Passive Income Update: January 2020

It’s time once again for my monthly review of passive income.

January was a difficult month. On the 15th, I realized that we didn’t have a single day of everyone being healthy. We had one day when our pediatrician put us in the fast lane to the hospital in Providence because she thought it could be appendicitis. It wasn’t and I’m so happy to have be his full self. Everyone in the family is back to full health.

We started the month off with a birthday party for our youngest (6) son. He was sick for his own birthday party – poor guy. At least he was healthy enough to make a great Mega Construx Mew when the rest of the family got sick. I didn’t think he could do 200 pieces, but I was pleasantly surprised. Whenever I leave either kid to do their own thing, something great happens. I used to think helicoptering around was best, but I was wrong. Figuring stuff out on their own is better.

I’m still in shock he was able to do this. Does MIT have early, early decision?

Our dog Jake celebrated his 11th birthday. I’ve done a lot of dog sitting (see below) and I don’t know if I’ve seen another dog as spry as him. I want to clone him, but my wife thinks it’s weird. As usual she’s probably right.

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.

The 6 year old wanted his family b-day party at the local equivalent to the Ritz Carlton. He hadn’t had a Twinkee before, so he’s doing that now.

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 – January 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, December, was a very average month. I’ll take it because it was much, much better than last November. It seems like I have a few regular clients that make up 80% of the business. That’s good because I know the dogs very well. That’s bad because if one dog moves, I lose significant income. I like to write about investment diversification, but I don’t have a lot of dog diversification, right now.

Blogging income for January was… not good. January is always the worst income month. I don’t know what it is, but it seems to turn out that way. Of course, having a sick family had my mind on non-blog related things.

In December, dogs and blogs combined for a total of $2,605.87. In January, it was:

Total Blogging + Dog Sitting Income: $2,043.72

I’ll take it for January. February is looking much better, so I won’t stress on that small number.

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.

Happy #11! Celebrating at the dog park.

We now have 60.88% 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. Next month, I plan to update that number. It’s a little long in the tooth and I should be able to do better.

If you multiply $3,325 by 60.88% you get $2,024 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 36 months, we’ve seen the number grow $850/mo. That’s like giving ourselves an annual $10,200 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 $2,004. 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: $2,024

3. Dividend Income

The stocks markets went up and down in January. The corona virus got everyone in a tizzy (and it may be justified). Fortunately, the markets ended on an “up” by the time I did the snapshot on February 9th.

Our 6 year old is in the Cub Scouts now. He seems happy about it.

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.

The “ask dad” math strategy is vastly underrated. That’s in the common core, right?

Last month, we continued to get a profit sharing check since I bought (a lot of) a company. 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: $2,940

Last month, it was $2,896 – a nearly $50+ gain is great. We almost never see that! Thank you Mr. Stock Market for doing your thing. These gains can’t continue forever, but I’ll enjoy it while it lasts.

One… Two… Freddy’s coming for you.

The kids loved the trip to Ice Castles. The only problem was getting them to leave.

Annualized, this is $35,280. 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 this income for now. We’ll let it 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.

My wife’s car got to 100K miles. Can it get to 200K?

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 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. 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.

I don’t know much about archery, but this seems like great form. My 7 year old loves it.

Very Close to Passive Income: $4,964

Last month it was $4,898, so it’s up $66. Most good months, this goes up $15-$30 a month. This is a big jump in terms of passive income. 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 $59,568 is incredible. It’s almost double what I estimate we’d need to live on.

Can I crack the $5000 barrier? It’s so close. Tune in next month and we’ll find out.

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. 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.

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Final Alternative Income

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

Alternative Income: $7,007.72

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 post are priceless to me.

This $7000/mo income is close to $85K a year. That largely hypothetical annual income for writing on a blog, taking care of dogs, and investments feels like a dream. In the long term, $85K+ 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.

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.

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.

Some friends got a hotel room in town. They invited the kids by for an evening of swimming

The 7 year old can’t take not being at the center of attention.

One of those skiing kids are ours. Both kids got to give a try. I didn’t know that skiing was possible when it hasn’t snowed.

Our net worth jumped 1.44% this month. I don’t know what to say (or write in this case), except that compound interest is an amazing river to enjoy.

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 may be further along in that journey than some younger readers who may be beginning their journey. Don’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 $2.28 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 internal 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 financial based on a pension.

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