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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 = $4,795
  • 2018 YTD Expense = $11,591
  • 2018 YTD FI ratio = 41%

We’re not doing so well this year.

2018 Passive Income

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, it’s not looking good so far in 2018. Our passive income was lower than normal in the first 2 months. We had a vacancy at our rental condo and that dragged down the whole passive income. We also spent more money than usual because we’re going to Iceland later this year. We already spent over $4,000 on the trip so the expense side isn’t good either. The rest of the year should be better, though. We’ll see how it goes.

Here is the spreadsheet at the end of February.

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 year. 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 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 stable. I probably won’t add money to our dividend portfolio in 2018. The stock market is too frothy for me. At this point, I’d rather add new money to real estate crowdfunding.
  • 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 $65,598 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!

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.