Passive Income Targets – October 2012

avatar By: IS
Date posted: 10.24.2012 (5:00 am) | Write a Comment  (3 Comments)

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After starting this new series earlier this year, I received a lot of positive feedback. Every month. I talk a lot about the need accumulate different passive income flows. As time goes by, my objective is to be able to live entirely off of these new income streams. In many ways, that is what’s behind my interest in dividend income. For now, I prefer to avoid using actual numbers (might change later on) so what I will do is express all of this data in %. The objective of course is for all of these flows to end up generating 100% of my current income. In terms of income, I will be using my gross household income. Counting the bonus would only make things more difficult to track and would not represent how I currently live on my finances.

For example, if my base salary is currently 100K, my objective is to make 100K of passive income on an annual basis. This could be done through a variety of methods which I will be exploring of course. A few people tried to figure out how much capital I have by looking at the USDP size. The main issue is that the USDP is only part of my dividend income. I also get income from my ETF holdings, etc.

How Much Do I Really Need?

I am aiming for an income of 100K or so, before taxes. To be clear, I feel like I need significantly less than that. Why? Let’s imagine that I currently make 100K of gross income. I am able to save 10K in a non-taxable account so my pre-tax income is 90K. I pay about 50% of that in taxes which takes me down to 45K. Then, I save 5K in a taxable account. So how much disposable income do I really have? About 40K. Once I reach retirement, I’ll hopefully still be growing my investments but it’s fair to say that if I made 80K pre-tax, that would be more or less equivalent of my current income. Would you agree? There are other factors to consider such as the fact that my mortgage will likely be paid off but I also expect higher tax rates.

Overall, I feel like aiming for the same level of income as I am currently making is very very reasonable and I could easily live with less but why aim lower if I’m confident I can reach that 100K?:)

Why Am I Doing This?

I’m a strong believer in working with clear objectives but also holding myself accountable so writing about these objectives will without any doubt help me reach financial independence more quickly.

Current Passive Income Flows:
3.64% – Dividend/Investing Portfolio: I am currently generating a dividend yield of about 3.50%. This portfolio will be increasing over time, especially on year end bonuses. I use a bucket system which I will be writing more about but the main retirement components are a long term dividend portfolio (see the Ultimate Sustainable Dividend Portfolio) and an ETF portfolio (see BuildYourETFPortfolio for more details on how I build mine). I saw a slight increase here thanks to markets rising and a similar yield.

4.86% – Private Investment In My Online Company: I have discussed how my web company has been the best investment of my life so far. Currently, the company is paying back very little as it is focused on repaying debts and we are still very much focused on growth. This certainly has the potential to increase over the next few years but probably not until 2013. We have seen a lot of volatility lately in income sources as you might have read on TheFinancialBlogger but the debt repayment continues.

Total: 8.5%

It’s not spectacular by any means yet. That being said, I am 31 years and do have a decent base (I could live with less easily).. I will continue to work on getting that total as close as I can do 100%:)

Passive Income Ideas
0% – Real Estate: I have started writing about adding real estate to my income flows and I certainly hope that will happen in 2013 but I do fear that it might have to wait one more year.. we’ll see I guess, there’s still a lot of work to be done and capital to be put aside.

0% – P2P Lending – This is a new idea which I will certainly discuss in the near future, one that could add some extra passive income

0% – Annuity – No intention of buying an annuity for the time being

0% – Other ideas – I could end up starting other businesses or proejcts will I’ll certainly keep you posted about.

What I Am Not/Will Not Include

-Pensions: I do know that the government will be paying me a sum of money once I retire. However, given how poor government finances look like these days, I personally think it’s crazy to count on the government actually fulfilling its promises. It won’t happen. Yes, there will be money, but not anywhere what is currently being promised. Whatever I do end up getting will be a nice surprise.

-I feel like I am being extremely conservative here. By not including my government pension and also not including the fact that lower revenues will mean less taxes to be paid, I’m overestimating the amount of passive income that is truly needed. That is more than fine by me. I’d also like to think that my house will be paid by then making my level of spending lower all things being equal.

Do you have any questions or comments? I’d love to hear any ideas or how you’ve been managing on your end as well!

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3 Comments

  1. Comment by John — October 29, 2012 @ 6:00 am
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    Unfortunately the timing is extremely poor right now, but farmland has proven to be a easy, minimal involvement investment for the past 25 years for me. Land I paid $400 per acre 25 years ago is now generating $175 per acre after costs. You calculate the return. Of course there never has been a good time to buy farm land. It never cash flows in the 5 years after purchase, but if you can get a piece, hold it, it will keep up w/inflation and then some. Plus no one calls you at 11 pm because the drain is backed up.

  2. Comment by yvette — December 18, 2012 @ 2:58 pm
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    I have a similar portfolio, now with 29 stocks in a variety of sectors…but no gas or oil, no tobacco, no healthcare except Baxter.
    Some have increased in value by >37% since May. I try for >3% div yield…but if a really ‘nice’ stock will go lower but not under 2%.
    When do you decide to sell a stock [and reinvest]? I have a gut feeling that I would be better to trade at a pre-set % amount, than gamble and have them fall precipitously. My previous mutuals tanked years ago.

    I am new at this and don’t have large amount of $. I have a couple of mutuals which include a bond fund, since I am not ready to invest in bonds, studying them though. I have too much cash in an online savings acct.

  3. Comment by IS — December 19, 2012 @ 5:07 am
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    @John – I am thinking about writing something about this, would you be free to answer a few questions for me?

    @Yvette – When to sell? That’s the tough question but I try to look at my whole portfolio 1-2 times per year but then I also track earnings and dividend payments of stocks that I hold to get rid of names if I have major doubts, ideally before the downfall and/or dividend reduction occurs. What are some of your favorite names?

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