Non-Wage Income – Q2 2012 Update

I am now tracking my passive income versus my expenses each month, towards financial independence. This only includes income in taxable investment accounts (not in my 401(k) or in my Roth IRA), rounded to the nearest dollar. I also track my W-2 income to compare to the passive income and my expenses. Watching that income / expenses percentage get higher is really fun as well :)

Since the amounts are so low right now, I’m going to do this update only once per quarter.

Definitions

  • Interest income = the sum of all interest earned in my savings accounts, rounded to the nearest $5-10
  • Dividend income = the sum of all dividends posted in my taxable investment accounts, rounded to the nearest $5-10
  • Expenses are rounded to the nearest $100
April May June Q2 2012 Q1 2012 2012 2011
Interest income $85  $85  $70 $240 $185 $425 $550
Credit card dividends none  none  $10 $10 $55 $65 $65
Dividends $0  $0  $0 $0 $0 $0 $60
Total passive income $85  $85  $80 $250 $240 $490 $675
Expenses $2,800  $4,100  $4,200 $12,100 $14,700 $25,800 $39,600
Passive income / expenses 3.0%  2.1%  1.9% 2.1% 1.6%  1.9% 1.7%

I didn’t have any taxable investments in 2010. I had a very small amount in 2011. I have more in 2012 and my savings accounts had higher balances until I bought the condo, so the interest income should drop down for the rest of the year to closer to $30-40/month. That should be slightly offset by having higher values of stock index fund investments in my taxable account (and thus seeing higher dividends), but we’ll see how that’s looking with the Q3 update!

My goal for passive income (i.e. interest and dividends) for the 2012 year is $1,000, which would cover 2.3% of my estimated expenses for the year.

At $490 after two quarters, I’m close to halfway to $1,000 for the year. Hopefully the reduced interest income doesn’t affect the goal.

Readers, do you track your non-wage income? If so, how are you doing? Do you have a goal for 2012?

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12 thoughts on “Non-Wage Income – Q2 2012 Update

  1. I LOVE passive income.

    I know it’s technically not the best investment for us at our current point in life, but I still love getting dividends even if I drip or reinvest most of them, and even if I get taxed on them in a way that I wouldn’t get taxed on unrealized capital gains. Even if figuring out the cost-basis may end up being a tiny bit of a pain if I ever sell. But I still love them. They’re like MAGIC.

    I only keep track of them as a whole once a year come tax time. I think we’re at about 2.5K/year in passive income from taxable stocks, most of that from my one single stock (which is why my father is now forgiven for making me pay unexpected taxes on it when I had no money and it was worth nothing).

    I did move 10K of taxable stocks to my IRA for 2012 this year. I may end up gradually transitioning some of our taxable stocks to tax-advantaged stocks as the stock market continues to grow and to require rebalancing to our portfolio (and our income doesn’t pick up). But we’ll see how much of a secondary emergency fund we feel like we need going forward. And how much extra we spend on having another kid in the family.

    • As a kid, I LOVED interest. Even though it was almost always pennies growing up. (How do savings accounts at 0.05% teach kids other than me that interest is awesome?!) I think that I’m going to love stock dividends even more :)

      I know that some people (*cough*Joe*cough*) will think I should max out tax-deferred savings vehicles and pay off the mortgage with money after that, but I want to use the power of compounding to build a taxable portfolio while paying off the mortgage. I would consider pausing taxable investments if I think I won’t have the mortgage paid off before the rate resets, but other than that, I’m going to build up a taxable investment portfolio.

      P.S. I LOVE MAGIC. Magic is the best.

      • Even with taxable investments there’s a good argument that if we’re not planning on tapping that money for income any time soon we’re better off with companies that reinvest their profits rather than pay out dividends, mainly for tax reasons. But dividends are more fun… it’s free realized money (except, you know, taxed).

        • :D

          Since I’m mostly using total market index funds, I don’t have much say in whether I hold companies that pay out dividends or reinvest their profits, so I’ll just take the dividends that I do get and be happy that other companies are reinvesting their profits.

        • That’s where we are too (except PG&E). Yay diversification!

          When Apple spit out a dividend recently I was happy to realize I was benefiting because they were in one of my indexes.

        • Oh hey! They’re in the S&P 500 index, aren’t they? I guess that means I’ll benefit from that too. Cool! That doesn’t really affect my life though since that one is in my 401(k) and I mostly ignore what happens there, what with there being no tax consequences and all.

  2. I track it, but mainly only for my stocks. Interest income and dividends on my mutual funds I don’t look at too closely.. I’m nowhere near generating enough for it to really matter yet though. I feel like over the next 3-5 years however passive income will start to play a larger role in my finances.

    • I’ve always haphazardly tracked interest income, but I finally started tracking it month-over-month.and comparing it against my expenses. It isn’t enough to matter now, but it is kind of cool to watch it grow and see how much it is. I definitely think it’s going to grow more over the next few years though!

  3. Passive income is awesome! Dividends and interest are truly passive too, so they are always a nice option. But as we see now, most people are getting nothing from CD interest and the market can be very volatile. Because of this, I direct most of my after tax income to real estate investments, IMO, they are the ultimate form of passive income.

    In what other investment, do you only have to put 20-30% down and you get 100% of the profits when you sell, not to mention the cash on cash return while you own(which you would probably be more interested in).

    :)

    • Real estate investments are pretty undiversified if you’re investing in N single properties where N is a realistic number under 10, no? Especially if they’re all in the same housing market. With real estate, you pay broker commissions on the sale price, not on the gains. If you bought a $250,000 property and you sell it for $300,000, you have to pay 6% on $300,000, which is $18,000. Paying an $18,000 fee on the $50,000 gain is the equivalent of a 36% tax.

      That said, I’m not really convinced in the stock market or certificates either, but we’ll see how things go :) For me, buying the condo was a bit more of a life decision than a financial decision.

  4. Right now I only track ours annually at tax time. We also only use index funds and obviously interest income is not much right now. As our taxable accounts grow (slowly as this account only gets fed after 401k and 529 plans) maybe I’ll start tracking more formally. It certainly is motivating and I look forward to watching your progress!

    • Taxable account growth is definitely slow right now since the 401(k) gets it first! I’m also starting to debate whether I’d rather pay off the mortgage faster or continue investing in taxable. I’m sure that will be a monthly debate :)

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