Passive Income Update: December 2022

Now that we are so far into January, it feels weird to go back to December. So many people have made their goals and resolutions, and I’ve barely thought about mine. I’ll have them ready for February at this rate.

December always starts with my wife’s birthday. It’s usually a quick transition after Thanksgiving, but Thanksgiving was earlier this year, so we had a little extra time. We went out for a great meal at her favorite restaurant.

Soon after that, we turn our attention to Christmas. Our neighbor changes a half-acre of his yard into a mini-Christmas spectacular. Below is a picture of the least impressive of 10-12 displays. The older kids at our kids’ school always puts on a good Grinch That Stole Christmas. All the kids have their own winter concert as well. It felt like we always had something to do. We didn’t even get to some of our favorite Christmas movies.

(One of the )

I’m including other pictures of Christmas happenings. Santa comes down our street every year. The kids set up the Christmas tree. We went to a fabulous gingerbread house display.

The kids went to the Enchanted Village, which is a huge draw from a furniture store in Massachusetts. They bought iconic displays from a 1950s department store and added some things like ice skating and other stuff. My wife took the kids to that after an overnight in Boston, where they also saw The Art of the Brick – a Lego event. I was too busy boarding dogs.

My 10-year-old competed in his first Lego Robotics competition. He’s the youngest, most inexperienced member in a group of veterans, so he didn’t participate too much. I’m more excited about it than he was, so this may be the last competition. He did have a lot of fun, and they advanced to the state’s competition, so maybe it’s not done yet. My 9-year-old is much, much more into Legos.

Finally, we all stayed up to welcome the New Year. It’s the first time my 8-year-old (now 9) was able to do that.

Let’s start the Passive Income report. I used to call this the Alternative Income Report because some of this income has an active component. However, that idea isn’t catching on, and 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.

The way I calculate these numbers requires that little explanation – it isn’t intuitive. I do things a little differently to show the journey. For example, we don’t have 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 on that journey we are. You’ll see that the bank owns less, and we own more each month. There will be no mortgages when we own 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 multiply it by 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.

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 leave 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.

Starting next month, the first month I review 2023, I’m only going to count 50% of blogging and dog-sitting income, 80% of real estate, and 100% of dividend income. That’s more realistic of what counts as passive. Until then, the main numbers will use this. For now, I’ve added a section at the end that uses this more realistic calculation of passive income.

1. Blogging + Dog Sitting Income

November dog boarding was the best month we’ve ever had, so I didn’t expect to keep up with that pace. We still did very well in December. We boarded a few dogs around Christmas and the holiday pay worked out really well. The business is really moving, but I’m always about January. It’s always our slowest month, and we’re closing for two weeks to have work done on the house. My inferiority complex is creeping up and making me think that my customers are going to go elsewhere and never come back again.

(“I’m going to bite your face off! No, I’m going to bite your face off!)

Blogging did well too. It was our third biggest month of the year. Unfortunately, blogging has been steadily going down for a long time now. There are too many things competing for attention. Who wants to read text when your brain can get juiced on TikTok? I enjoy blogging, though, so if it is a hobby that makes money, I’m fine with that.

In November, “dogs and blogs” combined for $10,938.99. In December, it was:

Total Blogging + Dog Sitting Income: $9,168.65

That’s a big drop from November, but it’s still the second-best month of the year – or any year that I’ve tracked this.

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 8-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. This year they finished up vet summer camp at the local animal shelter.

(These dalmatians just inspected our kitchen and certified that there’s no fires going on.)

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. Here’s why kids should start a Roth IRA as soon as possible.

(Note: The blue line is the monthly number. The red line is a 3-month average which helps smooth the curve.)

2. Rental Property Income

Rental properties have been very boring the last few months. With mortgage rates high, property values have come down a tiny bit. We continue to pay down the mortgages every month. The result is a lot like running in the place – we aren’t getting anywhere. That’s okay; the property values went crazy in 2022. It’s good to let some air out of the bubble.

We went from 75.66% to 75.55% ownership of the equity in our properties. It sounds weird to own less of our properties. This number is calculated as a fraction, with equity being the numerator and property value being the denominator. When properties lose value and our liabilities stay the same, they can go back a bit. If housing crashed, we’d still have the same liabilities, but the property values would be trash. If we have $100,000 in mortgages and the properties are worth $110,000, we don’t own very much. It’s a much different story if liabilities are $100,000 and the properties are worth $1,000,000.

(It’s great to have a little help around the house.)

If we owned both of our rental properties with no mortgages (100% of the equity), we’d make about $2,200 a month after insurance, property taxes, condo fees, and estimated condo maintenance.

If you multiply our rents of $2,200 by the amount of equity we have, 75.55%, you get $1,662/mo. in estimated passive income. Last month it was $1,664/mo.

Better Off Dead was one of my favorite movies as a kid. I saw it last year, and it is still hilarious. Then again, I like all moves with John Cusack.

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 back then. In 5.5 years, it grew a ton. We sold our biggest rental property in 2022, and even with all that cash have a great number.

When we get 100% ownership, it should bring about $25,000 after expenses. Rent is inflation resistant as it’ll rise over time. That means that even though this is $25,000 in today’s dollars, it will still have that buying power in the future.

Total Rental Property Income: $1,662

3. Dividend Income

For this section, I assume we could earn a 2.5% dividend yield on our equities – even if I may choose to invest differently. That 2.5% could be from a high-dividend ETF. For example, HDV is currently paying about a 4.20% yield. The 2.5% dividend assumption is a conservative number that helps us think about what kind of cash we can expect.

We can also look at making passive income with Dividend Kings. If we wanted to simply retire on this dividend income, I would get Sure Dividend’s newsletter to try to get a 5-6% average dividend yield. (That link to the newsletter has a special discount rate; in full disclosure, I make a few dollars if you sign up for it.)

(I thought the Lego Robotics looked cool and super fun, but I’m a huge nerd.)

With today’s interest rates, getting a 2.5% yield shouldn’t be too hard. We wouldn’t want to move our money around too much to chase rates.

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 we are more focused on growth for now. I combine all the taxable and retirement numbers – breaking them down would be too complex.

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.

I used a snapshot of our finances from January 9th. The markets have kind of recovered a little bit from an off-December. In fact, just like our rental properties, this was like running in place.

Total Dividend-ish Income: $4,301.00

Last month it was $4,303. So once again, I lost two dollars. Neither category has ever been as close at $2, and now they both are in the same month? That is crazy!

When the market recovers to all-time highs, this dividend-ish income should be around $5,000.

In January 2017, we were at $1,180/mo. It’s been a tremendous six years.

(This is just as the kids woke up for Christmas. The picture came out grainy because I was running to catch up to them.)

For the 25th 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’m still not making any progress on this. For the first time in about 15 months, I got to a point where I thought I might be able to get the paperwork back out. Maybe when the dog boarding dies down in January, we’ll make progress.

Very Close to Passive Income

Our “very close to passive income” combines rental property income and dividend income. If we had any royalty income from books, movies, or music, I’d also include that. I’m too tone-deaf to have a rockstar music career, but I may write a book someday. I had a lead on a publisher, but they charge authors tens of thousands of dollars, which isn’t what I’m looking for.

I feel it’s important to keep track of this separately to differentiate it from the dogs and blogs’ income. Dogs and Blogs take active work to keep up. Rental property requires a little work, but not nearly as much. The dividend income takes no work.

(My just-turned 9-year-old loves art. He’s creating a Pokemon character with a couple of evolutions here. He used a pen that has 10 different colors to color it in. I was too late to remind him that he had 10,000 crayons and colored pencils.)

I love having both the rental properties and stock market income working together. When the stock market dropped this year, our real estate kept our net worth high. It was the opposite for the last decade – real estate didn’t do much while stocks quadrupled. Everyone interested in FIRE should consider having stock market and real estate income streams. The diversification gives me great confidence that we’ll be better prepared than most FIRE folks 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 a while. 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: $5,963.00

We’re trying to get back up to the $6,500 high from April 2022. We’ll need a market recovery in 2023 or some big surprise windfall. This would be almost $72,000 in annual income. We wouldn’t have to sell stocks or have a “withdrawal rate” – simply live off dividends. We wouldn’t have to get a reverse mortgage on our home or investment properties. Property maintenance and property taxes for rental properties are already factored in. We would still have all the underlying assets (property, stocks, etc.) and be able to pass these on to the kids for them to build on – unless we draw them down for more fun, charity, or other spending.

When I started this blog, I aimed to have around $75,000 in passive income. That was my definition of winning the money game. It would be enough to cover our needs and most of our wants. We’re not quite there, but we are close. If you count us being able to draw down on our accounts a little or get more than a 2.5% dividend return, we’re there.

This “very close to passive income” has grown from $2,354/month in January 2017. So in about six years, we’ve more than doubled our passive income (an extra $1,000 from the double). Our money is working almost as hard as we are. It’s a crazy system. I’m just doing my best to work within it.

Remember, these numbers are fudged and aren’t “real” because much of the money isn’t liquid. We can’t spend those retirement investments or the equity we have in properties. However, we can make some money moves if my wife chooses to retire and we get into a lower tax bracket.

(There were 43 million pounds of gingerbread to make this tower. I’m completely making up the number of pounds, but it was a lot. It’s an impressive feat for a local thing.)

We don’t feel “rich” by any stretch – especially because our social circle tends to have generationally rich people. However, we are “rich” relative to many people’s circumstances. Sometimes money is relative.

I hope to get our close to passive income to $8,000/month by the end of 2024. It looks like it might not happen, but a lot can happen in two years.

Final Passive-ish Income

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

Passive-ish Income: $15,131.65

That would be over $180k a year. Last month, this number was $16,905.99 because we did more dog sitting (not so passive). That (hypothetical) annual income for writing on a blog, taking care of dogs, investing, and landlording is awesome. I don’t know how long dog boarding will last. Either the market will change, or I’ll change. Perhaps I’ll want to travel more. Perhaps, I’ll want a different challenge. In a lot of ways, I’m on my third career (software engineering, blogging, and dog boarding), so why not a fourth?

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 – neither is passive at all. When my wife retires, we can count her vested military pension as more passive income. A pension is like a passive income cheat code. They are so rare nowadays.

(Santa’s sleigh that comes by our street every year.)

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 out kids a top education, 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 after-school activities.

I love two things about the graph below. First, there’s a definite trend of the numbers staying high for several months. Second, it doesn’t dip down too far. We should be able to count on at least $9,000. The big bump you see is almost all dog boarding business.

(The blue line is the monthly number. The red line is a 3-month average which helps smooth the curve.)

Adjusted Passive Income

I mentioned at the beginning of this website that I shouldn’t count dog boarding, blogging, or landlording as completely passive income. For 2023, my passive income is only going to count as 50% of blogging/dog-sitting and 80% of real estate income. However, I’m going to count 100% of the dividend income.

Thanks to the power of spreadsheets, I can bring you these numbers now. Our adjusted passive income would be $10,214.93 or over $120,000 a year. That’s down from $11,103.70 last month. It’s unfair that the big differences in these numbers are the non-passive dog boarding.

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.

In December, our net worth was down 0.83%. For the year, our net worth was down 2.07%. I’m very happy with that overall. Diversification into real estate really helped us whether the down market.

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. However, like most of the money mentioned in this article, this isn’t money we can spend right now.

It’s important to recognize that everyone is in a different place in their financial journey. I’ve been blogging about personal finance for 16 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.