Passive Income Update: May 2023

Summer is unofficially here! The kids have just a handful days left of school. This is a great time of year for them. School is just focusing on the fun ways to review lessons. Once they are out of school we’ll be heading to Block Island and then camps will get going.

I’ve got to figure out some fun ways to keep them engaged while learning. We’ve been rewatching Netflix’s Brainchild which they like a lot. I also picked up a Galaxy S6 Lite Tab(let) for my artistic son. I had an S7+ but it fell in the inflatable hot tub and died. I guess they don’t make tablets water proof like phones. That’s an expensive lesson learned. The S6 Lite is very good though. It’s smaller which is perfect for him. Of course the big selling point for me is that it includes a pen for drawing. It may seem expensive to buy a 3-year-old tablet for $250, but I don’t know where else you can a great drawing tablet for cheaper.

May was a weird month. On the way back from Mother’s Day brunch, I got a text from the president of a local business networking group I’m a part of. One of the members had died in his sleep. He was a professional physical trainer and probably the most health-focused person I’ve ever encountered. I wouldn’t bring anything with sugar in it to the meetings because I knew I’d get a disapproving look. A couple of days before he died, I asked him how I would get started with working on him. He had heart problems in his past, which is why he was so focused on health. However, he didn’t like doctor’s and modern medicine much. There’s a lot of value in replacing medication with diet and exercise, but in this case, it would have been better if he had been on the medication.

What else happened in May? Our third grader performed in the school play. (We just got some commercials he was in for another school project.) He also showed off his state project. The kids do a deep dive into one state. He chose Texas and my other kid chose California last year. They are almost complete opposites. We also sent to the school’s art festival, where we saw a ton of art that they had been working on throughout the year. Some of the kids put on a special performance. My kids passed on doing that – they are busy enough!

Third grade play! They get a lot better each year. I don’t think I had drama until middle school. Maybe that’s why don’t have a YouTube channel.

We all went to the new Guardians of the Galaxy night-before preview showing. The other ones were my kids’ favorite movies ever so this was a special treat.

Newport hosted the only stop of the Volvo Ocean Race in the United States, so we went to the sailboats. It’s like an small Olympic Village with something like a half million people showing up for the 10 day event.

I did a major cleaning of the garage while my wife away on travel. It was a good surprise for her to come back to.

Yikes, that’s 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 . I do things differently to show the journey. Following the progress keeps me motivated. 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

May is always a “meh” month when it comes to dog boarding. April and Febraury’s school vacation bring us a lot of business. In March we often travel for 10-12 days, while our kids are on school vacation, so business is down. May is probably the most average month. That’s exactly what earnings looked like too.

Just what I didn’t need, another dog. Fortunately, this husky is just a kid in a costume for the school’s Crazy Hat Day.

Blogging also was very good in May. I almost had the same as April’s highs. One advertiser is stiffing me on the payments and I feel she’s going to ghost me forever. Oh well, I guess she stole a few days of advertising, which isn’t too big of a deal.

In April, “dogs and blogs” combined for $9,598.76. In May, it was:

Total Blogging + Dog Sitting Income: $5,938.04

The blue line is the monthly income. The red line is the 3-month average.

I would be very happy with nearly $6,000 from dogs and blogs. So far it looks like June is going to be the same.

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. Kids should start a Roth IRA as soon as possible.

2. Rental Property Income

The real estate market is thriving again. I guess it is house buying season again. People seem to have shrugged off the high mortgage rates. Zillow said our properties are worth $8,000 more than last month. We also knocked $800 off of the mortgages. That combination means that we went from 77.14% ownership of our properties to 77.63% ownership.

We were also able to increase our rents a little bit. I wanted to do more, but my wife thought it was too much at one time. Since we don’t really need the money, I agreed with her. However, I’m starting to wonder if we’d be better off just selling the properties and putting the money in the bank or market. If we can make as much money that way, why trouble ourselves with being landlords?

One of the Volvo Ocean Race sailboats. Imagine going around the world (or close to it) in a sailboat?

If we owned both of our rental properties with no mortgages (100% of the equity), we’d make about $2,218 a month after insurance, property taxes, condo fees, and estimated condo maintenance. I know the $2218 number is kind of specific, but that’s the way the rents came out to be with the fraction taking away the condo maintenance.

If you multiply our rents of $2,218 by the amount of equity we have, 77.63%, you get $1,721/mo. in estimated passive-ish income. Last month it was $1,697/mo. This month we added $24 in passive income.

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 off a property and still have about 50% more income after expenses

Eventually, these properties 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: $1,721

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, iShares Core High Dividend ETF (HDV), is currently paying a 4.06% yield.

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.

They usually don’t let my kids get together with karate, but for one class, they randomly made an exception.

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 stock market is doing really well. It seems we averted the debt ceiling problem and the markets love it. Like last month, my wife has been traveling this month. That means that I just have to estimate her numbers a bit. I’m good at estimating her numbers because the investments are all in index funds.

Total Dividend-ish Income: $4,111

Last month it was $3,958.

In January 2017, the dividend income was at $1,180/mo. Now, we’re almost at $50,000 a year – enough for us to live fairly well, especially if we paid off our mortgage.

For the 78th 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’ve got to finish our taxes first before I can look into this. I did make some progress on taxes in the last month.

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: $5,938.04 – Adjusted to $2,969.02
Rentals: $1,721 – Adjusted to $1,376.80
Dividends: $4,111 – Remains at $4,111

Dogs/Blogs Blue Line
Rental – Red Line
Dividend – Yellow Line

Total Adjusted Passive Income: $8,456.82

Last month it was $10,114.98. That’s what happens when the big month of April dog boarding is over. It seems like a big change for something that should be “passive.” Nonetheless, I like how it is back above the $8,000 mark. It’s funny, but I was reviewing last month’s report and the dogs we nice and easy. This month when we made less we’ve had more difficult dogs. They chewed up a couple of pairs of shoes and just have been a lot of hands-on attention. It’s to know what level dogs we’ll have.

This $8,500-ish number is about $100,000 of passive-ish income annually. That’s almost exactly what we need to live on with private school and mortgages. Eventually those big expenses will go away. Over time, the dog boarding income will probably go down, but the investment income will go up. In the meantime, I hope to keep it right were it is.

It’s incredibly useful to have different income streams. As making money from blogging 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. Over time we are making consistent progress.

The chance of all the income streams falling on hard times is low, but anything is possible. 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 that I’m not reporting here. We might also have to rely on savings for a while. Dog boarding went away completely with COVID, so something like that can be just around the corner.

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 taxes and penalties. We can’t access the equity we have in properties without selling them or opening a HELOC. We can do some things to get to this money, but it only makes sense when my wife retires and we are in a lower tax bracket.

You’d think we’d feel “rich” having “won” the money game. Most of the time we don’t feel rich at all. Our social circle tends to have generationally rich people. Nearly every of my son’s classmates lives in a $2 million dollar house. Dog boarding is definitely looked down upon in the private school society. However, we are “rich” relative to many people’s circumstances. Money is relative. There’s a lot of value to being able to laugh at 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 May 2021 was $6,858.66. In May 2022, it was $8,675.21. Now in May of 2023, it is $8,301.85. I was curious as to why it is going to down, but it seems like the sale of the rental property last year made the difference. We’ve put the money into the stock market, but I guess it lead to more passive-ish income even with my adjustments. It’s reassuring that it is close.

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. This income isn’t 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/yr. and includes access to a good health care plan. A pension is a passive income cheat code. They are so rare nowadays. It gives us a lot of flexibility that most people don’t have.

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 private 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. They are getting spoiled, but I don’t think they know it. They probably think that’s just the norm.

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.

This past month, our net worth was up 3.16%. For the year it’s up 7.53%. We reached an all-time high in net worth last month and it just gets bigger now.

Many bloggers show how much they spent and how much they made during the month. I don’t keep track of all those numbers. I know there are some tools that can make it relatively easy. However, I find that tracking monthly numbers works best for me. I can look at our liquid cash numbers which gives me similiar information. In the last month, we grew our liquid cash may have dropped by $2,000. I write “may have” because I’m not counting my wife’s accounts due to her travel. I’m sure her accounts have more money and it may be positive.

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.