Wow, it’s November. Maybe it’s climate change, but it doesn’t feel like it. It was 75 degrees for Trunk or Treat, but then it got to the 30s a few days later. We only have a couple more of these reports left. I think I’m going to vastly consolidate these and combine it with my most recent quarterly goals report. Most of these passive income updates seem to be the personal stuff. Let me know what you think. Are these too formulaic with too much extra pose explaining my weird methodology?
We went to the local harvest festival. The kids complain about it, but there are always some fun things to do and their friends are there.
For all the complaining they did, they thought these stilts were interesting. They were able to get a step or two with a little help.
The fourth grade had their course on sailing. They go out on the ocean and learn how to sail. Welcome to Rhode Island life, right? My son already loves his sailing camp, so it’s just more of that. They tie it into the science curriculum.
We went to D.C. for a weekend. We didn’t get to do a lot of sightseeing, but we did see the pandas before they get deported to China. It could be our last chance to see pandas for some time.
I spent some time on a bridge contemplating suicide. Yes, I’m purposely misleading you. My wife and I ran 3.75 miles across the Pell Bridge as part of a charitable run. A lot of the money goes to suicide prevention. (Of course suicide is no joking matter, but I couldn’t think of another interesting way to introduce the topic.)
I went to New Orleans for FinCon, a financial conference for financial bloggers and other media creators. I almost never left the hotel. As much as I love family time, it was great to focus on myself and business for a bit.
We got a new television to go with our new couch. I’ve been teasing that I’ll write about them for some time, but haven’t found the time. For now, I have a picture to share. That’s the flagship 85″ HiSense U8K, which is near the tops all the review lists for best value. I got it for $1800 on Prime Day (though it didn’t require a Prime membership). It’s sold out for now, but I think there’s a better deal available right now. For $1,231.49 you can get the 75-inch version. I’m a little worried about the brand, but our last television was an LG OLED that got burn-in. Going for a great brand and best technology didn’t work for us last time.
We went on our annual pumpkin walk at the local zoo. There are tens of thousands of illuminated pumpkins. The zoo memorized one of my favorite baseball players, Tim Wakefield who unexpected died at age 57 this year. I had written about him a few years ago to make a personal finance analogy.
On that Halloween note, my kids went as a famous Spiderman meme. It was cool, but next year they’ll choose costumes that make it easier for them to eat and be recognized by their friends.
Let’s start the new and improved Passive Income report. I’ve streamlined this a bit to make it a faster, easier read. I’ll 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 only have a little 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. There will be no mortgages when this number reaches 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 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 passive because I can make money even when 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 primary sources of very passive income. This way, if you want only to count those, you can do that.
This panda was far away, which is why the picture quality is so poor. I have better pictures of kids with the other panda who was more in a display room, but he might have been asleep. I like this panda is sticking his tongue out at me.
New for this year, my passive income will only be 50% of my blogging and dog-sitting income, 80% of my real estate income, and 100% of my dividend income. That rewards types of income that are truly passive and punishes my quasi-passive sources like blogging.
1. Blogging + Dog Sitting Income
Blogging was almost exactly average for the year. That’s not great, because it’s down about 33% from last year. There was a time when I would make four thousand a month from blogging alone. Nowadays, it’s a great month if it gets over $1,000.
Dog boarding for October was low. I missed two weekends this month. We took that family trip to Washington D.C. and then I went to FinCon in New Orleans. Taking a single day off can cut dog boarding by a lot. People simply can’t book a week’s vacation if the day is blocked out. Sometimes we’ll get day care which can help fill in the gaps. However, those are difficult because my main responsibilities are to get the kids to school and after-school activities. Those are the main times that people would want to drop off and pick up their dogs from day care.
The owners of the dog went into labor while I was in New Orleans. They knew that time was possible, so we had a plan for it ahead of time. The dog isn’t great around other people, so they couldn’t board him anywhere else. When he saw me on the video conference he came over and licked the phone!
In September, “dogs and blogs” combined for $3,903.23. In October, it was:
Total Blogging + Dog Sitting Income: $3,306.51
The blue line is the monthly income. The red line is the 3-month average.
My kids help with the dog sitting. My 11-year-old is extremely good with dogs at this point. He can feed them, let them out, and play with them in the yard. My 9-year-old is also good with dogs. Since I’ve been doing this for 8 years now, having dogs around is just second nature. To them, it’s weird when there aren’t dogs around.
Here’s the boxed version of our new TV. I’ll save the wall-mounted one for post about the television.
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 starting too cool now that summer is over. People don’t want to move while their kids are starting school. They don’t want to move as it gets colder. I don’t expect the market to change too much though, people didn’t want to move before because they wanted to keep their low interest rates.
This month Zillow thought our properties were worth a little less than they were last month. We lowered our mortgage/liability on them like we do every month. They mostly balance each other.
An inside joke in the family that I always say, “We’re on a bridge!” I started doing it when the kids were very little, so that they’d look out and enjoy the sailboats going by below. This time, “I’m on a bridge” without a car.
Last month, we owned 79.11% of our properties and this month we own 79.17%. This is always a small change, but it is particularly small. This year, we’ve gained about 4% equity. Since January, we’ve gained about $50,000 in equity. The landlord job is paying well, even though it’s not in direct spendable cash.
Suppose we owned both rental properties with no mortgages (100% of the equity). In that case, we’d make about $2,218 a month after insurance, property taxes, condo fees, and estimated condo maintenance. The $2218 number is specific, but that’s how the rents came out, with the fraction accounting for the condo maintenance.
If you multiply our rents of $2,218 by the amount of equity we have, 79.17%, you get $1,756/mo. in estimated passive-ish income. Last month it was $1,754/mo. LOL, the two dollars doesn’t amount to much.
Total Rental Property Income: $1,756
When I started tracking rental property income this way (January 2017), we only owned 36.4% of the properties with lower rents. The math worked out to $1,174 of passive income back then. In almost seven years, it grew a ton. We sold off a property to invest it in the stock market and still have about 50% more income after expenses.
Eventually, these properties should bring about $25K-30K after expenses. Rent is inflation-resistant as it’ll rise over time. That means that even though this is $25K in today’s dollars, it will still have that buying power in the future.
At some point, I won’t want to manage properties. One option is to let my kids do it and pay them well for the help. They are at least ten years away from that, though. Another option is to sell them, invest the money, and live off dividends. We’ll have to see how it goes.
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. Getting that 2.5% number should be easy, as we could put all the money in a high-dividend ETF. For example, the high-yield ETF, iShares Core High Dividend ETF (HDV), currently pays a 4.16% yield.
Most bloggers use the actual dividends they earned that month. I have too many accounts, and I’m too “Lazy” to add up their dividends. Even if we aren’t getting the 2.5% number now, we could move the money from growth to high 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 essential to us now. I also combine all the taxable and retirement account numbers. It’s too much work to separate them.
RIP Tim Wakefield ?
The markets have rebounded. Hopefully, the rest of the year finishes strong. That’s what typically happens with the holiday season. The stock market should be strong next year too. That’s typical for election years.
Total Dividend-ish Income: $4,061.00
That was a gain of $80 over last month. That’s so much better than the $2 from real esate. I am hoping to see this number get to $4500 sometime next year. Let’s hope that Mr. Market wants to work hard.
When I started putting these numbers together in January 2017 the dividend income was $1,180/mo. That’s almost $3000/mo or around $35,000 a year.
For the 113th 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 was going to contact them and see if there’s some way around it. However, I ran into another estate planning lawyer and explained my issue and she said that they minimize the paperwork. I like that. The other place shouldn’t need me to transcribe every holding in every financial account.
Adjusted Passive Income
I used to combine real estate and dividend income into “very close to passive income.” However, now I add up the 50% dogs/blogs, 80% real estate, and 100% dividend income. That gives a more accurate number of what’s truly passive.
Dog/Blogs: $3,306.51 – Adjusted to $1,653.26
Rentals: $1,756.00 – Adjusted to $1,404.80
Dividends: $4,061.00 – Remains at $4,061.00
Dogs/Blogs Blue Line
Rental – Red Line
Dividend – Yellow Line
Total Adjusted Passive Income: $7,119.06
Last month it was $7,337.82. The numbers continue to go down, but I’m not too worried. The dog boarding and blogging income can vary. I was expecting it be down over these couple of months as we travel more.
This ~$7,100 is about $85,000 of adjusted passive income annually. That’s shy of the $100,000 that I estimate for our core/necessary expenses. In the next 3 or 4 years, the two biggest expenses, mortgages and education costs, will disappear. That would bring our necessary expenses down a lot. We’ll be able to spend on a lot more fun stuff.
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 over a decade from 2010 to 2021 but had a slight setback last year. This year it’s recovered. When something goes down, it seems another thing jumps up.
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.
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 only access the equity we have in properties if we sell them or open a HELOC. We can do some things to get to this money, but it only makes sense when my wife retires when we’ll be in a lower tax bracket.
Everyone loves a good Spider-Man meme, right?
You’d think we’d feel “rich”, but we don’t. Some people tell me that we “won” the money game. I agree and would say that we feel “wealthy”. Our social circle has many generationally rich people. Nearly every one of my sons’ classmates live in a $2-3 million house. Dog boarding is 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. In my opinion, that’s real wealth.
(The blue line represents the total adjusted passive income. The Red Line represents the three-month average.)
The three-month average in October 2021 was $8,965.87. In October 2022, it was $8,222.58. Now, in October of 2023, it is $7,414.09. That’s a steady drop. Most of it is due to declining dog boarding. We are certainly taking fewer dogs nowadays. As I write this, we only have one dog, so it is quite passive.
I don’t expect a lot of growth in any of these areas unless there’s a significant change. Maybe I will create a new business or we’ll run into some kind of small windfall.
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 might be worth around $85,000/year 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 allows me to stretch almost every dollar of our spending. It also allows me the flexibility to bring the kids to school and after-school activities.
Net Worth Update
My net worth updates aren’t fascinating. I don’t share the exact numbers. That’s why it’s just a footnote, not its own article.
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 1.59%. For the year, we are up 9.67%. We are about 2% off of our all-time highs.
Many bloggers show how much they spent and how much they made during the month. I don’t keep track of all those numbers. Some tools can make it relatively easy. However, tracking overall monthly numbers works best for me. I can look at our liquid cash numbers, which gives me similar information. In the last month we gained $10,000. That’s tremendous with all the spending we’ve been doing.
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 makes 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 17 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 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.