Retire Before Dad

    • Start!
      • About
      • RBD Story
      • Featured on…
      • Archive
      • Portfolio
      • Guest Post Policy
      • Contact
      • Terms & Privacy Policy
      • Home
    • IPOs
    • Reviews
      • Sure Dividend Review
      • Yieldstreet Review
      • Fundrise Review
      • M1 Finance Review
      • Motley Fool Stock Advisor
      • Motley Fool Rule Breakers
      • AcreTrader Review
      • Masterworks Review
      • Roofstock Review
      • PeerStreet Review
      • EquityMultiple Review
      • Virginia 529 Review
    • Resources
      • Passive Income Ideas
      • Best Brokers for Dividends
      • Dividend Aristocrats
      • Debt-Free S&P 500 Stocks
      • Best Real Estate Crowdfunding Platforms
      • Affiliate Programs And Blogging
      • How To Start An Online Business
    • Recommended
      • Net Worth Calculator
      • Tools
      • Blogroll
      • Dads Blog Money
    • Best Cards
      • Travel Rewards
      • Cash Back
      • Small Business
      • Airline Rewards
      • Hotel Rewards
    Investing· Personal Finance· Stocks

    Major Milestone: $12,000 Forward Passive Income

    By Craig Stephens

    This page may contain links to our partners. RBD may be compensated when a link is clicked. See the full disclosure here.

    Fire works celebrating $12,000 forward passive income.I’ve tracked how much forward passive income I earn from investments since I started investing in dividend stocks. I prefer this metric over performance against the market indexes because I’m not trying to beat the market with these funds.

    Dividend income is reliable and predictable. Based on the holdings in a dividend stock portfolio, you can project what your dividend income will be twelve months out. I use this method to estimate forward dividend income.

    We cannot, unfortunately, predict the performance of the overall stock market in the year ahead. 

    Predictability of dividends and other income streams is one reason I invest after-tax money into income-producing assets. I make these investments after maxing out tax-advantaged accounts such as traditional IRAs, employer-sponsored retirement savings, and college 529 plans.

    Most of my pre-tax investments go into index funds. 

    When I started tracking forward 12-month investment income (F12MII, aka forward passive income) on RBD back in November 2013, I was expecting to earn $3,681.15 in the following 12-month period or an average of $306.76 per month. 

    My F12MII has grown since then, in part riding the wave of a healthy economy and an epic bull market run. But also by adhering to the Triforce of Wealth and investing excess cash flow into income-producing investments.

    Every month.

    Growth can seem slow or stagnant month-to-month. But over time, significant progress is inevitable if you invest with a long-term mindset.

    Major Milestone: $12,000 Forward Passive Income

    This month, my F12MII reached $12,640.52. That’s $1,053.38 per month!

    This level has been a distant goal since I started tracking this stuff. 

    If I stop working today and do absolutely nothing to earn a living, I’ll still earn more than $1,000 every month.

    That’s before taxes since this income is generated in taxable accounts. However, the majority of this income is taxed at a lower rate than my salary income. This is income generated outside of my retirement accounts. 

    Here’s a chart of my F12MII progress since I started RBD:

    Forward passive income since the start of this blog.

    My records go back a decade further. I still maintain data back to October 2003. It was a year after returning from traveling, a few months into my new career, and less than a year after being broke and living with my parents.

    I was 28 years old when I started. I’m 44 now. Here’s the chart back to 2003:

    Chart of forward passive income tracing back to 2003.

    In October 2003, my F12MII was $119.36, or $9.95 per month. The long flat stretch between 2006 and 2012 is a visual of how badly the condo purchase hindered my progress.

    Brick by brick, I built this portfolio of income-producing assets. There were no shortcuts. 

    I’ve always thought of $12,000 as the most significant milestone because it’s when I can reinvest a full $1,000 per month. $1,000 invested into a 3% yielding stock generates an additional $30 per year. With fresh capital still being added, the compounding interest is set to accelerate. 

    The Spike

    The recent sale of my long-time condo rental property catapulted my F12MII over the top, skipping right past the $10,0000 annual level.

    As I’ve written many times over the years, my condo was a lousy investment property. Sure, it cash flowed. But I flooded it with money in the early years to get out of the hole I dug for myself. The purchase was poorly timed.

    During the first two years of ownership, I paid off $43,500 of debt on the second mortgage I used to buy it and avoid private mortgage insurance (PMI). The 80-15-5 loan was a common financing strategy back in the day, which probably helped contribute to the bubble. 

    Then I refinanced twice, throwing more money at the loan principal to lower my monthly payment.

    I haven’t seen those dollars in more than a decade. 

    All that cash was tied up as equity for the past decade, a necessity to make it a viable investment property.

    Using a standard rental property cash flow analysis, I accounted for all expenses (including maintenance, vacancy, mortgage interest, etc.) after receiving the rent and before realizing any profit (what I counted as F12MII).

    As of April, I was only earning about $70 per month in positive cash flow, or $840 per year. But I had more than $100,000 of equity in the property. That’s a terrible return on investment.

    Taxes and HOA fees kept eating into my margins, and I was unable to raise rent over the past eight years. Perpetual rising costs were a primary factor in selling the property. 

    Now that we’ve sold, the proceeds are in a high yield savings account earning interest.

    I’ve always counted interest on cash as an income stream, even when I had very little in savings earning a measly interest rate. Small amounts of income are better than no income. Beginners should not be discouraged just because there’s not much coming in.

    Every penny counts.

    I used the example above to keep it simple. The proceeds from this sale were closer to $150,000, and I’m currently getting 2.25% on my saving account. That’s what spiked the numbers. The high interest rate I’m earning on the cash minus the former rental income, plus recent dividend increases take me up above the $12,000 threshold.

    Here’s a new look at the income received vs. projected chart that I’ve been sharing for the past few years. Next month, expect to see the red bar to become a more significant contributor.

    After 16 years of tracking this metric, I've finally reached $12,000 in forward passive income thanks to the recently sale on my condo rental.

    What Should I do With all the Cash?

    Now that the banana stand is empty and sold, what am I to do with all this cash?

    I’m in the process of moving the cash between accounts. Once everything settles, I’ll put some of the savings into a one-year CD that’s currently paying 2.7% and will bump the F12MII a bit more.

    You might be thinking it’s irresponsible to hold all that cash in a savings account and that I should put that money to work right away.

    Well, honestly, I’m not eager to do much with the cash for now. I’m quite happy putting it into savings and earning a decent return on the cash. 

    I’ll set aside a chunk for taxes next year. There wasn’t a ton of appreciation realized upon the sale, but I will have to deal with depreciation recapture at tax time in 2020. I’ve spoken to a local CPA, and I’m expecting the tax bill to come in around $15,000-$20,000. Not fun, but not horrifying either. The cash is handy.

    The rest will be set aside for a few small house projects, our next car (needed within five years), a legitimate emergency fund, and a generous freedom buffer to cover any unexpected expenses in our future.

    Most of all, cash in the bank will give us financial security and freedom in our lives.

    Once the transfers have settled and I’ve segmented the money in a spreadsheet, I’ll fully fund Mrs. RBD’s IRA for 2019 and may make some addition 529 contributions.

    With whatever is leftover, I’ll start making monthly investments into dividend stocks and real estate crowdfunding platforms such as Fundrise and Realty Mogul.

    I’ll continue a monthly $500 deposit into my M1 Finance pies, then probably add another $1,500 into my newly-transferred taxable account with Fidelity. Some of that will come from the savings stash and some from excess cash flow from my active income sources (salary, side business).

    Combined with reinvesting current dividend income, new capital invested should be at least $2,500 per month going into stocks and real estate. I’ll aim to buy investments that yield higher than the 2.25% I earn in my savings account.

    This significant cash position does make us more susceptible to interest rates. The Federal Reserve is now hinting they are considering lowering rates back down. If that happens, the savings interest rate will fall in tandem, damaging F12MII, but it’s not a deterrent from keeping it there in the short-term while I decide how to proceed.

    Conclusion

    I decided to stop the quarterly investment income reporting from now on in favor of keeping an up to date portfolio page that includes the details of our retirement portfolio allocations.

    But I’ve been working toward this goal for almost sixteen years, so I’m excited to share the milestone with you. More importantly, I hope this achievement and the long road I took to get here is a motivator for investors getting started or at any stage of their savings progress. It takes time, but this stuff does work. 

    The next $1,000 in monthly income should come more quickly thanks to compounding interest and my career earnings doing well. At some point in the next ten years, I’ll have enough and will stop obsessing so much about money.

    Do you track forward passive income? Where are you today? If you’ve reach $12,000, did you see an acceleration after passing that level?

    Photo by Nicolas Tissot via Unsplash

     

    Please Share!

    • Click to share on Twitter (Opens in new window)
    • Click to share on Facebook (Opens in new window)
    • Click to share on Reddit (Opens in new window)
    • Click to share on Pinterest (Opens in new window)
    • Click to share on LinkedIn (Opens in new window)
    • Click to email a link to a friend (Opens in new window)

    Favorite tools and investment services right now:

    Fundrise - The easiest way to invest in high-quality real estate with as little as $10 (review)

    Personal Capital - A free tool to track your net worth and analyze investments.

    M1 Finance - A top online broker for long-term investors and dividend reinvestment (review)

    Craig Stephens

    Craig is a former IT professional who left his 20-year career to be a full-time finance blogger. He started Retire Before Dad in 2013 as a creative outlet which became a side hustle to complement his dividend and real estate income portfolios. Diversified income streams built over the past two decades now support a more gratifying post-professional lifestyle. Read more about Craig HERE. Or read the longer story HERE. Craig lives in northern Virginia with his wife and three children.

    Filed Under: Investing, Personal Finance, Stocks

    Comments

    1. Please note: Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.
    2. Ken H says

      June 6, 2019 at 7:19 am

      Congrats RBD! $12K per year is my goal for my 401-Ken coupled with my SS at 67 would put me close to 50K per year. Sadly I’m 12 yrs older so a bit behind, but on track if all goes well.

      Reply
      • Retire Before Dad says

        June 6, 2019 at 9:00 am

        Hey Ken… thanks. You’re still well ahead of most people your age!

        Reply
    3. FiveYearFIREescape says

      June 6, 2019 at 9:41 am

      12K$ of dividend income is awesome.

      For your house a different way to get access to all that equity in there is to remortgage it to get the money out. I do that with my properties and its great. It only works though if you can stay cash positive after increasing your mortgage size which it sounds like you couldn’t do…so yeah definitely sell that.

      I’ve had a bad rental and it sucks. Cutting the cord feels good though 🙂

      Reply
    4. Tawcan says

      June 6, 2019 at 12:02 pm

      Nicely done RBD! $12k in passive income is pretty awesome! We haven’t considered rental properties because of the crazy real estate market in Vancouver. Figured that we’d utilize REITs instead. 🙂

      Reply
      • Retire Before Dad says

        June 6, 2019 at 3:06 pm

        Real estate is getting frothier in DC. I don’t expect I’ll look for an opportunity unless the market tumbles. I’m comfortable with divis and crowdfunding.

        Reply
    5. fred ford says

      June 6, 2019 at 12:09 pm

      As a retired CPA – I suggest making an appointment NOW and getting the computed tax gain completed. My reason is your CPA has more patient time now contrast to February – April he/she “may” charge you less for doing the work now instead of during tax season. Plus you know and have all the final closing figures at your disposal.

      Waiting causes you to forget the paperwork and the amounts and so have to “rework” the same number twice.

      January – April you just drop off/ email the normal mundane other reoccurring income and expenses to complete your/wife 1040.

      This Assumes you personally have time NOW.

      Reply
      • Retire Before Dad says

        June 6, 2019 at 3:03 pm

        Based on your advice last post, I did reach out to a local CPA. She explained a few things, then said “I love new clients, but I have enough tax returns to do. So if you normally do your own, I can do the sale portion for you this summer so you’ll have it for tax time.” I ran some numbers that I had and came up with the ballpark range, but will put aside more than that so I have plenty to pay next year. I’ll probably have it done in July.

        Reply
        • fred ford says

          June 6, 2019 at 3:41 pm

          I see you tried. CPA’s are sadly are all TOO busy. Yes for sure in July reach out to some tax accountant who is NOT too busy and has years of experience – does not have to be a CPA.

          The key is to get the transaction behind you so you do not forget the RE transaction dollars. Bring to the accountant two prior year returns + closing selling papers. (I assume the prior year returns or your internal workpaper has cost and accumulated deprecation since date of purchase). Good luck – dealing with gov. you need it.

          Reply
    6. Financial Velociraptor says

      June 6, 2019 at 2:36 pm

      Gogogogogogogogo! I’m at 103.31% of my annual budget in forward dividends, distributions, and interest. It is a good feeling and lets me sleep at night when the market is correcting.

      Gratz bro dawg!

      Reply
      • Retire Before Dad says

        June 6, 2019 at 3:05 pm

        With no rental and all the cash in the bank, I am sleeping better than usual!

        Reply
    7. Retire Before Dad says

      June 7, 2019 at 11:18 am

      Thinking back to that era, progress was also hindered by saving for a house. We put nearly everything we earned into savings for about 18 months, right around 2010-2012. So that held us back some too.

      It’s almost like I was pulling back the catapult for the past 12 years. Much of the equity was saved from 2006-2010. I’ve finally reaped the benefits of all that saving.

      Reply
    8. Dividend Diplomatsd says

      June 9, 2019 at 3:33 pm

      RBD –

      Hell yes. Nice job on the big $12k milestone and allocating the lump sum according to your plans. You are going to definitely spring that forward income right up!

      Also, I have a few CD’s maturing coming up and may hold them tight in my high yield account that has 2.50% APY, to see what to do going forward. There are a few opportunities for 10 months – 12 month CDs between 2.70 and 2.85%, not sure how long I want funds held up, you know? How much do you plan on locking up in that 2.70% one year?

      Nice work, great job and keep contributing that capital!

      -Lanny

      Reply
      • Retire Before Dad says

        June 9, 2019 at 8:25 pm

        Not sure how much I’m going to put in yet. Probably about 60% of it. Rate is now lowered to 2.6% at my bank, so not as enticing.

        Reply
    9. retirebyforty says

      June 10, 2019 at 11:42 am

      Oh wow, that’s a beautiful graph. The spike at the end is awesome. I can’t wait to see the same thing with our portfolio. Our condo is up for sale now, but it’s very slow going. Market is not good here. 🙁

      Reply
    10. Forever Donor says

      July 28, 2019 at 4:20 pm

      Well done! Having $1k per month is huge! That’s a big milestone indeed, congratulations!

      Putting money in the CD totally makes sense. I usually always plan that if you want to use that money for something in the next 1-2 years, don’t put it into the market. Use a CD or high interest savings account until you’re ready. Smart play.
      -Andrew

      Reply

    Comments Welcome! Cancel reply

    This site uses Akismet to reduce spam. Learn how your comment data is processed.

    Services I Use Every Day

    Personal Banking: Wells Fargo
    Travel Credit: Chase Sapphire Preferred
    Primary Savings: Marcus
    Primary Broker: Fidelity
    DRIP Broker: M1 Finance
    Biz Banking: Wells Fargo
    Biz Credit: Chase Ink Business Preferred
    Net Worth Calculator: Personal Capital

    Home
    About
    Featured on
    Resources
    Website Terms/Privacy Policy/Full Disclaimer

    ADVERTISING DISCLOSURE: This website engages in affiliate marketing. This means that if you use an affiliate link to make a purchase, the website will receive a commission on that purchase. All efforts are made to ensure that affiliate links are disclosed in accordance with the FTC. Retire Before Dad has partnered with Cardratings for our coverage of credit card products. Retire Before Dad and CardRatings may receive a commission from card issuers. The Website uses Mediavine to manage all third-party advertising on the Website. This website is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and links to Amazon.com.

    Disclaimer

    Read the full Disclaimer policy here.

    Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities. We have made every effort to ensure that all information on this website is accurate. We make no guarantees regarding the results that you will see from using the information provided on the website. We are individual investors, not financial advisors, tax professionals or investment professionals. All information on the site is provided for entertainment and informational purposes only and should not be considered advice. Do not make investment decisions based on the information provided on this website. This website may discuss topics related to finance and investing. The information provided on this websites is provided “as is” without any representations or warranties, express or implied. The website makes no representations or warranties in relation to the financial and investing information on the website. You must not rely on the information on the website as an alternative to advice from a certified public accountant or licensed financial planner. We assume no responsibility for errors or omissions that may appear in the website. You should never delay seeking financial advice, disregard financial advice, or discontinue professional financial services as a result of any information provided on the website.

    Copyright © 2023 Retire Before Dad · Custom site by Moonsteam Design