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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 you’re financial independent! 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 6 years. However, we are still striving to reach 100% FI ratio. I’m sure we’ll get there at some point, but it will take time. On this page, I’ll show you how we generate our passive and update it with real numbers every month.

*Starting a blog is a great way to build your brand and generate some extra income. You can see my tutorial – How to Start A Blog and Why You Should. Check it out if you’re thinking about starting a blog.

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

  • Mrs. RB40 works full-time. She plans to retire in 2020.
  • 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. Currently, she’s not quite ready to retire yet. 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 Passive Income = $57,928
  • 2018 Expense = $60,801
  • 2018 FI ratio = 95%

Unfortunately, our FI ratio was under 100% in 2018. Our expense was higher than the previous year and our passive income couldn’t keep pace. We replaced our HVAC and had a couple of international trips. These expenses pushed out expenses up in 2018. Also, our passive income was a bit lower than expected. Our rental income was lower because we had an extended vacancy. Hopefully, we’ll be able to increase our passive income by about 10% in 2019.

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! We did about the same in 2018 even with the lower rental income. The Real Estate crowdfunding income made up for the reduction in local rental income. Our dividend and P2P lending income were also lower. Next year, I’ll focus on dividend income and remove P2P lending completely.

Here is the 2018 spreadsheet.

passive income 2018

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 5-6% income annually and an additional 8-10% whenever a project wraps up. This is assuming nothing goes wrong, of course. My goal for real estate crowdfunding overall ROI is 10% income annually.
  • Rental properties – Currently, we have 3 rental units. My goal is to consolidate down to just one property. We’ll move into our rental duplex because we need more space. I will reinvest the money into real estate crowdfunding and stocks.
  • 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 much 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. 2019 looks good here. The market is down and it’s a good time to buy some dividend stocks.
  • 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. 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. Actually, it’s about $55,500 after taxes. 2017 was the first time that I made enough from blogging to have to pay extra taxes.

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 couldn't stomach the corporate BS.

Joe left his engineering career behind to become a stay-at-home dad/blogger at 38. Today, he blogs about financial independence, early retirement, investing, and living a frugal lifestyle. See how he generates Passive Income here.

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 DIY investors analyze their portfolio and plan for retirement.

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