Turkey time has come on gone. We’re onto Christmas now. Well, we should be. However, with my wife deployed until around the middle of December, I can’t seem to find the time to put up decorations. We’ve watched some Christmas movies and listened to Christmas music in the car. That will have to be good enough for now. Enough about Christmas though, this is about reviewing November.
November was one of the more interesting months of my life. My wife was honored with an invitation to meet the President at the White House on Veterans Day. She got to lay a wreath at the Tomb of the Unknown Soldier on the 100th year. I went along, but it seems like the White House doesn’t allow “plus ones”, so I “only” got to see a speech from a special seating area.
While in D.C. we got to spend a day exploring a bit. We hit the The National Air and Space Museum and The National Gallery of Art. It’s hard to believe that such great experiences are available for free! We barely touched the tip of the iceberg. Imagine what it must be like for teachers and students to be able to take field trips there. We have to plan to get the kids to go down there soon.
My wife had one more piece of big news, but I’m going to wait until later in the week to reveal that. It didn’t become official until recently, so technically it wasn’t something in November. It is life-changing news, so you’ll want to stay tuned.
As for the kids, my 3rd grader auditioned and won one of two small parts in the 8th grade play. We got progress reports from the school and both kids are doing well. They got to see their cousins for the first time in nearly two years at Thanksgiving. That was a great time for all of us.
I normally have a lot more to share, but single parenting (even for a month) is difficult and I’ve been going with the path of least resistance with everything.
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 “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 that you can do that.
1. Blogging + Dog Sitting Income
The year of dog boarding continues. Everyone getting a pandemic dog, plus vaccines, and a year of missed travel makes everything busy. Usually, dog boarding is seasonal, just the tourist season of the summer. This year has been very different.
November was boosted by the Thanksgiving holiday. Those rates are higher and it’s easy for us to be at capacity during those times of high demand. For the month, we’ve done just about the 5-month average since things really took off in June.
In the past (and above), I have written that dog sitting is passive-ish income, which is why it is on this report. When it is one dog a day on average, it is passive. With three dogs on average, it is much less passive. The dogs compete for attention. Coordinating schedules for drop-offs and pick-ups with other dog owners and Meet and Greets takes a lot of time. I will still count it as passive for now, because the numbers would get weird if I just deleted off a source of income. Also, with my other work and dog sitting my blogging income takes a hit.
I loved being able to catch this shot of two different dog boarder families having their dogs dance.
It looks like dog-sitting is going to be busy going forward. December’s bookings are a little light, but we’re closing to do a basement renovation and only taking a couple of dogs over Christmas.
That’s a lot about dog-sitting, but what about blogging? Blogging income was down in November. I sold a good amount of advertising, but the advertiser ghosted me instead of paying like they had in the past. I pulled the advertising before too long hoping that he’ll get his payment in to restart it, but it hasn’t yet. That income may never come in, which is unfortunate. The good news is that it’s very rare that something like that happens.
In October, “dogs and blogs” combined for a total of $6,520.55. In November, it was:
Total Blogging + Dog Sitting Income: $5,286.62
To put this number in context, the average for Nov 2018 and Nov 2019 was $2,598. I’m purposely leaving out last November, because the pandemic really killed off my income. So this is going very, very well.
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. My 7-year-old was a little slower to dog skills, but he’s carved out a household niche of catering to the smaller dogs – he just loves them. This 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.
Someday, I want to get them more involved in blogging, taking pictures, and things like that. During school, they have too much to keep them busy. After school, there’s homework, becoming mini-ninjas, Scouting, and sports fill up their days. Being a kid is hard work!
(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
The big housing jumps from earlier this year seem to be over. Maybe it was too much, too fast. Maybe it is seasonal. Maybe it is both. Zillow determined our properties were worth a little more this month. We continue to pay down the mortgages. This combinations mean that we grew our equity a little bit just as we do every month. In real terms it is several thousand dollars, but in percentage terms it looks tiny.
We went from 71.41% to 71.82% ownership of the equity in our properties. See, just a tiny percentage – but those tiny percentages add up month after month, year over year.
If we owned the rental properties with no mortgages (100% of the equity), I calculate that, after insurance, property taxes, condo fees, and estimated condo maintenance we’d make about $3,400 a month. That number represents our net gain.
The Air and Space Museum. Can I tell you once again, it was free?!?!
If you multiply our expected net rent by $3,400 by the amount of equity we have (i.e. where we are on our journey to 100% equity ownership), 71.82%, you get $2,442 in estimated monthly passive income. That’s a small gain of $14 from last month, but slow and steady wins this race.
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 almost 5 years, we’ve seen that number more than double. That’s the power of 15-year mortgages.
In about 5 more years from now, the ratio will grow to 100% of that $3,400 rent. Except that rent should be closer to $3700 in the next year – our properties are way below market. Since rent is inflation-resistant (we can raise rents as costs of living go up), we don’t have to factor in inflation like other investments. So we can think of it as around $40,000/yr. of income in today’s dollars buying the same value 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.) Of course, that’s just part of the plan as you can see.
In the previous report, the rental property income was $2,428.
Total Rental Property Income: $2,442
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 3.86% yield. It could also come 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 we wanted to simply retire on this dividend income, I would get Sure Dividend’s newsletter to try to get a 4-5% 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.)
Of course, we may not convert everything over to dividend income at all, it’s just a conservative way to think of our investment portfolio. If I used a 3.5% or 4% withdrawal rate, the numbers would be much bigger.
The markets fell back around December 5th when I was updating my net worth spreadsheet. I try to wait for the rent checks to get in and mortgages to get paid out. In the last couple of days they’ve gone back up, but that doesn’t help for this report. Fortuantely things didn’t go too far down. I had a little spare cash and used that as a mini-buying opportunity. That was more about my own psychology than it was any meaningful portfolio change.
That’s the President of the United States talking in the distance
We continue to get a profit-sharing check since I bought (a lot of) a company. The business was almost ideally positioned in this pandameic due to its virtual nature. In fact, the business was doing so well they had some extra money to send out before the end of the year, but I didn’t include that here. Maybe if this bonus is consistent they’ll up the profit-sharing and I’ll be able to add more into this report from that. 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: $3,767
Last month, it was $3,945, so that’s a drop. I guess you can’t have all-time highs every single month – only about 36 of the last 40 – LOL. When I started tracking this number in 2017 we were at $1,180/mo. Our money is working hard to multiply, especially because we aren’t adding much to the investments. Instead we’re focusing on saving money for my wife to retire. At the end of this report, I’ve given a liquid cash paragraph to help explain how that’s going.
Annualized, this monthly $3,767 is $45,201. Like the rent number above of around $40,000, we should be able to live on this by itself (once mortgage free in a few years). 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 14 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. We’ve started to see an estate planning lawyer, but I have a lot of paperwork to do with that before I can move forward. We may look at tax and financial professionals soon.
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 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.
The drop in the stock market was too much for us to grow this month. Oh well, it’s bound to happen. At least the drop was minimal. Real estate didn’t move too much. 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 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.
Break: This month in COVID
The big news for most of the world last month was the omicron variant. Scientists are worried about it, but they are still figuring some things out about it. I’m sure we’ll know more in my next report.
So let’s skip that “big news” and go with personal big news. Our kids, age 7 and 9, were able to get vaccines! They have both shots now and my 9-year-old marked the calendar for when they are considered fully vaccinated. The weird thing is that I didn’t push a big interest in this other than, “This is something that we do.” I don’t think anything particularly changes for them such as not wearing masks at school. We’re waiting for Rhode Island guidance on any kind of changes, but I don’t expect any until we get through the holidays and cases start to go back down from the get-togethers. However, maybe it will be spring with more people outside when we see real changes.
Speaking of spring, we booked real travel. We’re going to Puerto Rico in March! We feel very good about it. We’ll all be vaccinated. We’ll be able to spend a lot of time outside. They don’t have that many cases there. It’s very similar to our trip to Hawaii last March. These weren’t necessarily the places we expected to go on vacation before COVID, but we’re thankful to be able to go on vacation, stay in the United States, and introduce the kids to a culture that’s very different from a small New England port town.
I know there are new variants and it’s tough to vaccinate the entire world, but I believe the human race can win the war against COVID if we can convince everyone to fight the battle. We have safe, very effective, vaccines and they’ll be getting better. The government is stepping up further to push cheap ($12) or free rapid tests to prevent the spread at events. Pfizer has a pill that seems to reduce hospitalizations and deaths by 90%. The pills have been tested on people with risk factors, but they should even better when no risk factors are involved if the costs are low enough.
Now… back to the month in passive income.
Very Close to Passive Income: $6,209
Last month it was $6,373, so this is a very good gain.
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.” 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 “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), because the money isn’t liquid. We don’t feel “rich” by any stretch of the word, even though we are relative to many people’s circumstances. We have gained almost $4,000/mo. in passive-ish income in almost 5 years. 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 a certainty unless we have that major crash. I think we’re on pace to get there by the end of 2023 now.
Final Passive Income
When you add up “dogs and blogs” to the “very close to passive income” you get:
Passive Income: $11,495.62
Last month it was $12,893.55. It looks like I won’t be setting new records for a while. Dog sitting will probably slow in January and grow again in February when school vacations happen.
I had set a goal at the start of the year for this to average $8,000 for the year, but I honestly didn’t think it was possible. However, it’s over $10,000 and looks like it is going to finish that way. It’s been a great year.
This ~$11,500/mo. income is over $135,000 a year. That (hypothetical) annual income for writing on a blog, taking care of dogs, and investing is very nice. However, this amount of dog care isn’t something that I want to continue over the longer term. If we could manage 100K from all these sources we’d be doing quite well – 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.
As the last nearly two years have shown, 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 day job of bread-winning pharmacist income, her vested military pension (more passive income when she retires), or the freelance work I’ve been doing over the last few 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 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 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’s been above $6,000 for a while now. It seems safe to say that $7,000 or $7,500 should be considered the new floor.
(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 drop in November, but it wasn’t too bad. The drop was 1.63% and it has probably more than recovered by now. For the year overall, our net worth is up 26.11%. That’s the most our net worth has gone up in one year since 2013 when I started keeping meticulous net worth tracking. A big percentage gain after years of a big bull market means it is a big number.
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 cards reports can do a lot of it. Looking at our liquid cash is a way to roughly gauge the bottom line, income minus expenses. In the past, we haven’t focused much on this because we’ve been investing that money. However, our focus now is to build enough cash so my wife feels comfortable retiring. Last report, our liquid cash went down $7,412.09 this month as we’ve had some rent check problems from a tenant. This month we had a big IRS refund as we finished our 2020 just in time for the extension. Along with some other savings, we were able to grow the liquid cash number by more than $26,500. It may be temporary since we’re finishing a basement, buying restuarant gift cards on holiday deals, and other holiday spending.
It’s important to realize 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. 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 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 15 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.