We started the month like every December. We celebrate my wife’s birthday and we watch Santa come in on a boat to light the town Christmas tree.
We had a great lunch with my brother and my niece and nephew. That may sound ordinary, but our lives are in different directions. Before too long they will be off to college.
My youngest son (9 years old) competed in his first Lego Robotics competition. We had a new coach this year and I’m sure they wished they were more competitive. I guarantee you that no team had nearly as much fun as they did though. He also rode his first horse. His friend does horse riding and invited him to a horse-riding birthday party. They even had an old-fashioned potato sack race. He also took care of his friend’s two red-footed tortoises.
It was a busy month as he went to an art museum holiday party with us as well. There were some 200 people and we were the only people who brought a kid. I loved it!
I swear that my older son (11 years-old) lived with us last month. He didn’t have as many notable firsts. He did some Cub Scouts with my wife (when I was with the other kid). He did have a big chorus concert, where everyone said he stole the show. (I think they exaggerated a bit, but it was great to have four people say that.)
I was in the top 6% of Duolingo learners. That may sound impressive until you realize that I know almost no Japanese. I know some concepts though. I could probably take a crash course for a couple of weeks and be get by.
We attempted to run an egg nog mile as a family. Unfortunately my son slipped on a cobblestone and skinned his knee very early on. We did win best costume which came with a bunch of stuff from Hoka shoes.
There were probably over 100 people at this egg nog jog.
We had a great Christmas. It featured lots of Marvel and Lego… some of it even combined. The next few days were spent by the kids building, building, and building. My youngest, yes him again, even completed his first 18+ Lego build – an Iron Man Nano Gauntlet that I got on sale.
Reviewing the past month like this means more to me than the financial numbers below. Before I write this article, I would think, “Nothing special happened last month.” In reality, it’s a lot little special moments spread throughout the month.
Let’s start the new and improved Passive Income report. In 2023, I streamlined it to make it a faster, easier read.
For the next report, January 2024, I’m planning to combine this with my annual goals. I’ll have to remove almost all the explanation of my weird way of calculating numbers.
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.
Our neighbor puts on a fantastic Christmas display every year. It has a couple of dozen display items with working life size animatronics of Santa and reindeer.
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 only have a little 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. There will be no mortgages when this number reaches 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 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 ignored the bottom section, “career/job,” which is 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 passive because I can make money even when 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 primary 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 will only be 50% of my blogging and dog-sitting income, 80% of my real estate income, and 100% of my dividend income. That rewards types of income that are truly passive and punishes my quasi-passive sources like blogging.
1. Blogging + Dog Sitting Income
December was very good month for dogs and blogs.
Dog boarding went well for two reasons. First, we weren’t on vacation ourselves. Second, Rover had a good portion of the month as holiday rates. We have had a few months where we were shut down for our travel or for other events. It was our best month since July, which had our peak tourist season.
A pair of Rhodesian Ridgebacks for your viewing pleasure.
Blogging went well in December as well. Advertisers were paying well due to the holiday season. The downside is that they reset their budgets in January and prices are low again.
In November, “dogs and blogs” combined for $2,673.25. In December, it was:
Total Blogging + Dog Sitting Income: $5,304.59
The blue line is the monthly income. The red line is the 3-month average.
That’s almost double! It’s great to finish strong. For the year dogs and blogs brought in $59,354.43. Blogging income has continued to drop at least 20% per year. Dog boarding income is the new pillar of support.
My kids help with the dog sitting. My 11-year-old is extremely good with dogs at this point. He can feed them, let them out, and play with them in the yard. My 9-year-old is also good with dogs. Since I’ve been doing this for eight years now, having dogs around is just second nature. To them, it’s weird when there aren’t dogs around.
These two got to stay at our house for free. We kept them in my son’s room where the dogs aren’t allowed to go.
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
It looks like real estate prices are coming down. In addition, interest rates are coming down. It’s a good sign for buyers. Lower real estate prices aren’t great for the numbers here. I don’t mind that much. I like that at least some first-time home buyers have a chance to buy now. We don’t rely too much on the real estate portion of our income, so it’s not a big deal to us.
With the prices coming down, we actually lost equity in the last month. Last month, we owned 79.33% of our properties, and this month we own 79.15%. This is because we’ve lost equity overall with the prices going down. We continue to reduce the mortgages though.
Suppose we owned both rental properties with no mortgages (100% of the equity). In that case, we’d make about $2,218 a month after insurance, property taxes, condo fees, and estimated condo maintenance. The $2218 number is specific, but that’s how the rents came out, with the fraction accounting for the condo maintenance.
If you multiply our rents of $2,218 by the amount of equity we have, 79.15%, you get $1,755/mo. in estimated passive-ish income. Last month, it was $1,759/mo. We lost $4. Overall, we usually move at a pace of 2 or 3 dollars a month. There’s not a lot of room for the properties to appreciate.
Total Rental Property Income: $1,755
For all of 2023, we reduced our mortgages by $10,701. We grew our equity overall by $52,801. That’s a good contribution to our net worth.
When I started tracking rental property income this way (January 2017), we only owned 36.4% of the properties with lower rents. The math worked out to $1,174 of passive income back then. In almost seven 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.
At some point, I won’t want to manage properties. One option is to let our kids do it and pay them well for the help. Another option is to have them move into the properties (or do a 1031 exchange to a property they are interested in.) Our kids are at least ten years away from that, though. Yet, another option is to sell them, invest the money, and live off dividends. We’ll have to see how it goes.
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. Getting that 2.5% number should be easy, as we could put all the money in a high-dividend ETF. For example, the high-yield ETF, iShares Core High Dividend ETF (HDV), currently pays a 4.14% yield.
We might be looking into horse riding camp this summer.
Most bloggers use the actual dividends they earned that month. I have too many accounts, and I’m too “Lazy” to add up their dividends. Even if we aren’t getting the 2.5% number now, we could move the money from growth to high 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 essential to us now. I also combine all the taxable and retirement account numbers. It’s too much work to separate them.
In December the markets continued to do really well. It was only a matter of time until the markets reached new highs. This month we had our biggest dividend number ever:
Total Dividend-ish Income: $4,349.00
That was a gain of $102 over last month. For the second month in a row, we’ve seen huge gains in this area. It more than makes up for the $4 loss in real estate above. Looks like real estate passed the baton on to the stock market. That works for me!
Annually, we’d make a little over $52,000 in dividends. When I started putting these numbers together in January 2017, the dividend income was $1,180/mo. That’s quite a move.
I’ve finally made some progress on estate planning. After reading More Than Enough by Mike Piper, I reached out to him. He’s not taking new clients, but likely will within a month or two.
Adjusted Passive Income
I used to combine real estate and dividend income into “very close to passive income.” That wasn’t very scientific and didn’t sound right. Now, I add up 50% of the dogs/blogs money, 80% real estate, and 100% dividend income. That gives a more accurate number of what’s truly passive.
Dog/Blogs: $5,304.59 – Adjusted to $2,652.30
Rentals: $1,755.00 – Adjusted to $1,404.00
Dividends: $4,349.00 – Remains at $4,349.00
Dogs/Blogs Blue Line
Rental – Red Line
Dividend – Yellow Line
Total Adjusted Passive Income: $8,405.30
Last month it was $6,990.83. I was on vacation for ten days that month.
This growth is powered by dog boarding (mostly) and the stock market gain. Even though I try to adjust for dog boarding not being fully passive, it can still pull the numbers into a different orbit.
I’d much rather have the nearly $7,000 of November while being on vacation. That’s the true power of passive income.
Nonetheless, this month’s $8405.30 is almost exactly $100,000 a year annually. The last time I estimated our core/necessary expenses it came out to $100,000. In the next 3 or 4 years, the two biggest expenses, mortgages, and education costs will disappear. That would bring our necessary expenses down a lot. We’ll be able to spend on a lot more fun stuff.
For all of 2023, we ended with an adjusted passive income number of $95,357. In 2022, it was $102,717. That’s a step back right? In 2022, we sold a rental property and real estate boosted the numbers more than investing it in the stock market. Also, I did more dog boarding back then. Blogging paid a little better too. I’m optimistic that I’ll be able to grow this number in 2024, but I’m quite satisfied with how it is all going.
The kids have been building our Christmas tree for several years now. It was really cool when they were 6 and 7 doing it. Now that they are 11 and 9, it’s more just tradition.
It’s important to note 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 only access the equity we have in properties if we sell them or open a HELOC. We can do some things to get to this money, but it only makes sense when my wife retires when we’ll be in a lower tax bracket.
You’d think we’d feel “rich,” but we don’t. Some people tell me that we “won” the money game. I agree and would say that we feel “wealthy”. Our social circle has many generationally rich people. Nearly every one of my sons’ classmates lives in a $2-3 million house. Dog boarding is 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. In my opinion, that’s real wealth.
(The blue line represents the total adjusted passive income. The Red Line represents the three-month average.)
The three-month average in December 2021 was $8,310.07. In December 2022, it was $9,980.37. Now, in December of 2023, it is $7,505.06. So much for my goal of growing. Most of it is due to declining dog boarding. The real estate and dividend numbers grow slowly and can’t keep up.
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 might be worth around $85,000/year 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 come close to matching my wife’s. However, the flexibility allows me to stretch almost every dollar of our spending. It also frees me to bring the kids to school and after-school activities.
Net Worth Update
My net worth updates aren’t fascinating. I don’t share the exact numbers. That’s why it’s just a footnote, not its own article.
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 1.50%. For all of 2023, we were up 13.55%. We reached all-time high of net worth! I think we spent more money than we ever had and we still had an incredible financial year.
Many bloggers show how much they spent and how much they made during the month. I don’t keep track of all those numbers. Some tools can make it relatively easy. However, tracking overall monthly numbers works best for me. I can look at our liquid cash numbers, which gives me similar information. In the last month, we gained $6,000. That’s a good month.
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 makes 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 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.