 2023, it is $9,125.14. It’s good to see that the numbers are growing in the right direction. For most of this year, it was going in the wrong direction.
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. This income isn’t passive at all. When my wife retires, we can count her vested military pension as more passive income. It looks like it might be worth around $85,000/yr. and includes access to a good health care plan. A pension is a passive income cheat code. They are so rare nowadays. It gives us a lot of flexibility that most people don’t have.
For now, this active income (including the dog boarding) is the fuel that drives the passive income engine – it allows us to live well, get our kids a top education at a private school, 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 to after-school activities.
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.
This past month, our net worth was up 3.14%. For the year it’s up 10.46%. This is our third straight month of reaching an all-time net worth.
(The traditional annual Block Island labyrinth walk)
Many bloggers show how much they spent and how much they made during the month. I don’t keep track of all those numbers. I know there are some tools that can make it relatively easy. However, I find that tracking monthly numbers works best for me. I can look at our liquid cash numbers which gives me similar information. In the last month, we grew our liquid cash by $10,000. For the year, we’ve only grown our liquid $20,000. We’re spending a lot of money on home improvements.
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 U.S. 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.
It’s important to recognize that everyone is in a different place in their financial journey. I’ve been blogging about personal finance for 17 years. FIRE wasn’t a “thing” back in 2006, but that’s been my goal since the first sentence of this blog.
We naturally are further along in that journey than some younger readers who may be just starting. Many 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.
How was your month? Let me know in the comments.
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