Let’s review the last few months shall we:
February: I complain that my annual Seasonal Affective Disorder (SAD) seems to be kicking in. I start to research some light devices and other home cures…
March: We have almost half a normal month, but the COVID-19 lockdown canceled our vacation and homeschooling starts…
April: Full month of COVID-19 lockdown, homeschooling two young kids, and it rained everyday…
May came and it got worse. The lockdowns are still on canceling the most important things like school and camp. Distance learning (still) doesn’t work. Almost the whole nation woke up to systemic racism and police brutality almost overnight. In my own little bubble of personal finance bloggers, a controversy blew up and the FinCon conference that has connected thousands of bloggers each year for nearly 10 years will never be the same.
Those are the broad strokes of May. However, when you look at through the prism of the pictures that I share below, it will look like it was a 1950’s family sitcom. I don’t know how to process the dichotomy of the pictures and the perceived reality. I want you to know that even when you see a bunch of happy pictures, that’s a thin slice that doesn’t necessarily represent reality. I think it’s important so that you don’t compare your life and say, “He has everything going awesome and doesn’t have a care in the world.” In my opinion, too many bloggers and social media people play up those slices and it can make others feel worse about their own lives.
[Kids showing off their Pokemon masks on a hike. They didn’t need them, but I had them put it on for the picture.]
That’s enough lead-in… let’s get to the Passive Income report. In the past, I called it the Alternative Income report, but it seems like that term didn’t catch on. Everyone loves passive income better. While I transition to the new terminology, there may be some “alternative income” mentions including the FAQ. If you are a new reader, you’re going to want to refer to my Alternative Income FAQ as you’ll likely have a lot of questions. They way I calculate these numbers does require some explanation.
Lazy Man’s Passive Income – May 2020
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 combine dog sitting and blogging into one section of “somewhat active” income. I leave real estate and investment income as their own separate main sources of very passive income.
1. Blogging + Dog Sitting Income
Last month we did zero dog sitting. In May we did zero dog sitting. Thanks a ton, coronavirus. (It does look like we’ll do some dog sitting in June.)
Blogging income was about the same as it was the month before… almost scary how close it was. I can’t do much about it while we have coronavirus. Advertising is down, spending in general is down. Few people are searching for information about retiring early. I’m spending almost all my time with the kids until camps start. From 6AM to 8PM, I don’t even try to work. I’m setting up some educational activities, cooking food, doing laundry, washing so many dishes, doing the educational activities, walking the dog with the kids to get fresh air, and fighting through their bed time routine.
[One fun school project was to make something Mexican for Cinco de Mayo. This is a rare picture, because letting this kid run around with a knife without an adult closer isn’t a wise idea.]
On the topic of camps, we’ll get those back early next month. They are approved to open as we have had zero COVID-19 new cases in the community over the last 7 days. So there’s a chance of real work being done for a majority of July. There’s also a 98% chance that my wife and I take the time to enjoy the beach and some cocktails.
In March, dogs and blogs combined for a total of $2,067.93. In April, it was:
Total Blogging + Dog Sitting Income: $2,167.12
In the olden days of pre-COVID-19, I would say that dog sitting is great because my kids are old enough to pitch in and help. I could pay them a legitimate earned income (a small percentage of the overall income). This allows them to save money in their kid Roth IRAs, money that they’ll never pay tax on. I’m starting to rethink that. The kids may play a more meaningful role in the blog going forward.
(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
Zillow estimates seem to be finally factoring COVID-19. The value of our properties went down a bit. At least tenants continue to pay us. That’s a load off my mind, since we lose money on these properties every month. (We’re accidental landlords for the most part, making the best of the situation. However, we also have 15 year mortgages in hopes of turning them into an income stream in several years.) As with every month, we paid off a couple thousand dollars of mortgage debt and grow some equity.
[This is what homeschooling looks like in our house]
We now have 63.81% of the equity in our properties with a combined rent of $3,325 after insurance, property taxes, condo fees, and estimated maintenance. I use that number because it represents our net gain.
If you multiply $3,325 by 63.81% you get $2,212 in estimated monthly passive income. When I started tracking this (beginning of 2017), we only owned 36.4% of the properties and they had lower rents. The math worked out to $1,174 back then. So in 40 months, we’ve seen the number grow $1038/mo. That’s like giving ourselves an annual $12,456 raise until the end of time. It’s a very nice gain from 3+ years ago.
As the years march on, the ratio will grow to 100% of the $3,325 monthly, inflation-resistant rent. That’s what gets us to that annual $40,000 income I mentioned in the FAQ above. I may need to update that $40,000 number as well – it’s looking closer to $30,000. In either case, it should be enough money for us to live on with our own home paid off (plus our solar panels, frugal shopping, and military healthcare.)
In the previous report, the rental property income was $2,112. This number always moves slowly as it only changes if one of two things happen: 1) The properties go up in value. 2) We charge more for rent.
Total Rental Property Income: $2,212
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 or from simply holding strong companies that have a long history of dividend growth. For that we’ll look at making passive income with dividend kings. If I wanted to simply retire on this dividend income, I would get Sure Dividend’s newsletter to try to get closer to a 4% 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 kids camped out on the floor a couple of nights.]
The last snapshot on May 5 had the markets coming back. When I took these numbers on June 6, the market was doing great. Maybe the market loves the free money that the government is giving out. Maybe it’s looking forward to vaccines and opening up the country for business. I’m scared by all this, but I can’t deny the math. The market has done very well over the last month.
Last month, we continued to get a profit sharing check since I bought (a lot of) a company. The business is still doing well. It’s actually almost ideally positioned due to its virtual nature. The investment income from this is essentially the same as dividend income. It is taxed differently, but for the purposes of this report, it makes sense to group together all stock ownership in this bucket.
Total Dividend-ish Income: $2,798
Last month, it was $2,612. A couple of months ago, I wrote, “even in a bad-case scenario, we’d be north of $2500.” We weren’t obviously, but we are back there now, with some room to spare.
Hopefully we’ll beat COVID-19 and the economy gets fully back to normal. I expect that it will take at least 2 years and probably a lot longer. However, if that happens, this number will grow even stronger than before. I bought shares of companies at depressed prices throughout the drop.
[People say buying a new sports car isn’t smart. I tend to agree. However, 20 years later, we’re still making these memories.]
Annualized, this monthly $2,798 is $33,574. If our mortgage was paid off, we might be able to scrape by on this by itself. However, because most of our investments are in retirement accounts, we can’t use much of this income for now. (We can use the profit sharing check as it goes straight to our checking account.) We’ll let the rest of this income continue to compound for at least another 15 years, but hopefully a lot longer.
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 here. I’m too tone-deaf to have a rockstar music career, but maybe there’s room to have a book someday.
The stock market goes up and down fast, even more so nowadays. That makes the dividend calculation fluctuate a lot more than it normally would. We don’t even know if companies can reliably pay dividends anymore. Without customers, and profits, many companies have cut their dividends.
[This is the view from the first time we were able to go out to dinner. Yay outdoor dining is allowed!]
The rental property income typically keeps going up because the mortgages are always getting paid down every month. Unless there’s a housing market crash, this should continue to happen. That housing crash may be coming, but for this month it hasn’t happened.
For a few years, I’ve been saying:
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 people 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 awhile. Of course a bad economy may impact both at the same time, but that’s what an emergency fund is for.
Here we are in an unfortunate economic event. Our stocks went down a lot, but then went back up. Our real estate has held steady. We’re just lucky because many tenants can’t pay rent.
[Let’s end with picture of a very happy dog]
While the stock market is doing well, the real economy is terrible. No President wants to see long food lines, six figure homeland deaths, and an unemployment rate balloon to ~15%. The best answer is a bailout of nearly everyone and everything at a cost of several trillon dollars… and it may go up from there. If only the people in political power believed that an ounce of prevention is worth a pound of cure, we’d be in much better situation. It would have, figuratively, saved our bacon.
It seems like we don’t know which way things are going to go. Since we are easing up on social distancing, it might go poorly again. Some states are seeing increased problems.
Very Close to Passive Income: $4,919
Last month it was $4,724. We had lost $500 a couple months ago, but we are $100 away from being back to the highs. All things considered, that’s not bad at all.
This “very close to passive income” has grown from $2,354 in January 2017. It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet (except for that profit sharing check). Add in stock market growth (of a conservative 4%) and this number could be real, non-fudged $100K/year. I’m especially looking forward to 7 years from now when the mortgages on the investment properties (and our primary residence) are paid off. That’s going to be a huge financial swing for us.
Final Passive Income
When you add up “dogs and blogs” to the “very close to passive income” you get:
Passive Income: $7,087.12
That’s reasonably good for another month of everything being shut down. We’re getting back to our frugal roots, so one could argue that this lower number overall could put us in a better long-term financial position. That all depends if we continue be frugal after coronavirus, which may not be likely.
This nearly $7000+/mo income is $85K+ a year. That largely hypothetical annual income for writing on a blog,
taking care of dogs (not this month), and investing feels like a dream. In the long term, $85K would be a lot more income than we’d need. Here’s what our necessary expenses look like… for the next 45 years. Of course those necessary expenses isn’t everything, but it’s a large percentage of everything.
I always say that you never know what bad news is lurking around the corner, but this gives us the financial flexibility to fight it. With the coronavirus closing schools/camps and my wife on the coronavirus response team, we need this flexibility to continue to care and educate our two kids.
None of the numbers here include my wife’s bread-winning pharmacist income, her vested military pension (more passive income), or the freelance work I’ve been doing over the last 18 months (which isn’t passive at all). That’s the fuel that drives the passive income engine.
As always, I’m still hoping to write a book someday. That would add some more passive income. My wife will probably get her book out first. She had an incredibly interesting life until she met me – I am so boring. I may tip my toe into self-publishing sometime next year. I would love to talk to a real a publisher, but I don’t want to take on the “job” of writing. That’s probably a deal breaker. If you know someone who I could talk to contact me.
My favorite thing about the graph below is that it doesn’t dip down too far. It’s been above $6,000 for awhile now. I thought that it may be tested with the coronavirus, but maybe it won’t be after all.
(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, I think.
Like most investors in May, our net worth did very well. After losing more than 10% in March, we gained 8.84% in April… and another 5.26% in May. For the year, our net worth is UP 3.43%.
Our real estate value is going down just a little bit. The lesson here is that diversification helps a lot in bad times. Even when the stock market was way down, we were still grounded with our real estate. We can’t control the market, but we can be happy that the amazing river of compound interest has been working well for us over the years.
I feel it’s important to acknowledge that everyone is in a different place in their financial journey. I’ve been blogging about personal finance for 14 years. FIRE wasn’t a “thing” back then, but it’s in the news all the time now. We naturally are further along in that journey than some younger readers who may be beginning their journey. I hope you won’t be discouraged by some of the numbers above if you are just starting out. 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).
There’s a big wild card in calculating our net worth. Now that my wife’s pension is vested, it’s reasonable to ask whether to include a pension in your net worth. I decided that it does make sense to include it. She could have earned more direct monetary compensation 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. In the end, it seems my wife’s pension may be worth $2.3 million. However, like most of the money mentioned in this article, this isn’t money we can spend right now.
Because the pension would ridiculously dominate our net worth, I’ll note two separate numbers in my personal spreadsheet. I don’t share the numbers anyway, aside from these hints, so I don’t think it should matter much to you. It’s not like I’m suggesting that you might want to make a financial based decision on a pension.
I always end this article by asking how your last month went. That doesn’t make much sense after the March that everyone had. Feel free to use the comments to vent – it doesn’t even have to be about personal finance.