How is July going for everyone? We’ve successfully navigated the first half of 2022. My wife and I just celebrated 15 years of marriage. This is looking like a big month, but first, we need to close out with a look back at June.
June is always notable because the kids get out of school. The kids graduated into third and fourth grade with great report cards even by my tiger-dad standards. That was a month ago, so it already feels like it’s almost back-to-school time.
We started the month on a bit of a sad note. My son’s best friend moved to San Deigo – about as far as you can get from Rhode Island. We went bowling at the military base and had a great time. My son beat me though he had an advantage of guard rails.
We spent most of a week on Block Island as we’ve done for several years in a row now. It’s strange to escape island life for… another island, but we can get there in a couple of hours (one hour is a ferry ride) and it’s so remote that it’s easy to unplug. My last update was from Block Island and I couldn’t upload pictures with the poor internet connection. I found a glass float which is extremely difficult to do. The hunt for glass orbs on Block Island is covered well in this NY Times article.
We got back, had a weekend of a little beach time, and then went to Lake Winnipesaukee in New Hampshire. My family and my wife’s family used to go as little kids. (We didn’t know each other at the time.) The big draw for me was Jack Johnson’s first tour in five years. Zac Brown came out and did a few cover songs (Tom Petty, Steve Miller Band, etc.) with him. I’m not a Zac Brown person, but it was cool to have the extra star power and familiar songs.
While we were up in New Hampshire, we went to the World’s Largest Arcade. It has all the classic games. I put a quarter in Dr. Mario and a long, long, time later had the top score.
High Score! My wife may be pharmacist, but I’m the best two-dimensional pill dispenser in the family.
We also went to Santa’s Village, which is a small theme park that’s been around since 1953. I’m sure my mother has pictures of me there when I was a kid. There’s something awesome about celebrating Christmas in June.
Kids getting ready to go “You Tubing” at Santa’s Village. LOL!
To top off the month, the Newport Gulls, a famous summer league baseball team, called us up and asked if we get the kids to do a last-minute color guard for the national anthem. They had a cancellation, so we stepped up.
Scouts doing their flag thing for the next baseball stars.
In my spare time, I’m working on Kid Wealth. As part of that, I’m discovering new bloggers. If you love the “Lazy” part of my brand, you might enjoy, Don’t Work Another Day. It feels like that’s what I did through June.
That’s enough of the personal stuff… let’s start the Passive Income report. I used to call this the Alternative Income Report because some of this income has an active component to it. However, that idea isn’t catching on and 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.
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 real passive income from our rental properties right now. We still have mortgages to pay off. Instead, I calculate the percentage of equity we have to show where on that journey we are. Each month, you’ll 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. When it comes to calculating the percentage of rental income, I take the rent (minus estimated expenses) and multiply it by 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.
Lazy Man’s Passive Income
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 my “somewhat active” income. They are a little passive because I can make money even when I’m not immediately tending to them. For example, I’m writing this while boarding 2 dogs right now. I leave real estate and investment income as their separate main sources of very passive income. This way if you want to only count those you can do that.
1. Blogging + Dog Sitting Income
June was a great month for blogging and dog sitting. I know that blogging and dog sitting is stretching the idea of passive-ish income, but June makes an argument that it is more passive than you might think. Despite traveling for nearly two weeks and having little internet connection for part of the time, I did okay.
Jake’s back to the beach on Block Island.
My dog sitting income was the third-best of the year. Summer tourism is always big in Newport, RI. So even with the partial month, we did well. Blogging was our second biggest month. I wish I could say it was something actionable, but it seems like that’s how the advertising Gods worked.
In May, “dogs and blogs” combined for a total of $5,079.36. In June, it was:
Total Blogging + Dog Sitting Income: $4,847.86
That’s 95% of the income with only about 66% of the work. I’ll make that trade any day.
My kids help with the dog sitting. My 9-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 8-year-old was a little slower to develop dog skills, but he’s carved out a household niche of catering to the smaller dogs – he just loves them. They are both doing vet camp at the local animal shelter.
Their help means that 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. Learn why you should get started with a kid Roth IRA as soon as possible.
(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
For the first time in a long time, Zillow didn’t estimate our properties were worth more this month. Real estate prices can’t go up forever, especially with high mortgage rates.
We went from 76.53% to 76.84% ownership of the equity in our properties. That modest gain came from simply paying down mortgages. If we owned the rental properties with no mortgages (100% of the equity), we’d make about $4,000 a month after insurance, property taxes, condo fees, and estimated condo maintenance.
The fabled Block Island Glass Float
I like to use an “expected rent” as we’re currently trying to catch up from years of very low rents. We liked our tenants, so we’ve kept them at a discount. However, with housing and rents going up so much, so quickly, there’s a huge gap between what we could reasonably be bringing in and what we are bringing in.
If you multiply our expected net rent of $3,650 by the amount of equity we have, 76.84%, you get $2,805/mo. in estimated passive income. That’s a gain of $12 from last month.
When I started tracking this (January 2017), we only owned 36.4% of the properties and the properties had lower rents. The math worked out to $1,174 back then. So in 5.5 years, we’ve seen that number grow tremendously to $2,803. The forced savings of 15-year mortgages are extremely powerful.
When we get 100% ownership, we should bring in about $45,000 after expenses. Rent is inflation resistant as it’ll rise over time. That means that even though this is $45,000 in today’s dollars, we don’t have to worry about it buying fewer goods and services in the future.
Total Rental Property Income: $2,805
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. For example, HDV is currently paying about a 3.31% yield, but it has been less in the past.
There’s a chance we could do better than this. There are some income investing ideas here. We can also look at making passive income with Dividend Kings. If we wanted to simply retire on this dividend income, I would get Sure Dividend’s newsletter to try to get a 5% 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.)
I’m always impressed by my 8-year-old’s art. There’s a lot going on here.
Of course, we may not convert everything over to dividend income at all, the 2.5% dividend is a conservative way to think of our investment portfolio. Many experts would suggest using a standard 3.5% or 4% withdrawal rate. The income would be much more if we did that.
The stock market went to hell again. Well, I’ve seen a lot worse. The drop means that this is going to be worse. We’ll continue to buy in at these low prices and when the market recovers we’ll enjoy new portfolio highs. Since all of this money is in our retirement accounts, we’ll be invested for at least another 15 years.
We continue to get a profit-sharing check since I bought (a lot of) a company. 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.
Total Dividend-ish Income: $3,406
Last month, it was $3,548. A loss of $140 is a big move for a month. I don’t think we’ll be back up by end of the year, but the market often surprises me. When I started tracking this number in January of 2017 we were at $1,180/mo. It’s been a great last 5.5 years.
Our money has been working hard to multiply over the years. For a while, we stopped adding to our investments. Instead we had been focusing on saving money in cash for my wife to retire. Except that, now my wife got a new job and isn’t looking to retire. That’s a roller coaster of emotions. Some days she wants to retire and other days, it seems like she wants to work for many more years. Whatever she wants to do is fine with me. At least this new job is much better than the last one. She’s had time to bring the kids to school and do some things like that.
Brother sand burying
Getting back to the monthly update, this monthly $3,406 would be over $40,000. As with the rental income number above, we should 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.)
For the 20th 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 not making any progress on this.
Very Close to Passive Income
Our “very close to passive income” is a combination of rental property income and dividend income. If we had any 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 I may write a book someday. This is important to separate from the dogs and blogs’ income at the beginning. That takes some active work to keep up. Rental property requires a little work, but not nearly as much.
I tried to teach the kids how to skip stones after dinner at the military base. It’s a work in progress.
We have a setback this month because of the stock market. It’s too big for real estate to overcome. I love having both rental property and stock market income working together for us. With the stock market dropping recently, our real estate is saving our net worth from dropping further. For much of the last decade, it was the opposite – real estate didn’t do much while stocks quadrupled. I think everyone interested in FIRE should consider having stock market and real estate income streams. The diversification gives me great confidence that we’ll be better prepared than most FIRE folks 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 a while. 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: $6,211
This would be almost $75,000 a year of passive-ish income. We wouldn’t need to touch the investments themselves. We wouldn’t have to sell stocks or have a “withdrawal rate” – just live off dividends. We wouldn’t have to get a reverse mortgage on our home or the investment properties. 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 $75,000 passive income was my goal when I started this blog. I figured that would be winning the money game as it would be enough to cover all of our needs and many of our wants.
A local sailing group put on a 3D hologram story about saving the ocean from pollution. It was very, very awesome, even though it was only about 10 minutes long.
This $6,211 of “very close to passive income” has grown from $2,354/mo. in January 2017. So in 5.5 years, we’ve added almost $4,000 in monthly passive income. That’s nearly $50,000 – a lot more than the $34,000 I made as a software engineer out of college in 1998. This is one of the reasons why I went with the “Lazy” name, it shows that investing money can do more work (or somehow produce more value) than I did. It’s a crazy system. I’m just doing my best to work within it.
It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet (except for the profit-sharing check), because the money isn’t liquid. We can’t spend those retirement investments or the equity we have in properties. We don’t feel “rich” by any stretch of the word, even though we are relative to many people’s circumstances. We still have some day-to-day struggles with money. These are relatively minor compared to what most people experience I imagine. That’s one reason we are selling a rental property. It will help us feel a little more financial freedom right now. We’ll still have plenty working for the future.
I used to wonder if we can get to $8,000/mo. in passive income by the start of 2025. A year ago, it was a stretch goal… now it feels like we could make it. We’ll have to see where the numbers are when we sell off the rental property.
Final Passive-ish Income
When you add up “dogs and blogs” to the “very close to passive income” you get:
Passive-ish Income: $11,058.86
Last month it was $11,420.36. Considering we were on vacation so much and the stock market took a dive, it’s amazing we didn’t take big drops.
That’s over $130k a year. That (hypothetical) annual income for writing on a blog, taking care of dogs, investing, and landlording is very nice. For the year, we’re averaging around $135k from all these – which is more than for our necessary expenses for the next 45 years. Of course, those necessary expenses aren’t going to cover all our spending, but they are a large percentage of it.
We went to a church fair that had a petting zoo. We did this one for years before COVID. It’s good to get back.
None of the numbers here include my wife’s bread-winning day job as a pharmacist or the freelance work I’ve been doing over the last few years (which isn’t passive at all). When my wife retires we can count her vested military pension as more truly passive income. For now, those jobs (and the dog boarding) are the fuel that drives the passive income engine – it allows us to live well, pay off our mortgage, 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 gives me the flexibility to bring the kids to school and after-school activities.
I love two things about the graph below. First, there’s a solid trend of the numbers staying high for several months now. Second, it doesn’t dip down too far. It seems like it should be at least $8,000, maybe $9,000 going forward.
(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.
We saw our net worth lose -2.52% last month. That’s a big hit for one month, but it’s a lot smaller than what I’ve seen from other bloggers. For the year, our net worth is up 1.74%. With bad markets, inflation, and all the big spending we’re doing I can’t complain.
Recently for something new, I decided to share our liquid cash growth (or loss). I’ve been tracking it for some time, but never thought to share it. Many other bloggers break down their income and expenses in great detail. I’m too “Lazy” for all that, even if my credit card reports can do a lot of it. Looking at our liquid cash is a way to roughly gauge the bottom line, income minus expenses.
This month, we lost around lost $900 in liquid cash. That’s not great, but we went on a couple of vacations and ate out a lot. We’ve been spending a lot this summer, but we’re doing a lot of stuff too. We saved a lot in the past (and we’re still saving now), so losing a little liquid cash isn’t too bad.
It’s important to recognize that everyone is in a different place in their financial journey. I’ve been blogging about personal finance for almost 16 years. FIRE wasn’t a “thing” back in 2006. We naturally are further along in that journey than some younger readers who may be just starting. Some 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.
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. I decided that it does make sense to include it. She could have earned more in 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. However, like most of the money mentioned in this article, this isn’t money we can spend right now.
How was your month? Let me know in the comments.
Counting a military pension as part of net worth is no different than counting Social Security. I wouldn’t do either personally because neither is 100% assured not to be reduced by the government at some point. I think the best way to consider it is to count it as a future passive income stream that will offset some of your expenses. My wife and I will get about $72,000 in Social Security in today’s dollars when we elect to take it. That’s almost two million worth of investments if you assume a 4% withdrawal rate. But it isn’t at all the same as having an additional two million in assets. It will allow us to live on a one percent withdrawal rate but it doesn’t increase our net worth at all, that’s a whole different calculus. But that’s just my opinion, if you want to use it to build an effective net worth why not? I’m just kind of rule bound as an engineer.
Lazy Man says
I don’t believe that military pension can be cut – I think it’s part of their contract. If so, it would be more likely the government defaulted on bond payments. It would be completely unprecedented and they’ve taken steps to ensure that there won’t be problems paying it out (redesigning how it works).
I have decided to count it as part of our net worth for the reasons outlined here: https://www.lazymanandmoney.com/pension-net-worth/. Nearly everyone gets Social Security, but few people make the trade offs of lower career pay for military pay, so if my wife had been a pharmacist elsewhere we’d have a higher real net worth.
I literally just seriously started to think about FIRE a couple of days ago although I learned about this concept a couple years ago. Now I am obsessed with FIRE and so glad to find your blog. All the information you share is very useful. I enjoyed reading them and learning all I can to speed up to achieve FIRE. I have a 6 year’s old and I’ve also been thinking about how to teach him to be more aware of money and how to invest starting young. I guess I will be spending more time on the kidwealth blog. Thank you!