It’s a brand new year, but there’s still time left to reflect on 2021.
Our December was a blur. My wife was deployed until the 18th and then we rushed to get Christmas going. The turnaround to my youngest’s 8th birthday is quick, so we scrambled through that as well. We’ve got house renovations going on and it looks like that will be the story of January as well. (It’s not that the renovations will go on that long, but that we can start to move to other projects when this one is done.)
At the start of the month we did a beach clean-up with the Cub Scouts. There was just one problem? The beach was extremely clean already. No one had seen anything like it. Nonetheless, each scout got a couple pieces. I took the kids to a great playground afterwards. We don’t usually go there, but since it was close it was on my mind.
We went to a few Christmas displays and a parade where Santa lights the town tree. Santa also makes a trip down our street before Christmas, which is fun for the kids to see. We got some very good sledding in, too. We watched the traditional claymation Rankin Bass Christmas movies as well as the requisite Yogi’s First Christmas and ‘Twas the Night Before Christmas (cartoon with the mice that is also Rankin Bass). It’s hard to squeeze Christmas into a week, so we certainly missed some classics this year.
The 9-year-old got his green belt in karate, while the 8-year-old got his blue belt. Maybe they’ll be black belts by 11 or 12? I don’t know how the progression goes, but I love watching the journey.
Among quite a few gifts, we got an Oculus Quest and it is amazing. You won’t see any pictures of it here, because it 2D pictures of virtual reality doesn’t make sense. I think it would be fair to say that the Oculus is my top $300 or less purchase in the last 3 or 4 years.
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
December was a quieter month for boarding dogs. We had a short vacation planned for before Christmas. We ended up canceling it to be able to have a Christmas. I still kept my status as away. It was too last minute to get any meaningful dog bookings anyway. We also limited the dogs we took over Christmas to two that we knew and trusted wouldn’t create havoc. In some ways, we missed a third of the month of dog sitting.
The good news is that dog sitting has become much more passive lately. There are few dogs and fewer meet and greets to schedule. It’s nice to have regular customers.
Cruella de Vil has 99 problems, because she’s missing these two. My son has no problems at all working so, so hard to make sure they enjoy their stay.
Blogging was going fairly badly for most of the month. Then around Christmas the advertiser that ghosted me last month came back and actually paid his debt. It was a good one-time windfall and turned the whole month around.
In November, “dogs and blogs” combined for a total of $5,286.62. In December, it was:
Total Blogging + Dog Sitting Income: $3,256.03
That’s below average for the year, but I don’t mind at all. It’s still three times more than I did last December.
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 8-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 rental properties had about $5,000 in appreciation this month according to Zillow. That’s very good. We always pay down a couple thousand of debt with mortgages. That’s a good combination
We went from 71.82% to 72.25% ownership of the equity in our properties. These tiny percentage gains 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.
My 9-year-old used his dollar store freebie (I give the a dollar to spend at the dollar store on whatever they want) to buy silly string. He had never seen it. “R.I.P. chore chart.”
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), 72.25%, you get $2,447 in estimated monthly passive income. That’s a gain of $5 from last month, which isn’t much.
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 5 years, we’ve seen that number more than double to 2,447. 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. Well, hopefully that rent will 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 $2,442.
Total Rental Property Income: $2,447
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 4.04% 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 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.
99.9999% of the time they want to kill each other. This seems like a touching moment, but in reality my 9-year-old is trying to use the back-and-forth motion of a Snoopy hat to lightly bonk my 8-year-old on the head. What a microcosm!
The markets fell on January 5th when I make my net worth spreadsheet. I try to wait for the rent checks to get in and mortgages to get paid out. Fortunately, my wife was busy on the 5th and I couldn’t get information on her accounts until the 7th. By that time, the markets bounced back a bit. I had a little spare cash from year-end dividends and used that Jan 5th drop as a mini-buying opportunity. That was more about my own psychology than it was any meaningful portfolio change.
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: $3,833
Last month, it was $3,767, so we’re back to heading in the right direction. We’re still a little below the all-time of $3,945. Who knows what the markets for 2022 will be, but we’re fairly diversified.
At the start of 2021, this number was $3,441, so we added nearly $400/mo. in passive income. That’s good for $4,705.42 a year. We still have 14 years until we get to 59 and a half. We can’t possibly have this kind of growth for 14 more years, but maybe we’ll get to $8,000. The biggest question may be if I’ll still be blogging in 14 years. I plan to be, but a lot can happen over that time.
When I started tracking this number in January of 2017 we were at $1,180/mo. So in exactly 5 years we’ve grown this potential monthly income by $2,653. That’s a lot of growth.
I guess this should be in January’s update, but Google Photos says it is December. Happy New Year!
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. Except that, as of last month, my wife got a new job and isn’t looking to retire. Her long journey to make the rank of Captain (O-6) seems so assured that people are whispering about her being on a path to Admiral. Whatever she wants to do is fine with me. For now, she’s very excited about the new job.
Also, the first person to contact me and send the word “Rumpelstiltskin” in the subject will earn $10. Make sure to leave your Paypal address so I can send you money. If you don’t have Paypal, sorry, you can’t participate in this one. (I’m going to try to put more Easter Eggs like this into my articles in 2022.)
Giveaway over – we have our winner.
Annualized, this monthly $3,833 would be $46K. 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 have to see if we want to tap it at age 59.5 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.
Remember when they closed playgrounds early on in the pandemic? Go crazy kids!
We aren’t back to all-time highs as the stock market drop is too much for the real estate market to cover. That’s okay. 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
COVID has gotten it’s own section. I threw it in here, because it doesn’t fit in very well in its own monthly article. It does impact a lot of our plans.
Last month, I celebrated my kids getting vaccinated. This proved to be helpful for keeping them in school the last few days. They’ve been close contacts. However, fully vaccinated students without symptoms can still go to school while we wait for the PCR tests. The unvaccinated students have to stay home. Vaccinated kids at age 8 and 9 like mine are very protected.
With Climate Change doing its thing, we’ll jump at the chance to sled at any snow we get. This was actually an action shot and he’s running and jumping onto the sled, but it looks like a normal run.
Also, last month I announced that we were going to Puerto Rico in March. One of the reasons was that they didn’t have much COVID there. Well that changed very quickly. We still have our reservation, but that’s up in the air as things change every day.
When I was writing my last update on December 5th, Omicron hadn’t spread very far in the US. Obviously that’s changed. It’s almost like each variant is its own different beast. The initial COVID was bad, we didn’t have vaccines to protect us. The Delta variant was bad, it spread a lot more easily and many people weren’t vaccinated. Now we’ve got Omicron which spreads like a California wildfire :(, but it it appears to not be as harmful. Hospitalizations and death numbers are rising, but if you are vaccinated it’s mostly an annoyance of getting tested a lot and some services not running. Of course, there are some people who can’t be vaccinated and we should do the best we can with them in mind.
This may sound insensitive, especially to the people who are seriously threatened by COVID. However, people who get Omicron seem to have more immunity from Delta which is more deadly. Maybe we’re getting closer to some kind of herd immunity from the most deadly effects of COVID?
Now… back to the month in passive income.
Very Close to Passive Income: $6,281
Last month it was $6,209, so this is a very good gain. This would be ~$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.
In the last year, we went from $5,526 to $6,281, a gain of $754 a month in passive income. That’s $9,000 a year. That can cover a lot of expenses, such as our property tax and some utility bills.
It only took 13 years for my dog to get a bed he loves. He’s had other beds, but he just ignored them and jumped up on the couch. It’s harder for him to jump now. He can still make it up on the couch, but this is another good option for him.
This “very close to passive income” has grown from $2,354/mo. in January 2017. So in exactly 5 years, we’ve added almost $4,000 in monthly passive income – or $48,000 a year. That’s a lot more than the $34,000 I made as a software engineer out of college in 1998. This is one of the reasons why I went with the “Lazy” name, it shows that money investing can do more “work” (or somehow produce more “value”) than I did. It’s a crazy system and you can see that I’m doing my best to work within it.
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: $9,536.03
Last month it was $11,495.62. The lack of dog sitting income is showing up here. That’s fine, I could use a break. Dog sitting has always been seasonal in our tourist area of Newport, Rhode Island. Last December it was around $6,500, so all income is up by $3,000. I’ll take it.
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, I finished at $10,168.45 – soundly beating expections. It’s been a great year.
This ~$9,500/mo. income is over ~$114,000 a year. That (hypothetical) annual income for writing on a blog, taking care of dogs, and investing is very nice. This amount of dog sitting isn’t too bad, unlike previous months. If we can 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’m 98% sure that I did this when I was 8 as well.
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 grow 1.55% in December. That reverses the losses in November. For all of 2021, our net worth is up 28%!! 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 up by 26,500 thanks to a big IRS refund. This month we’ve lost around $10,800 as we’re paying a lot to renovate our basement. That is a lot of money, but adding ~200 sq. ft. of living space is life-changing.
It’s important to recognize 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 in 2006. 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 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+ 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.