Happy March everyone! I’m getting excited for the weather to get better. It’s still too cold for me up here in New England. At least the days are getting longer. I recently gave an an update here about little stuff going on in our life. I’ve been a little down lately, but can you tell that I’m trying to be more upbeat?
We started February by watching Punxsutawney Phil’s Groundhog Day routine. I took a picture of the kids with my laptop, but I couldn’t figure out why until just now. It worked out well that it happened before school. It looked like they had a good party going on down there. Maybe one day we’ll go in person.
We went into Providence to do some ice bumper boats. It’s like bumper cars, but you do on ice. It’s expensive, but it’s become a tradition now. We also use it as an excuse to get up to Providence to do some other things that we wouldn’t normally do down in Newport.
(Here’s what the ice bumper boats look like.)
I started co-teaching Lego Robotics with another parent for my younger kids’ class. It’s a bunch of 2nd and 3rd graders meeting at 5:30PM. At that point, they are barely evolved Gremlins, but we’ve managed to learn something. Perhaps more importantly, they kids are having fun. The high school class is there at the same time and they’ve built some very impressive things, which is always entertaining. The group got a grant or somehow bought a $100,000 Boston Dynamics dog (Spot), but we didn’t play with that until March, so you’ll have to come back next month to see it.
My wife and I also celebrated Valentine’s Day at the Officer’s Club on the base. We were married there almost 16 years ago. We first went that dinner 16 years ago, because they wanted us to see what a function was like before getting married there. We’ve been trying to go whenever they have offered it. It’s a little like an anniversary of sorts.
We finally got a little snow, just a few inches – enough for the kids to get some sledding in. It was fun for about the first 45 minutes and then they proceeded to try to kill each other. This happens a lot.
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 – it isn’t intuitive. I do things a little differently to show the journey. 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
February is often a good month for dog sitting. A lot of schools have a February vacation. Our kids’ private school is unusual because they have a March vacation. That means that I’m around for when everyone else goes on vacation – which works out very well. My dog boarding income was 75% more than February of 2022, so that’s fantastic!
(I like when the dogs run like this, because they come back in and sleep for a few hours. That’s the easy money!)
Blogging income continues to go downhill. You may have noticed, but I haven’t been motivated to write a lot lately.
In January, “dogs and blogs” combined for $2,226.37. In February, it was:
Total Blogging + Dog Sitting Income: $5,521.50
That’s a really good number, but I needed it. January is typically bad. We’re going on vacation in March, which means limited dog boarding. Things will hopefully pick back up in April.
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. Here’s why kids should start a Roth IRA as soon as possible.
2. Rental Property Income
Rental property income is very boring lately. When mortgage rates are high, we don’t see any gains in pricing. So we continue to build equity by paying own the mortgages. It’s slow going.
Unfortunately, one of our properties has had a few problems lately. I guess the boiler was never properly vented and that’s creating an issue that requires repiping a bunch of stuff. I think it might be better to just sell the properties and invest in the market. We’ll have to run the numbers and see what kind of return we’re getting from rents. We haven’t raised our rents in a long time and they are way under market value. Why deal with headaches and stress if we can make the same money more passively?
(It’s always fun to look at my kids’ homework. He didn’t get too far with regrouping/borrowing here, but it worked out in the end.)
In the last month, we went from 75.76% to 76.05% ownership of the equity in our properties. It’s a very tiny change from month to month. In a year, we might only get 3% more equity. 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, 76.05%, you get $1,673/mo. in estimated passive income. Last month it was $1,667/mo. This $6 in passive income isn’t going to do too much, but it adds up over time.
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 our biggest rental property last year and invested that money in the stock market. It’s much more passive now. That was a strong driver as to why I started to count certain passive income sources as less valuable than others in this report.
When we get to 100% ownership of the two properties, they 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: $1,673
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, HDV, is currently paying a 3.52% yield.
With today’s interest rates, a 2.5% yield seems ridiculously low. I need to remember that interest rates could go back to where they were a year ago.
(I guess the kids are still young enough to enjoy a fun game of box! They ended up cutting this one into a house with a door they could call through. It was an access tunnel into a kids’ room for a few days.)
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.
The markets moved down a bit, so this is going to go down too. Oh well, at least it generally moves up.
With the market recovery, our dividend-ish income grew quite a bit:
Total Dividend-ish Income: $3,960
Last month it was $4,031. That’s a loss of $71. So much for last month’s gain of over $180. It’s two steps forward and one step back.
In January 2017, the dividend income was at $1,180/mo. We’re almost at $50,000 a year – enough for us to live fairly well, especially if we paid off our mortgage. For the 35th 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. One of my main goals for the year is to work on this, so hopefully, it won’t just become another wish.
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: $5,521.50 – Adjusted to $2,760.75
Rentals: $1,673 – Adjusted to $1,338.40
Dividends: $3,960 – Remains at $3,960
Dogs/Blogs Blue Line
Rental – Red Line
Dividend – Yellow Line
Total Adjusted Passive Income: $8,059.15
Last month it was $6,477.79. So you can see that even if I count dogs/blogs at 50% that’s the main difference here. The rental and dividend stuff didn’t move too much.
Annually, this $8k-ish number is about $96,000 of passive income. As you’ll see in the chart below our 3-month average of this number is almost always in the $8-9k range. So I guess it’s reasonable to call it $100k a year.
It’s very useful to have different income streams. As blogging income 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 and over time we are making consistent progress.
The chance of all the income streams falling on hard times is low, but certainly not impossible. 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 (the other 50% of our dogs/blogs, 20% of rental income, and other jobs) or rely on savings for a while. Also, dog boarding went away completely with COVID, so something like that can be just around the corner.
(The Valentine’s Day dinner was $85 (including a bottle of wine), which is a very, very nice for a date night.)
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 penalties. We can’t access the equity we have in properties without selling them or opening a HELOC. There are some money moves around these, but it’s not worth making any of them until my wife retires.
You’d think we’d feel “rich” having won the money game. We don’t. Our social circle tends to have generationally rich people. However, we are “rich” relative to many people’s circumstances. Money is relative. It’s nice not to have to worry about 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 February 2021 was $5,678.80. In February 2022, it was $7,381.33. Now in February of 2023, it is $8,109.95. I think we can grow it more in 2023, but we shut down for renovations for half of January and lost some dog income. This helps me feel a little better about losing the blog income.
I don’t know how long dog boarding will last. It was a lot of work last year. This year has been easier with the lighter schedule. I think that with dog boarding, either the market will change or I’ll change. Perhaps I’ll want to travel more. Perhaps, I’ll want a different challenge. I’m on my third career (software engineering, blogging, and dog boarding), so it would be naive of me to think it might be my last.
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. It looks like it might be worth around $68,500 and includes access to a good health care plan. A pension is like a passive income cheat code. They are so rare nowadays.
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 privaet 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.
(Finally, the proof of sledding. Good free fun if you already own a couple of sleds as we do.)
This past month, our net worth was down 1.25%. For the year it’s up 1.81%. We’re getting close to our all-time highs. That’s great, considering that the markets are still off their highs by nearly 10%. I feel like I can truly say that we’re in the best money situation we’ve ever been in. I know a lot of people can’t say the same – inflation and the down market can be difficult.
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 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.