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Passive Income

Passive Income: Make Money While You RelaxPassive income is one of the keys to a successful early retirement. If you can generate enough passive income to cover your cost of living, then early retirement will be much easier to handle. I retired before our passive income was that high, but I had an alternate source of income – blogging. Luckily, early retirement worked out very well for me over the last 5 years. However, we are still striving to reach 100% FI ratio and I’m sure we’ll get there soon. On this page, I’ll show you how we generate our passive and update it with real numbers monthly.

Currently, we support our moderate lifestyle by a combination of these income streams:

  • Mrs. RB40 works full-time.
  • I blog part time and generate some online income.
  • We have passive income from the stock market, rental properties, and other investments.

*FI ratio = passive income / expense

FI Ratio

The FI ratio is a simple way to measure progress toward total financial independence. Once we reach 100%, then it may give Mrs. RB40 enough financial security to stop working full-time. Personally, I think 100% FI ratio is overkill, but it’s better to err on the side of caution. Normally, financial independence means accumulating about 25-30x your annual expenses, which we already achieved in 2012.

  • 2018 YTD Passive Income = $0
  • 2018 YTD Expense = $0
  • 2018 YTD FI ratio = NA

*Caveat – I’m not going to worry too much about tax at this time. We’ll deal with it when we hit 100% FI ratio. At this level of income, tax should be minimal.

History

2017 was an exceptional year for us. For the first time in my life, we generated enough passive income to cover our annual expense! However, I don’t think we can keep this up for long. We’re planning to move into our rental home at some point so our rental income will disappear when that happens. Currently, we (4 of us) live in a 2 bedroom condo and we need a little more space. We’ll see how 2018 goes. Here is the spreadsheet.

 

2018 Passive Income

How We Generate Passive Income

Alright, here is the good stuff. I’ll summarize each passive income streams here and also keep a separate page for the details. These pages will be updated monthly. Click through the links below to see the details.

2018 passive income

  • Real estate crowdfunding – My goal is to increase our investment with RealtyShares to $100,000. This investment should generate about 7% income annually and an additional 5-10% whenever a project wraps up. This is assuming nothing goes wrong, of course. My goal for real estate crowdfunding overall ROI is 10%. I’d like to try PeerStreet at some point as well.
  • Rental properties – Currently, we have 3 rental units. My goal is to sell them and take profit while the market is good in Portland. We’ll move into our rental duplex because we need more space. I will most likely reinvest the money into real estate crowdfunding and stocks. I may consider buying local rental real estate if I find a really good deal.
  • Dividend stocks – Currently, we receive about $12,000 in dividend per year. My goal for 2018 is to keep it relatively stable. I probably won’t add money to our dividend portfolio in 2018. The stock market is too frothy for me.
  • P2P lending – I’m winding down our P2P lending investment. We have about $4,500 with Prosper.com at the beginning of 2018 and I’ll let all the loans run their courses. We get about 7% ROI from P2P lending. I’m exiting this investment because I like real estate crowdfunding better.
  • Interest – This is just interest from our bank accounts.
  • Tax advantaged accounts – Lastly, I count the dividend from our retirement accounts as a part of our passive income as well. We can access these accounts via the Roth conversion aka. building a Roth IRA ladder. We’ll probably do this after Mrs. RB40 retires. Our earned income would decrease and it will make sense to convert our 401k and traditional IRA to Roth.

Somewhat Passive Income

Blogging isn’t very passive for me at this point. I spend 20-30 hours per week writing, networking, responding to comments, and maintaining Retire by 40. At some point, I’d like to cut it down to around 10 hours per week. That goal is a few years off, though.

  • Blog income – I’ll include my blogging income here for completeness sake. In 2017, I made $64,965 from my blog.

Let me know if you’d like to see anything else on this page. Lastly, please share this page on social media if you enjoy it. Thanks a bunch!