It turns out that 2021 isn’t any better than 2020… so far. Well, it started our worse with the capitol insurrection, but it wasn’t all bad. Look at the COVID cases:
That’s a 40% drop in cases! It’s even gone down more through the first part of February. We’re doing really well. If we can keep this up, the summer and vaccines may get the numbers low enough for people to travel a lot. I could use that for more dog sitting income. Please keep masking, distancing, and doing your part!
This month, my youngest son turned 7. We couldn’t have a traditional birthday party, so we did a staycation at a local hotel. The kids really like hotel life, especially if we can reserve some pool time. We were able to get an hour to ourselves and it was fantastic.
The kids also took their first snowboarding lesson. Last year we tried skiing, but the older kid didn’t like it and wanted to try snowboarding. The younger one didn’t mind, so we switched to that. It’s working really well, but I think the younger one did better with skiing and the older one did better with snowboarding. We’ve got another lesson left for this year and then we’ll see what we can do after that. For now, we are just happy that they are having fun and not complaining.
The kids’ karate dojo had a parents’ night out. The kids got to learn sword technique with plastic “lightsabers” and my wife and I got to go on our first date in a year. It was a lot of fun, with my wife saying she felt like she was in college again.
Our older kid is a big chocoholic. My wife had been planning all these vacations to tour Europe (because she wants to go) and has been using chocolate to get him excited about it. So, I suggested that we do a chocolate tasting at home. We went out and bought a bunch of different chocolates to try. It went a little viral on my wife’s Facebook. I highly recommend it.
Chocolate Tasting! Cadbury was a favorite. Parcheesi got to be a little too competitive and adults may be banned from playing in the future. Oops.
We finally opened up the piano that we got at Christmas and set it up. I had bought this Yamaha P71 Digital Piano on a lightning deal for $299 in the summer of 2018. Other than that one magical deal, the cheapest it has gotten is $399. The reviews by professional musicians sold me on it. It’s the right size for our house and sounds like a real piano. The kids can plug in headphones and pound away on it. The whole family is interested in learning, but I’m not sure the best way to learn in a COVID-friendly way.
Finally, we got to do a little ice bumper boat excursion. It was only 10-degrees outside, but everyone had fun. We followed it up with a trip to Chick-fil-A. I’ve only been once before and the kids have never been. I’ve never lived near one, so it’s something you have to plan. It was on my oldest’s bucket list after some YouTube video he watched, so we thought this would be an easy one to check off. It was good, but for the $40 we spent, I think we could have had a better meal at Applebee’s or IHOP.
That’s enough lead-in… let’s start the Passive Income report. I used to call this the Alternative Income Report, but everyone loves passive income better. While I transition to the new terminology, there may be some “alternative income” mentions including the FAQ. 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.
The way I calculate these numbers requires that long explanation – it isn’t intuitive at all. The reason why I do things a little differently is that this catalogs a journey. For example, we don’t have passive income from our rental properties while we are paying down their mortgages. Instead, I calculate the percentage of equity we have to show where on that journey we are. Each month you see that the bank owns less and we own more. When we get to owning 100% there will be no mortgages and all that rental income can be used for living expenses.
Lazy Man’s Passive Income – December 2020
I categorize our passive income into 3 main sources that are largely represented in my passive income pyramid. For this report, I ignore the bottom section, “career/job” – that’s not passive at all. (I do 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 “somewhat active” income. I leave real estate and investment income as their own separate main sources of very passive income.
1. Blogging + Dog Sitting Income
January was another very bad month for blogging income. It’s the second month in a row where my usual 6-8 advertising inquiries was just 1. Hopefully, the advertisements come back, but my traffic is growing for the first time in awhile. I’d rather have traffic growth at this point. I don’t know if you’ve noticed, but I’ve tried very hard to have at least two new high-quality articles a week with Friday being a revised article from the past. It’s a lot of writing, we’ll see how long I can keep it up.
As for dog sitting, I got a little lucky that a regular client went out of town for a week. I don’t expect to make much dog sitting money until this summer. I’m hopeful COVID cases will be down with vaccines and everyone getting more time outside. Summer is a big vacation and tourist season for us, so if that happens I can make some good money again. If not, it’s no big deal.
Celebrating a birthday at a hotel worked out well enough. The kids appreciated the different location and the swimming.
Over the last couple of months, I picked up a new freelance client who has some blog editing work for me to do. This isn’t passive income at all, so I don’t include it here. I mention it only because even as these passive income sources are down, total income is looking better.
In December, dogs and blogs combined for a total of $1036.52 – the lowest in years. In January, it was:
Total Blogging + Dog Sitting Income: $957.59
I want to do better in this area, but a lot seems to depend on market conditions. I’m starting to feel like I’m putting more effort into blogging than I’m getting out of it, in terms of income. However, I still enjoy writing, so it isn’t a big deal. The dogs that we are sitting are regular customers… and they are great dogs. I’ll just have to deal with the low numbers for now. I’m putting more of my time into more active work such as my freelancing that isn’t included in this report.
When there is some dog sitting my kids can pitch in to help. My 8-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 7-year-old is good too. This help means that I can pay them a legitimately earned income (a small 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. I want to get them more involved in blogging, taking pictures and things like that, but it’s going slow. They get enough school work, homework, and extra-curricular activities.
(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
We recently sold a condo and bought a new one that’s closer to us. It’s much easier to manage. We got new tenants in January – it’s good to get rent checks in again. I’m very excited about these tenants. They volunteered to paint the whole place and do other improvements. It looks great now. We gave them a big discount the first month, I hope they’ll stick around for a long time.
As for January’s numbers, Zillow’s estimates of our properties were up – always a good thing. We paid down the mortgages as we always do. In 2020, we gained around $60K in equity. It can be difficult to deal with tenants, but I like to think of those equity gains as a $60,000 salary. We can’t spend the money, because it isn’t liquid. Still, the “work” for that $60,000 is pretty minimal.
The kids learned to snowboard. The older one was a natural. The younger was a natural skier last year. It’s kind of a pain that they could be good at the same thing, but I’m just happy they each found a similar thing they like.
This month we went from 61.55% to 62.12% ownership of the equity in our properties. In pure dollars and cents, we gained $7,185 in equity last month. (It’s always hard to measure the true gains because we have to supplement the real estate bank account to cover maintenance costs. We reconcile all this at the end of the year at tax time.)
That’s a really nice move forward. Previously, I calculated that, after insurance, property taxes, condo fees, and estimated maintenance we’d make $3,325 a month. That number represents our net gain. I recently updated this with the new property and it looks like we’ll be at $3,387.50 – a minor difference.
If you multiply our expected net rent $3,387.50 by the amount of equity we have (i.e. where we are on our journey) 62.12% you get $2,104 in estimated monthly passive income. When I started tracking this (January 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 exactly 4 years, we’ve seen the number grow $840/mo. That’s great passive growth in 4 years.
As the years march on, the ratio will grow to 100% of a rent that should net $3,387.50 monthly after expenses. Since rent is inflation-resistant, we can raise it as costs of living go up. We don’t have to factor in inflation like other investments. So we can think of it as $40,000/yr. of income in today’s dollars buying the same value of stuff in the future. That should be enough money for us to live on with our own home paid off (plus our solar panels, frugal shopping habits, and military healthcare.)
In the previous report, the rental property income was $2,085.
Total Rental Property Income: $2104
3. Dividend Income
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. There are some income investing ideas here. We can also 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 birthday boy could fit in the bedside table and close himself in. He always seems to like doing stuff like that.
The market has been doing great – it’s just been a big bull market. Some of my satellite stocks have done really well. I wouldn’t have expected Snapchat, Pinterest, and solar panel ETFs to be up 5x, but they have. With our portfolio hovering around all-time highs, this section is looking great. I’m getting nervous that the markets at too high. I will continue to stay fully invested, but I will hold more bonds for now. Sometimes I move a small amount of money from stock to bonds for the psychological effect of being active. The small amounts seem to add up and when stocks dropped last March, I was able to buy in at lower prices by cashing in some bonds that didn’t drop as much.
We continue to get a profit-sharing check since I bought (a lot of) a company. The business is doing well. It’s actually almost ideally positioned in this pandameic due to its virtual nature. The investment income from this 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: $3549
Last month, it was $3,441 and we jumped up again, hitting yet another high. This number rarely goes up much (since it’s a small percentage of our nest egg), but slow and steady wins the race.
Annualized, this monthly $3549 is $42,585. If our mortgage was paid off, we might be able to live on this by itself. However, because most of our investments are in retirement accounts, we can’t use much of this potential income for now. (We can use the profit-sharing check as it goes straight to our checking account.) We’ll probably let this investment continue to compound for another 15 years until we are age 59.5. Then we’ll have to see if we want to tap it or let it continue until we are required to take some of it at age 72.
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 as well. I’m too tone-deaf to have a rockstar music career, but maybe I’ll write a book someday.
We don’t get up to Providence from Newport very often, because traveling half the huge state of Rhode Island is a daunting task. However, 20 minutes of bumping each other was some good, COVID-safe fun.
The stock market goes up and down fast, even more so nowadays. That makes the dividend calculation fluctuate a lot more than it normally would. We don’t know if companies can reliably pay dividends anymore. Without customers and profits, many companies have cut their dividends. However, the stock market is looking ahead to summer 2021 with a lot of vaccine and outside time.
The rental property income typically 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. We haven’t seen any kind of crash… instead the housing market is booming.
I don’t know how to play the piano and I’m looking for tips. Got any advice on how to learn that’s COVID-safe?
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. 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.
We are a full year into the most ginormous unfortunate event that I can remember in my life. Stocks went down a lot, but then went back up. Real estate has held steady. We’ve been lucky to have tenants who are still working and able to pay rent. Well, one couldn’t, but used the opportunity to sell at a market high and buy a property closer to us at a relatively low price. Overall, the plan keeps rolling along, even during COVID-19.
When you are small enough to fit inside a bedside table, you are too big for an adult robe. Alas, that’s all we had to get him back from the pool.
While the stock market is doing well, the real economy is still bad. It used to be terrible, but people are getting back to work and jobs are coming back. We’ve got a president who is working to end the COVID crisis. He’s starting to reverse the climate change disaster that causes so many natural disasters. Even if you are a heartless soul who doesn’t care about the people losing everything in fires, you should be able to agree that American business works best when it literally doesn’t have to put out fires. Good climate policy is simply good economic policy.
Very Close to Passive Income: $5,653
Last month it was $5,526. The $5,653 extends our all-time high yet again. As you can tell from the chart below, it just keeps moving in the right direction.
This would be over $67,835 a year of almost completely passive income. What’s better is that there would be no need to touch the investments themselves. We wouldn’t have to sell stocks or get a reverse mortgage. 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 choose to draw them down for more fun, charity, or other spending.
This “very close to passive income” has grown from $2,354/mo. in January 2017. It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet (except for the profit-sharing check). I’m at four years of tracking this number, and we have gained more than $3,000 in passive-ish income. I wonder if we can get to $8,000/mo. in passive income by the start of 2025 (which will be another 4 years). That’s a little aggressive, but it would give us something to hope for.
Final Passive Income
When you add up “dogs and blogs” to the “very close to passive income” you get:
Passive Income: $6,610.59
Last month it was $6,562.52.
I’d like to see this average $8,000 in 2021, but I need a plan to add something new – it doesn’t look like dogs and blogs is going to get me there. For now, I’ll just be happy that with four different income streams (and two consistent ones), there isn’t much room for everything to drop.
This $6500+/mo income is nearly $80,000 a year. That largely hypothetical annual income for writing on a blog, taking care of one dog, and investing is really nice. In the long term, $78K would be a lot more income than we’d need – given our necessary expenses for the next 45 years. Of course, those necessary expenses aren’t going to cover all our spending, but it’s a large percentage of it.
My wife and I had a date night with the Stanley Cup. It’s not the real Stanley Cup, but we can pretend right? It’s nice to know that the classic art from hundreds of years was well-suited to remind people to wear a mask.
As 2020 has proven, you never know what bad news is lurking around the corner. This preparation 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 couple of years (which isn’t passive at all). That’s the fuel that drives the passive income engine – it allows us to live well and invest. My income doesn’t match my wife’s, but I’m good at stretching a dollar in almost all our spending.
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’s had an incredibly interesting life until she met me – I am so boring. I may tip my toe into self-publishing sometime this year. I would love to talk to a real 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 a while now. Though we are getting close to dipping below that $6,000 mark. If it dips below $6000 and touches $5000, we’ll have to examine some things.
(Once again, the blue line is the monthly number. The red line is a 3-month average which helps smooth the curve.)
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.
January was another great month for our net worth. We saw it jump 3.17%. For the year overall, our net worth is up 3.17% (since it’s the first report). If you didn’t know better you might think 2020 and 2021 were boring, great financial years – a typical saving and investing plan for us. In fact, we’ve grown our net worth around 30% over the last 13 months. With the Rule of 72, we’d double our net worth in around 2.5 years.
Diversification helps a lot in bad times. Even when the stock market was way down, we were still grounded with our real estate. We can’t control the market, but we can be happy that the amazing river of compound interest has been working well for us over the years.
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 15 years. FIRE wasn’t a “thing” back then, but it’s in the news a lot now. We naturally are further along in that journey than some younger readers who may be just starting out. 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 11 of blogging (year 13 of early retirement planning). Please try to use it as motivation for what may be possible (depending on your circumstances and market luck) over 10-15 years.
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 right now.
Because the pension would 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 as your January? Let me know in the comments.