Passive Income Update: February 2020

It seems like I start off every report by writing “[x] month was a difficult month.” February was (unfortunately) no exception. My Seasonal Affective Disorder (SAD) kicked in like it usually does.

The odd thing is that when I look back at the pictures in my phone, there are so many great memories. It’s strange that it feels bad in hindsight, but reflecting back with pictures makes it all better.

Some highlights:

– The kids started skiing. The youngest (6) loves it and is great at it. The oldest (7) is going to try snowboarding next year. It’s hard to get them to stick with activities, so I’ll take a 50% success rate with some upside here.

– I did a deep clean of the basement. It used to be a pile of Amazon boxes, but now it’s a real basement. I did some minor repairs around the house too.

– The youngest started to learn electric engineering. We worked with our Snap Circuits Kit (affiliate link) that I got him for his birthday. I just showed him a couple of things and he went nuts with it. He can’t figure out which shoe goes on which foot, but he can build anything you can imagine with some blocks.

– The oldest had a classmate’s birthday at Home Depot. I want him to learn to fix stuff – it’s a great life skill. However, birthday parties at Home Depot are a terrible idea – 15 kids hammering at the same time. It should have been sponsored by Bayer Aspirin.

– My wife helped the oldest make a pinewood derby car for Boy Scouts. A first grader can’t really do much when it comes to pinewood derby stuff. We were happy that we didn’t come in last. It’s just watching and learning. I’ll do better next year and learn myself. I’ve already been researching a bit. You’d be surprised, but people pay nearly $30 for the fastest wheels.

– My wife and I shared a romantic Valentine’s Day dinner at the Navy Base. We might be getting old. It was 3 hours long and we ran out of conversation a few minutes in. Maybe we just talk a lot and didn’t have much else to catch up on. We also did a romantic getaway at one of the local picturesque bread and breakfasts.

– We went to a party on the Navy Base to celebrate Mardi Gras. My wife thought that it sounded boring, but I bought tickets anyway. The other option on a Friday night was just to do the same old routine at home. It’s good to get out and about. Mardi Gras was AMAZING. The DJ was great and we all danced all night. They had to kick us out because we didn’t want to leave.

– The kids had the school’s annual ice skating party. They hadn’t skated much this year and didn’t want to do it. I promised them that if they went out on the ice, I would too. Curse their memory, they called me out on it.

That’s enough lead-in… let’s get to the Passive Income report. In the past, I called it the Alternative Income report, but it seems like that’s not catching on. Everyone like passive income better. While I transition to the new terminology, there may be some “alternative income” mentions including the FAQ.

I’ll mix in some 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 Passive Income – February 2020

I categorize our passive 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 at all. 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, January, was a terrible month. That’s par for the course, it’s just a slow month. With everyone being sick, it didn’t help matters. February is usually better and last month was no exception. I had a lot of advertising on the blog, more than in a long time. I thought that I’d get a lot of dogs to sit with February school vacation, but it didn’t work out that way.

In January, dogs and blogs combined for a total of $2,043.72. In February, it was:

Total Blogging + Dog Sitting Income: $2,945.40

One of the things that I like about dog sitting is that my kids are old enough to pitch in and help. I can pay them a legitimate earned income (a small percentage of the overall income). This allows them to save money in their kid Roth IRAs, money that they’ll never pay tax on.

2. Rental Property Income

Zillow estimated our rental properties were worth a lot more than last month. That helps this number a lot. As with every month, we paid off a few thousand dollars of mortgage debt.

We now have 61.49% 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.

If you multiply $3,325 by 61.49% you get $2,045 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 37 months, we’ve seen the number grow $871/mo. That’s like giving ourselves an annual $10,452 raise until the end of time. It’s a very nice gain from 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. I may need to update that $40,000 number as well – it’s looking closer to $30,000.

In the previous report, the rental property income was $2,024. 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.

Total Rental Property Income: $2,045

3. Dividend Income

The stocks markets went to hell in February. The corona virus has everyone concerned. Many companies are saying that they won’t earn money next quarter. This snapshot of finances is from March 5 – the markets have been all over the map. This may be a good time to buy stock as you can get a high yield on cost. For example, Ford is paying nearly a 10% dividend. (Who knows if that’s safe?

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.

Last month, we continued to get a profit sharing check since I bought (a lot of) a company. In fact, the company upped it significantly. Business must be good. 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: $2,991

Last month, it was $2,940. We would have a seen big losses in this number, but the profit sharing came through with a surprise. We can’t always be this lucky, but I’ll enjoy it while lasts. Even in a bad-case scenario, we’d be north of $2500.

Annualized, this is $35,887. If our mortgage was paid off, this would cover all our necessary expenses by itself. However, because most of our investments are in retirement accounts, we can’t use much of this income for now. (We can use the profit sharing check as it goes straight to our checking account.) We’ll let the rest of this income 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, I’d include that here. I’m too tone-deaf to have a rockstar music career, but maybe there’s room to have a book someday.

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 interested 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. That’s especially important nowadays. 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: $5,035

We crossed the $5000 mark! Last month it was $4,964, so it’s up $71. Most good months, this goes up $15-$30 a month. This is a big jump in terms of passive income. Again, we got lucky with the profit sharing company. 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 $60,423 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 (except for that profit sharing check). 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 Passive Income

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

Passive Income: $7,981.40

I’ve been stuck around the $7000 mark for quite a few months now. While I’d love to see good growth, it’s worth taking a minute to acknowlege that money isn’t everything. I focus most of my attention on family. The pictures in this article are priceless to me.

This nearly $8000/mo income is close to $95K a year. That largely hypothetical annual income for writing on a blog, taking care of dogs, and investing feels like a dream. In the long term, $95K 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. The kids school may be closed due to the corona virus, so it’s helpful that I can stay home if necessary.

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. That would add some more passive income. My wife will probably get her book out first. She had an incredibly interesting life until she met me – I am so boring. 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.

My favorite thing about the graph below is that it doesn’t dip down too far. It’s been above $6,000 for awhile now.

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.

Like many investors in the crash, our net worth took a hit. We lost 3.37%, which has us up 0.69% for the year overall. That was on March 5th, so it’s probably worse now. We’ll continue to plug away and do our best. We can’t control the market, but we can be happy that it has been working well for us over the years. Maybe next month, we’ll experience the amazing river of compound interest. It can’t go up every month forever, right?

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 14 years. FIRE wasn’t a thing back then, but it’s in the news all the time now. We naturally are further along in that journey than some younger readers who may be beginning their journey. I hope you won’t be discouraged by some of the numbers above if you are just starting out. Please 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 ANY money 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 $2.3 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 personal 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 a financial based decision on a pension.

How was your February? Let me know in the comments.