It didn’t seem possible that it’s already December, so I’ve decided to lean into Christmas. I’m doing everything related to the holidays possible. However, I still need to close out November, so let’s get started.
I know every month is busy, but it seems like November is always a little extra busy. Maybe it’s because it has Thanksgiving. Maybe it’s because everyone is trying to squeeze everything in before December and the holidays.
The month started with a sick kid. It seems to have been the normal flu going around, but he was in a bad place for about 5-6 days. As he was getting better, he attempted to do a little work at home with some hilarious results:
He did the rest of the work more seriously than this example. He even got the right answers unlike here.
We had a bunch of one-off events. My wife flew to Washington, D.C., for a quick one-day training. I let the kids sleep in our bed and took their bed. They think that switch-up is a treat. My cousin (the only one I see consistently) got married and had a beautiful wedding. I got to see all kinds of relatives, which isn’t something that happens very often. We had a Thanksgiving dinner with family.
The kids had another successful month of Cub Scouts. They learned how to fold flags and were part of the color guard at a Providence Bruins game. They also continued their advancement in karate. As they get to more complicated stuff, the belt advances are coming slower and slower.
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. 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. We still have mortgages to pay off. Instead, I calculate the percentage of equity we have to show where on that journey we are. You’ll see that the bank owns less, and we own more each month. There will be no mortgages when we own 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 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 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 leave 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.
For 2023, I’m only going to count 50% of blogging and dog-sitting income, 80% of real estate, and 100% of dividend income. That’s more realistic of what counts as passive. Until then, the main numbers will use this. For now, I’ve added a section at the end that uses this more realistic calculation of passive income.
1. Blogging + Dog Sitting Income
November dog boarding can go in either direction, good or bad. I was surprised at how busy October was, and I was more surprised about November. Maybe, being available to host for Thanksgiving makes all the difference. We were able to host at Thanksgiving and had a lot of our regulars book. It’s great having a stable group of customers because I know their dogs well. November was the best dog sitting month we’ve ever had – and it wasn’t close.
Last month I said I wanted to raise prices, but I was concerned about losing regular customers. I raised prices a couple of weeks ago, and it looks like we’ll still have plenty of business.
This dog has stayed with us more than any other dog this year. She’s very comfortable sitting at the dining room table with the family. Here she’s interrupting our Allowance game for my review on Kid Wealth.
Blogging income was almost exactly average. It takes some time to grow blogging income, but I don’t have the time to invest.
In October, “dogs and blogs” combined for $8,844.18. In November, it was:
Total Blogging + Dog Sitting Income: $10,938.99
In the last report, we had a record of more than $1,000. This month it is more than $2,000 over that record!
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 8-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. This year they finished up vet summer camp at the local animal shelter.
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. Here’s why kids should start a 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
The rental market has become quite dull. According to Zillow, the properties bare changed value. It makes sense that they aren’t likely to go up anymore after such a big run and high mortgage rates.
I’m happy they are mostly retaining their value while we continue to chip away at the mortgages. In the meantime, we make about $500 a month on the two of them.
We went from 75.35% to 75.66% ownership of the equity in our properties. It’s very slow and steady at this point. One of the properties is on a new 20-year mortgage because we did a 1031 exchange (selling one property and buying another to avoid taxes). I wasn’t a fan of “starting over” with this mortgage, as it pays more interest upfront before earning equity, but the 4% interest rate seems very good now.
As the kids get older, 8 and 10 now, it’s getting rare to find these pictures of them sleeping together.
Suppose we owned both remaining rental properties with no mortgages (100% of the equity). In that case, we’d make about $2,200 a month after insurance, property taxes, condo fees, and estimated condo maintenance.
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 quickly, there’s a massive gap between what we could reasonably be bringing in and what we are bringing in.
If you multiply our expected net rent of $2,200 by the amount of equity we have, 75.66%, you get $1,654/mo. in estimated passive income. 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. In 5.5 years, it grew a ton, even after selling our biggest rental property.
When we get 100% ownership, it 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.
Total Rental Property Income: $1,664
3. Dividend Income
For this section, I assume we could earn a 2.5% dividend yield on our equities – even if I may choose to invest differently. That 2.5% could be from a high-dividend ETF. For example, HDV is currently paying about a 3.47% yield. The 2.5% dividend assumption is a conservative number that helps us think about what kind of cash we can expect.
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 5-6% average dividend yield. (That link to the newsletter has a special discount rate; in full disclosure, I make a few dollars if you sign up for it.)
Of course, with today’s interest rates, getting a 2.5% yield shouldn’t be too hard.
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 we are more focused on growth for now. I combine all the taxable and retirement numbers – breaking them down would be too complex.
It’s off to school. I have no idea why I took this picture. It must have been a Monday, as the fourth grade learns the ukulele that day.
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. A few times a year, we get an extra check because the company is doing well and there are more profits to share.
The stock market had a nice recovery in November. We saw a big boost because of that. We hit another all-time high in this category. The main reason is that we sold a rental property and invested the money in stocks. In any event, it’s nice to see this continue to grow.
Total Dividend-ish Income: $4,303.00
Last month it was $4,113. When the market recovers to all-time highs, we’d be pushing $5,000. In the meantime, the journey keeps on generally moving up and to the right.
When I started tracking this number in January 2017, we were at $1,180/mo. It’s been a tremendous six years.
For the 25th 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 still not making any progress on this. For the first time in about 15 months, I got to a point where I thought I might be able to get the paperwork back out. Maybe when the dog boarding dies down in January, we’ll make progress.
Very Close to Passive Income
Our “very close to passive income” combines rental property income and dividend income. If we had any royalty income from books, movies, or music, I’d also include that. I’m too tone-deaf to have a rockstar music career, but I may write a book someday. I had a lead on a publisher, but they charge authors tens of thousands of dollars, which isn’t what I’m looking for.
I feel it’s important to keep track of this separately to differentiate it from the dogs and blogs’ income. Dogs and Blogs take active work to keep up. Rental property requires a little work, but not nearly as much. The dividend income takes no work.
Karate class. They are both brown belts now, so only red and black to go. (I think it takes about another year for red.)
I love having both the rental properties and stock market income working together. When the stock market dropped this year, our real estate kept our net worth high. It was the opposite for the last decade – real estate didn’t do much while stocks quadrupled. 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: $5,968
We’re working our way back up to the $6,500 high in April. We’ll need more of a market recovery or some big surprise windfall. This would be almost $72,000 in annual income. We wouldn’t have to sell stocks or have a “withdrawal rate” – simply live off dividends. We wouldn’t have to get a reverse mortgage on our home or 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 draw them down for more fun, charity, or other spending.
When I started this blog, I aimed to have around $75,000 in passive income. That was my definition of winning the money game. It would be enough to cover our needs and most of our wants. We’re not quite there, but we are close. If you count us being able to draw down on our accounts a little or get more than a 2.5% dividend return, we’re there.
This “very close to passive income” has grown from $2,354/month in January 2017. So in about six years, we’ve more than doubled our passive income (an extra $1,000 from the double). Our money is working almost as hard as we are. It’s a crazy system. I’m just doing my best to work within it.
Remember, these numbers are fudged and aren’t “real” because much of the money isn’t liquid. We can’t spend those retirement investments or the equity we have in properties. However, we can make some money moves if my wife chooses to retire and we get into a lower tax bracket.
We don’t feel “rich” by any stretch – especially because our social circle tends to have generationally rich people. However, we are “rich” relative to many people’s circumstances. Sometimes money is relative.
I hope to get our close to passive income to $8,000/month by the end of 2024. It looks like it might not happen, but a lot can happen in two years.
Final Passive-ish Income
When you add up “dogs and blogs” to the “very close to passive income,” you get:
Passive-ish Income: $16,905.99
(Last month, it was $14,615.18.) That would be over $200k a year. That (hypothetical) annual income for writing on a blog, taking care of dogs, investing, and landlording is Captain Insane-O. In reality, I don’t expect dog boarding to be this profitable forever. Either the market will change, or I’ll change. Perhaps I’ll want to travel more. Perhaps, I’ll want a different challenge. In a lot of ways, I’m on my third career (software engineering, blogging, and dog boarding), so why not a fourth?
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 – neither is passive at all. When my wife retires, we can count her vested military pension as more passive income. A pension is like a passive income cheat code.
For now, this active income (including the dog boarding) is the fuel that drives the passive income engine – it allows us to live well, pay off our mortgages, and invest. My income doesn’t match my wife’s, with the exception of this one month, 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 after-school activities.
Our dog has lost a lot of strength in his back legs, but he’s still always happy.
I love two things about the graph below. First, there’s a definite trend of the numbers staying high for several months. Second, it doesn’t dip down too far. We should be able to count on at least $8,000, maybe $9,000 a month. The big bump you see is almost all dog boarding business.
(The blue line is the monthly number. The red line is a 3-month average which helps smooth the curve.)
Adjusted Passive Income
I mentioned at the very beginning that I shouldn’t count dog boarding, blogging, or landlording as completely passive income. For 2023, my passive income is only going to count as 50% of blogging/dog-sitting and 80% of real estate income. However, I’m going to count 100% of the dividend income.
Thanks to the power of spreadsheets, I can bring you these numbers now. Our adjusted passive income would be $11,103.70 or over $133,000 a year. That’s up from $9,861.49 last month. It may be unfair that the big difference was a ton of non-passive dog boarding. However, part of that increase was due to holiday rates, not just boarding more dogs. It was more work than I’d like, so I raised rates a bit. I hope that I can make a little less money from a significantly smaller number of dogs. That would pay well and be more passive.
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.
For much of the year, we’ve had negative months of net worth. The markets are still down over 15%. However, this month our net worth was up 4.24%. Go, markets, go! For the year, our net worth is down only 0.64%. I’ll take less than 1% in what some consider “bad economic times.” When the markets come back, we should be able to do quite well.
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. However, like most of the money mentioned in this article, this isn’t money we can spend right now.
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. 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.
How was your month? Let me know in the comments.
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