Apr 032017
 

When Long Term Planning Works Out

Thanks to my recent investment in Lending Loop I am now making an additional $2,000 per year of interest income. This brings my total passive income to $24,000 per year. Sweet peaches and cream! 😀 Here’s a breakdown.

  • $9,000 dividends
  • $9,000 rent
  • $6,000 interest

Passive income is the best kind of income for 3 important reasons:

  1. It’s stable and requires no effort from the investor.
  2. It has the capability to be tax efficient, eg: by earning it inside a tax advantaged account.
  3. It’s inflation protected. eg: My current passive income from dividends, rent, and interest would all increase under inflationary pressure.

But it takes time to build up $24,000 of annual investment income. Rome wasn’t built in a day, and neither is passive income. It took me about 9 years of saving and investing to reach this milestone. Dividend income was my first passive income stream and it’s starting to really pay off now. 🙂 Many other bloggers are using this popular strategy for early retirement as well.

My current level of passive income by itself is still not enough for me to live on. However, my projection is to grow my passive income by $3,000 per year over the next 5 years so I will be financially independent when I’m 35 years old in 2022, making about $40,000 per year from my investments. 😀

Increasing my passive income by $3,000 a year is actually easier than it sounds due to my special circumstance. I have 3 lucky advantages that most people my age don’t have.

  1. I have over $1,000,000 of investments under my control. Dividend growth stocks increase payments to shareholders over time. Land tends to appreciate in value and extract higher rental income in the long run. Through inflation this $1,000,000 asset portfolio will grow by an estimated 2% a year to keep up with the cost of living. This works out to $20,000 of annual appreciation. We can easily convert any tangible asset into a perpetual passive revenue stream by using the 4% rule. Therefore, I can expect my passive income to increase by $800 by next year simply by continuing to hold $1+ million of productive assets. ($20,000 x 4%)
  2. I do not spend the $24,000 of passive income I currently make. So all of it can go back into buying more investments. $24,000 will generate about 5% of income for me with a combination of high yield income securities and dividend stocks. So that’s another $1,200 of newly created passive income for me to look forward to by next year. ($24,000 x 5%)
  3. Tax efficiency. Nearly all my dividend producing investments qualify for the federal dividend tax credit so I effectively pay only 6% tax on the income they produce. My rental income is offset by my mortgage interest so I pay less than 4% tax on this rental income. As I’ve written about in the past my profits are kept low. Nearly all my other passive income are sheltered in my RRSP and TFSAs, which accounts for more than $150,000 worth of stocks, bonds, mortgages, and other interest producing assets. This means I pay minimal tax on the $24,000 passive income I make.

Due to the 1st and 2nd reasons in the above list, my passive income should grow organically by $2,000 every year without me injecting any new capital into the portfolio. The remaining $1,000 of passive income (to make up my $3,000 increase per year) will come from savings. With an expected 5% income rate I will need to save $20,000 per year on average to make this happen. I think that’s a reasonable goal for me. 🙂

This whole plan all started in 2008. I’m just following through with it now and adding small changes as things move along. What truly amazes me is the fact that my passive income has now reached a point where it is growing at a faster rate than my active income. There is no way I can sustainably increase my salary and wages by $3,000 every year without sacrificing my health and risk getting burnt out. But my passive income can. 😀 This is why investing becomes more effective the longer one does it.

 

Liquid’s Financial Update

*Side Incomes:

  • Part-Time = $700
  • Freelance = $800
  • Dividends = $700
  • Interest = $100
  • SolarShare bonds = $500
*Discretionary Spending:
  • Fun = $500
  • Debt Interest = $1200

*Net Worth: (MoM)16-12-networthiq_chart-nov

  • Assets: = $1,097,900 total (+9,500)
  • Cash = $2,200 (+700)
  • Canadian stocks = $145,700 (+7500)
  • U.S. stocks = $90,100 (-700)
  • U.K. stocks = $19,600 (+300)
  • RRSP = $76,400 (+1500)
  • Mortgage Funds = $30,800 (+200)
  • Peer-to-Peer Lending = $20,300 (+200)
  • SolarShare Bonds = $9,800 (-200)
  • Home = $270,000
  • Farms = $433,000
  • Debts: = $495,200 total (+800)
  • Mortgage = $184,300 (-500)
  • Farm Loans = $190,300 (-600)
  • Margin Loans = $62,800 (+3200)
  • TD Line of Credit = $14,800  (-600)
  • CIBC Line of Credit = $26,500 (-500)
  • HELOC = $16,500 (-200)

*December Total Net Worth = $602,700 (+$8,700 / +1.5%)
All numbers above are in $CDN. 

I got my first SolarShare bond payment! This is the first of 30 total payments I will receive over the next 15 years.

Much like black holes, climate change can really suck. 😄 I invested in SolarShare last year because I wanted to make the world a greener place and earn a profit while doing it. 😀

TFSA Review

I don’t know why but my Canadian TFSA at TD performed surprisingly well in March. I did not expect such a large gain in one month, but according to TD it’s up 7.45%.

I did contribute $1,000 to my TFSA in March to purchase shares in Yellow Media. I’m not sure if TD is calculating the internal rate of return (IRR) or the total return of the portfolio. Judging by the wording TD uses I believe it’s the IRR. Either way I’m very happy with the results.

Here is how it compared to the stock market in general.

For full disclosure, here are all the stocks and funds I hold in this account. Obviously past performance doesn’t always translate into future returns, so don’t buy these stocks just because I have them. 😉 Everyone should do their own research.

Other stocks I purchased this month:

  • 10 shares of Costco (COST) at US $167.72/share.
  • 200 units of iShares preferred shares etf (CPD) at $14.15 each.

I used primarily margin debt to buy both these securities as I didn’t have enough cash. But not the worry. The dividends generated from CPD and COST cover the full expense of the margin loan. 🙂

 

__________________________________
Random Useless Fact:

Being good at something doesn’t necessarily mean people will pay you to do it.

Leave a Reply

27 Comments on "March 2017 Fiscal Update – Passive Income Boost"

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Finance Journey
Guest

Hey Liquid,

Great achievements of $24K pure passive income, you are experiencing the power of compounding growth.

$25K passive income per year is my one of the financial goal. I’ve reached around 30% of the target in 4 years.

Keep accumulating assets and keep up your good work 🙂

Best Regards

El Pescado Grande
Guest
El Pescado Grande

Are those amounts your “gross” passive income, or is it net of any related expenses (ie property taxes on the land, interest on the related debt, etc)?

Investing Pursuits
Guest

Congrats on the increase in net worth. See you still own BBD.B. I still have the 1000 shares $3.60 and it was tough to see it below $1.00 last year.

Do you plan on buying more farmland or venturing into rental properties.

ross
Guest
ross

have you calculated / planned for a significant drop in the market?
I’m not one to make predictions… except to say that “it is highly likely that at some point there will be a crash/correction”

are your lines of credit maxed out or do you have room to fund your margin account in case of a margin call?

it would suck to be forced to sell in a dip.
I’m currently only using a heloc for leverage because it won’t be ‘called’.

although I’ve been mulling over the idea that when a big dip comes I might fire up a margin account to take extra advantage.

Matt
Guest
Matt

Hey Liquid,

Based on your lending loop review the other week I’m getting ready to fund my first loan! I was looking for an opportunity to not rely so much on dividends and you have presented it. Congrats on the passive income number. Very impressive!

DivHut
Guest

Another solid update of your financial picture and steady passive income growth. Always inspirational to read and see what can be achieved with basic knowledge and discipline. Thank you for sharing.

FI3000
Guest

You’re right about dividends. It seems like nothing is really happening and then you hit a tipping point where any % increase actually becomes meaningful. ie- if you only have a $50,00 portfolio a 10% return really isn’t going to move the needle much but once you’re well into the 6 figures 10% becomes the equivalent to working another full time job.

It sounds kind of stupid but the first $250K really is the hardest. It seems to get much easier from there.

Mrs. Picky Pincher
Guest

Wowza! Great job with that passive income. You’re well on your way to covering quite a few living expenses with those dividends. 🙂

David
Guest
David

Just wondering if you have any contribution room left in your TFSA?

Fee
Guest
Fee

Hi Liquid,
Thank you for being so transparent with your numbers. We have followed your progress since your early days on the blog and it is always exciting -as well as educational- to read your updates. My own figures are looking healthy, but my more conservative net update does not reach the dizzying stellar heights of your own…but then I do have multiple little dependents counting on me not to mess up!
My question to you is with all your oodles of cash, why do you continue to hold down a part-time job?

Blog Reader
Guest
Blog Reader

Nice. You mention you freelance. How do you find freelance jobs? Are freelance sites legit to use? Will clients sent over documents, sites, and software to work on with malware attached to infect your computer? How do you prevent this from happening? Have you had any bad experiences with freelancing? What are some advice you can suggest for someone getting into freelancing?

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