How was everyone’s September?
Our kids are back in school and we’re starting to get back in the swing of things. It seems like all the kids activities tried to fit a whole year into just one month. We mostly did the bare minimum to get by. It’s better now that we are into October.
Our dog, Jake, is really showing his almost 14 years of age. We thought he might be on his last days a couple of times. We took a trip to an emergency hospital expecting the worst. He’s watched too many Tom Brady games. He keeps on recovering with new energy. (Earlier today, 10/10, we walked a half mile.)
Our oldest turned ten. He still loves Pokemon as much as when he was five. I’ve been telling him for years that when he turns ten he gets his starter Pokemon. Then we send him off to fend for himself just like Ash in the television show. I think he half-believed me for a while. I did surprise him with his favorite starter Pokemon. I hired someone on Upwork to create this artwork and I hung it up while he was asleep at night. He wasn’t nearly as excited as I thought he would be. What do you think?
At his birthday dinner, we came across an antique police car convention. It’s not everyday that you stumble upon a few dozen very old police cars.
One weekend we did a Cub Scout overnighter with that fresh 10-year-older. I’m not the camping type. He’s not the outdoors type either. We had an awesome time! We worked on building fires, first aid, problem solving, fishing… etc. They were paired with older Boy Scouts who mentored them in making dinner and cleaning up. They also helped them work on a song and play.
I’m finding that I’m working almost all the time now. It’s not steady on-the-clock work as you’ll know if you’ve ever read this report. Instead, it’s a constant stream of dog boarding requests and Meet and Greets. I work at my customer service job around that, blogging for a couple of websites, housework, and shuttling kids around. It’s a lot, but at the same time, there are pockets like at 10AM on a Tuesday when I’m able to just do nothing.
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 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 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, I’ll just continue with the way I’ve been doing it.
1. Blogging + Dog Sitting Income
With back-to-school, people travel less so there are fewer dogs to board. However, there’s a last Labor Day weekend that qualifies for Rover holiday rates. Those balance each other out a bit, and we had almost as much income as August. Although, I only boarded dogs for half of August because we were on a Disney cruise. I missed a weekend (and a few other days) to go to the annual financial blogger conference (FinCon). I also missed that weekend for Cub Scouts.
This dog has more Earth stuff to accomplish.
Blogging returned to normal after the August pause when I was away on a cruise. I couldn’t write much or work with advertisers. It was good to see that when I’m around and doing work blogging income should be there.
In August, “dogs and blogs” combined for $5,098.35. In September, it was:
Total Blogging + Dog Sitting Income: $5,506.53
I’m very happy with that September income. This represents more of a typical month – no vacations, limited summer tourist season. It’s almost spot on our yearly average of $5,153.
We go to the best Rhode Island chain restaurant, Greggs, for my 10-year-old’s birthday every year. Our 8-year-old is dangerously good with four colors. Choose to Shine indeed.
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 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. They recently 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
I will always share any and all Mr. Men sightings. I have dozens of them and Little Miss as well, but I don’t know Mr. Adventure. We were flying back from our Disney cruise for this one.
Let’s get back to the remaining two rental properties. We have a lot less potential rental income from our properties. However, we also have lower liabilities as we our mortgages.
Zillow decided our remaining properties were worth a tiny bit more. I’m happy they didn’t go down due to the high mortgage rates. Our gains mostly came from retiring another month of our mortgage. We’re building equity every month no matter what Zillow decides. (Zillow isn’t an all powerful being, but it is very accurate for our properties.)
We went from 74.67% to 74.89% ownership of the equity in our properties. It’s really slow and steady at this point. One of the properties is on a fresh 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.
If we owned both remaining rental properties with no mortgages (100% of the equity), 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, 74.89%, you get $1,648/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 it a ton, even after cashing out of 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, we don’t have to worry about buying fewer goods and services in the future.
Total Rental Property Income: $1,648
3. Dividend Income
For this section, I assume we will earn a 2.5% dividend yield on our equities. That could be from a high-dividend ETF. For example, HDV is currently paying about a 3.69% yield, but it has been less in the past. The 2.5% dividend assumption is a conservative number that helps us think about what kind of cash we can expect.
We always have a few dinners at the Newport Naval Base. I think the kids are trying to skip rocks here. I got more hands-on and they were able to get a couple of skips, but not the four that “dad” can. We’ll get as practice in as we can.
There’s a chance we could do better than this. There are some income investing ideas here. I started implementing our investment plan with the money from the recent sale of the condo. We’re building a runway and third quarter dividends at the end of September were more than $1000. In general, we should average around $500/mo. in dividends.
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% 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.)
The who Boy Scouts organization forgot to buy/bring bait so no one caught any fish. It was still a ton of fun. When we woke up the next morning and walked by this lake it was a mirror – almost like a Bob Ross painting. Because we live on the ocean, he had never seen still water.
Most bloggers use the actual dividends they earned, but I figure we can always move the money around from growth to dividends. A vast majority of our money is in retirement accounts, so we are more focused on growth for now. In this section, we include the all the taxable and retirement numbers – breaking them down would be too complex.
The stock market dropped a ton in September. We got a little luck with a brief rally while I was getting the numbers on October 5th. This big drop means we had a drop in our expected dividend income.
Aside from our stock market money, we continue to get a profit-sharing check since I bought (a lot of) a company. The company is doing well and sometimes they 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.
Total Dividend-ish Income: $4,218
Last month, it was $4,247. That’s not too bad for a big drop.
When I started tracking this number in January 2017, we were at $1,180/mo. It’s been a tremendous almost 6 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.
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. This is important to separate from the dogs and blogs’ income. That takes some active work to keep up. Rental property requires a little work, but not nearly as much.
The scouts needed to get a coffee can out of a big “toxic” circle with only ropes and a bungee ring. They built a thing where they could stretch the ring and “grab” the can. However, stretching the ring to grab the can required a lot of teamwork.
I love having both the rental properties and stock market income working together. With the stock market dropping recently, our real estate has kept our net worth fairly high. We locked in some of those real estate gains by selling and invested in this “cheap” market. 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.
With rental income not moving much and dividend income growing significantly with the new money, we’re seeing this passive income grow.
Very Close to Passive Income: $5,866
We lost a tiny bit, but that’s not too bad. This would be over $70,000 a year of passive-ish 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.
I’m not a fan of guns, but I guess well-supervised BB guns are okay? I bought him an archery set for his birthday. That’s more style. Before COVID he took lessons and was very good.
This $5,890 of “very close to passive income” has grown from $2,354/month in January 2017. So in less than six years, we’ve more than doubled our passive income (an extra $1,000 from the double). It’s an excellent income for many, even in their top earning years. This is one of the reasons why I went with the “Lazy” name; it shows that investing money can do more “work” (or somehow produce more value) than active working can. It’s a crazy system. I’m just doing my best to work within it.
It’s worth noting that, once again, these numbers are fudged and aren’t “real” (except for the profit-sharing check and the new investment income) because the money isn’t liquid. We can’t spend those retirement investments or the equity we have in properties. We don’t feel “rich” by any stretch – especially because our social circle tends to have people who are generationally rich. However, we are “rich” relative to many people’s circumstances. Sometimes great isn’t enough.
I want to set a goal of getting to $8,000/month in passive income by the end of 2024. However, I know it’s almost all about the markets perform. If the stock market gets to new highs, we should be close. We’ll have to see how it goes as time’s arrow marches forward. It’s looking like the market is going to head south before it goes north.
Final Passive-ish Income
When you add up “dogs and blogs” to the “very close to passive income,” you get:
Passive-ish Income: $11,372.53
Last month it was $10,988.35. That would be over $135k a year. That (hypothetical) annual income for writing on a blog, taking care of dogs, investing, and landlording is very nice. That $135k is much more than for our average necessary expenses for the next 45 years. Of course, those necessary expenses aren’t going to cover all our spending, but they are a large percentage.
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. Since it is vested, should I count that now?
For now, this active income (including the dog boarding) are 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, 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.
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 mostly due to the 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 above that I shouldn’t count dog boarding and landlording as completely passive income. For 2023, I’m only going to count 50% of blogging and dog-sitting income, 80% of real estate, and 100% of dividend income.
Thanks to the power of spreadsheets, I can bring you these numbers now. This adjusted passive income would be $8,289.67. That’s a hair away from $100,000 a year.
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.
In the last report we saw our net worth drop by 3.02%. This month it droped by another 3.01%. Let’s hope this isn’t a trend. For the year, our net worth is down 4.63%. That’s not too bad when the markets are so far off their highs.
It’s important to recognize that everyone is in a different place in their financial journey. I’ve been blogging about personal finance for almost 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.
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 US 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.
How was your month? Let me know in the comments.