Interest, Cash Back, Dividends, Oh My!
For those of us on the FI track, nothing feels quite as good as our investments paying us back. For the most part, these payments come in the form of monthly/quarterly/yearly dividends or savings account interest. Sometimes, however, we have other Passive Income streams like rentals and side businesses. With all of the different accounts we have, it can be a bit tricky to keep track of where it’s all coming from.
You can download this sheet filled with fake data yourself here! A portion of the Data sheet is tacked on for charting purposes. Take a look at how I do my tracking below.
If you’ve opened the worksheet separately, you’ll see we’re starting off by checking out the second section first. Previously, I was lumping all of my passive related transactions into a single list and sorting them from there. I now take things a bit further and separate each of my passive income streams by the account they’re being held in. If you notice there are different “Types” of dividends. This is because certain dividends can be taxed differently and it can be helpful to store them with that in mind. Regardless of how I was organizing the transactions, this was the process I was following until about a month ago:
- Log into one of my accounts
- Go to the Transaction History
- View the past X months of history desired
- Export the list of transactions into an excel/csv
- Filter by dividend transactions
- Copy and paste in the desired format
- Repeat for remaining accounts
This was becoming a rather tedious. It really wasn’t that much work, but it wasn’t something I looked forward to doing. In fact, after changing up the format I realized that I had miscalculated a whole bunch of my 401k Match transactions! A plan was hatched to try and make this process automatic. Both to make it easier and to make it less prone to me being dumb!
Some Background About Me
As mentioned in the About section, I work in technology. More specifically I’m a part of the ‘Fintech’ (Financial Technology) space, which is part of the reason I even began down this path. It just made sense for me to be able to further understand the underlying business I was joining. Learning about 401ks and Investments brought me to reading more and more about personal finance. Coupled with my existing propensity to want to work on my own terms was a sort of perfect storm for turning me into a (an?) FI-minded individual.
Going even deeper, I work as a Quality Engineer which is just a fancy term for someone who tests applications (Mostly UI-based websites) to ensure they work properly. In other words, if you owned a business, you would likely consider hiring me to make sure that things like the links on your website worked. Or that certain users were able to log in and see certain objects as defined by the business. Not only that, but my focus is on developing automated versions of these tests using a tool called Selenium. Selenium allows me to write code that triggers the browser to click buttons, enter information, and read text off the screen. (*)
I eventually realized that I could use this to automatically retrieve data at will from each of my different investment or bank accounts. I won’t be going into the how today, but I will have a series of posts dedicated to those looking to get a bit more technical!
(*) Tech Note: It would have been nice to use an API to be able to do what I wanted to do, but alas, many brokerages do not offer any public APIs just yet.
Back to the Excel
In the first section we just take all the information we gathered below and condense it into some helpful metrics. Most notably we track the Monthly Total. How much each type grew by in the month. And the Running Total. The current Monthly Total added up with all previous Monthly Totals.
There’s great value in being able to keep track of how your passive income is growing. This will enable you to see, with greater perspective, how close you could be to FI. Essentially, once your monthly passive income surpasses your monthly expenses, you’re FINANCIALLY FREE. While passive income isn’t the only determining factor for FI, it’s a really great psychological tool for us. Watching your investments grow in value is great, but it doesn’t really feel like you’re being paid. Dividends, on the other hand, will drop cold hard cash into your accounts to use immediately.
Passive Income Charts
Could you imagine the feeling of never needing to really pay one or more of your bills with hard earned cash for the rest of your life? Nothing really paints a picture like… some pictures.
Take a look at the charts created using data from this sheet and the Data sheet.
Most of them speak for themselves. It’s great to see the growth we’re getting over time, but my favorite to look at is the True Monthly Average vs Monthly Expenses. (*) We slowly get to see what kind of monthly expenses could theoretically be paid for as our investments and passive income grows! You can feel free to adjust and add to the list of monthly expenses, but these were just the ones I had been using. Seeing your money like this can really give you some perspective on your goals and the amazing value of the journey you’re embarking on.
(*) True just means I’m taking out 401k Match, since it’s not REALLY passive income and I won’t be counting on that once I’m retired.
Passive Income and Me
As for me, my main focus for my investing is on growth, though I do have a few dividend heavy stocks littered throughout my portfolio. Eventually I would like to be able to increase my sources of passive income. Renting out real estate has always been interesting to me, but I’m no where near ready for that just yet. Ideally, I think I would want to touch on similar areas that RetireBy40 does: Dividends, Rentals, Real Estate Investing, and Blog Income. Some of these might not seem “passive” in nature I admit. But in the end, it’s up to you how you define what’s passive and what’s not.
There are other forms of passive income to be tracking too. Whether it be Rental Income, Cash Rewards from Churning, or some sort of passive side business. For me, this is enough right now, but I’d be interested to see how your charts look and how they’ve grown over a longer time horizon.