It’s almost turkey season, but before we get there, I need to take a last look at October and see whether it was a financial trick or treat. Rather than jump right in, here’s a little personal update of the month.
Usually, I have a ton of updates about what we did each month. This always comes with lots of pictures. However, this month was a little different. When I went through my phone’s pictures, there wasn’t much. We had a lot of dog boarding this month. That isn’t different than the summer, but it’s concentrated on the weekends when most people travel. During the week, we are busy with work, kids’ school, and after-school activities like karate and Cub Scouts.
We did have a few Halloween events. The state zoo had its annual Jack-o-Lantern Spectacular, which features thousands of carved and illuminated pumpkins. This time we went on a special night for the Boy Scouts and were able to get a nighttime, close-up visit with the animals while they were in their pens enjoying dinner. The kids thought it was a special night.
The kids’ school also has had great Halloween parties in the past, but those days are over. Before COVID they realized that a Halloween party can’t be fun for both the pre-school kids and 7th graders. COVID finished off any chance of having the same kind of party. Instead, the parent’s association put together a Halloween Scavenger Hunt that involved going to volunteer houses around the city to solve clues and get candy. It worked out well.
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 more passive because I can make money even when I’m not immediately tending to them. I’m writing this while boarding 4 dogs right now. I leave real estate and investment income as their separate main sources of very passive income.
1. Blogging + Dog Sitting Income
In case you haven’t been following this throughout the year, here’s a brief update on dog sitting. January through March – pandemic – no travel – no one needs dog boarding. June through September – vaccines – everyone needs dog boarding for their pandemic dog while they catch up on a year of missed travel. In September, I made 25% less than August, but it was still twice the income of our biggest month outside of this summer surge. This was expected because kids are back in school and families are traveling less. It’s a seasonal business that I know well…
… or at least I thought I did. October is usually a down month for dog-sitting. Not this year. Dog sitting income was up 24% from last month almost reaching all-time highs to become the second-best month of the year.
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 closer to a full-time job. 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.
It looks like dog-sitting is going to be busy going forward. November’s bookings are strong enough to match October, but I’m traveling for a few days and we’re taking limited dogs over Thanksgiving.
That’s a lot about dog-sitting, but what about blogging? Blogging income rebounded a bit, but was starting to taper throughout the month. Fortunately, I had a good start with advertisers from September who paid in October.
In September, “dogs and blogs” combined for a total of $5,326.58. In October, it was:
Total Blogging + Dog Sitting Income: $6,520.55
I think it’s important to put this number in a little context. The average of this for Oct 2018, Oct 2019, and Oct 2020 is $2,257. I’m doing nearly 3x better and have an extra $4000 to spend and invest. I will have to start making changes to the report soon because it isn’t fair to count this dog-sitting as passive income.
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 is good too, but it’s more of a work in progress. 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.
(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 huge housing market surge seems to have settled down. For the last couple of months, Zillow’s estimates have been very consistent. This seems a lot healthier than the jump of 15-25% that we saw earlier this year. We continue to pay down the mortgages. Typically that’s about $2000 a month. For the last few months paying down the mortgages has been the biggest gain.
We went from 70.93% to 71.41% ownership of the equity in our properties. We are only a few years away from getting real profits from the rental properties.
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.
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), 71.41%, you get $2,428 in estimated monthly passive income. That’s a small gain of $16 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 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.)
In the previous report, the rental property income was $2,412.
Total Rental Property Income: $2,428
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 a 3.75% 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.)
The markets reached new highs yet again. I feel it can’t continue, but it does, so I guess I better enjoy it while I can. I had some individual stock picks that didn’t do well, but since most of our investments are in index funds, Mr. Market carried us higher.
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. 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: $3,945
Last month, we had a drop down to $3,786. This month we’re enjoying another all-time high. 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.
Annualized, this monthly $3,945 is $47,340. If our mortgage was paid off, 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.) 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 are going to see an estate planning lawyer soon and 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 big growth this month comes from the stock market. 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.
Our own freeloading dog (LOL) gets special walks along the beach. He dragged me in the ocean here.
Break: This month in COVID
This section has been about the state of COVID for a while, so it should have its own section. Delta looks to have peaked, but cases aren’t going back down to the summer levels as I expected. My wife got her booster last weekend and I got mine a few days ago. Our kids got their first shot now that they are eligible. I feel confident that our family is in a good position for a while now.
I think we can win the war against COVID if we can convince everyone to fight the battle. We have safe, super-effective, vaccines. We should be getting cheap ($12) or free rapid tests to prevent the spread. Pfizer has a pill that seems to reduce hospitalizations and deaths by 90%. (Merck’s pill is already approved, but it’s “only” at a 50% reduction.) The pills have been tested on people with risk factors, but they should even better when no risk factors are involved.
It feels like we have, or will have, multiple layers of protection like an onion.
Now… back to the month in passive income finance.
Very Close to Passive Income: $6,373
Last month it was $6,198, so this is a very good gain.
This would be over $76,000 a year of passive-ish income. What’s better is that there would be no need to touch the investments themselves. We wouldn’t have to sell stocks for living expenses. We wouldn’t have to get a reverse mortgage on our home. 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.
Final Passive Income
When you add up “dogs and blogs” to the “very close to passive income” you get:
Passive Income: $12,893.55
Last month it was $11,524.58. I thought that I was done setting records until next summer’s dog sitting season. I started the year thinking that this was a race to the bottom as “dogs and blogs” weren’t working and income was going down and down. Even though this is less passive with all the dog sitting, it’s great to have real earning power. When “dogs and blogs” aren’t going well, the passive-ish income can still keep this number from getting too low.
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, so I’m going to consider this battle won.
Climate change brought us a couple of downed limbs this year. This tree damage broke our fence and is going to set us back some significant money. Insurance paid for the clean-up – I’m not a fan of using chain saws.
This ~$12,900/mo. income is almost $155,000 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 year and a half 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 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 almost all our spending. It also gives me the flexibility to bring the kids to a bunch of events.
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 September, but it bounced back in October. It jumped up 3.12%. For the year overall, our net worth is up 28.19%. Thats’s the most our net worth has gone up in one year since 2013 when I started keeping meticulous net worth tracking.
Recently for something new, I decided to share our liquid cash. 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. Our liquid cash went down $7,412.09 this month. We have some rent checks that haven’t come in. We had to shift some of our liquid cash around this month to work with that. We should work on our spending, but with the holiday season that might not happen.
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 it – especially ones saddled with huge student loans. 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.