In the last post, we broke down my basic costs of living. If you haven’t read that post, make sure you jump over there first. Today we’re going to go over current income. Income statements are literally what they sound like. A statement of monthly and/or yearly income. At the end of the day, we want to invest in assets, businesses, real-estate, side hustles, hobbies, or stocks and bonds that pay us enough to overcome our current cost of living. As you’ll see, I’m very much at the beginning of that process.
Current Income Situation
A little backstory to my situation and sources of income. I have worked in IT for the past 2 decades, mostly on the operations side. For a short time, I ran my own consulting company but decided to stop when my father was diagnosed with cancer and later passed away. The past few years have been spent taking our excess money and building an emergency fund and paying down debt. In June of 2018, I started investing in dividend stocks in a taxable account to generate income. I’ll break that down shortly, but up to this point, our current income is my regular day job and a small amount of dividend income.
Two People, One Income
My fiance an I have been together since high school. She’s awesome, and I definitely lucked out. We’re a team on all things. She had worked in insurance but started getting pretty sick around 7 years ago. After a long battle of frustrating doctor visits, tests, hospital stays, bills, and a deep dive in education around genetic disorders, she officially became disabled about 4 years ago. Today she’s focusing on her health first, and she’s doing well. That’s way more important than money, honestly. But, this is a blog about personal finance and financial independence. The negative here is we’ve been operating on a single income. Her disability does provide her with a way to pay for food and basic health care expenses.
In no way is this blog political, nor will it be. I know that disability and social services in the United States continue to be a touchy subject for people. Social Security Disability really helped our family, and I’m grateful we have it. Health care costs continue to be a challenge in the United States and I know the topic will return in this blog at some point.
I’m providing this backstory for two reasons. First, because it’s important for people to realize that life doesn’t go according to plan. We certainly never expected her health to deteriorate as it did, and we did the best to roll with the punches. The second reason I’m explaining this is because of preparation. The last few years were about securing a safety net. A plan if I lost my job, or got sick or injured. As a single source of income, we wanted to ensure we were in a reasonably safe situation. I wasn’t out buying penny stocks or lottery tickets because the risk vs reward was very much in the spotlight for us. Essentially, we needed to be efficient with our money. Our emergency fund is set up along with an additional savings account for unexpected yearly costs. We paid down our debts, refinanced bills, and locked in a mortgage rate with an affordable payment.
Now that those safeguards are in place, it’s about investing in assets that pay us back.
Income from Jobs
The income from jobs is shown as after-tax only. To be clear, I am investing in retirement pre-tax. However, I really didn’t think it was relevant to show any of that since the goal of this blog is achieving financial independence before the traditional retirement age. These numbers are both our incomes combined.
Income From Investments
Why So Many Brokerage Accounts
My primary broker is Fidelity. They are a great low cost, full-service broker. Besides the taxable dividend account that is discussed below, I have a traditional IRA with them as well. However, Fidelity seems pretty uptight about risk and granting options trading. And that’s fine because there are other brokerages that do it differently that I appreciate. Keep in mind I’m not endorsing any of these platforms. Everyone’s experience is different, and I’m just providing my experience.
If you haven’t heard of Robinhood yet, they are a free broker that allows you to trade stock, options, and cryptocurrencies commission free. They do have some paid services, but I use them primarily for options trading.
Tastyworks is a brokerage specializing in advanced low-cost option trading and education. I highly encourage people to look into their video series and education segments that are hosted at TastyTrade. If you want to get some insight into options, this is a great resource.
I trade options every once in a while with these brokerages. It’s a way to put some money in your pocket every now and again. Maybe this can happen at $50-100 a month, or maybe once a quarter. But the point is, I’ve been experimenting with the platforms for all three of these brokerages for when I want to invest more regularly. I see options trading, like other forms of investing as a way to generate income.
Taxable Dividend Income
Last year I started investing in dividend paying stocks to start generating income. Now, the reason I’m dividend investing in a taxable account is around how dividends are taxed. The IRS taxes qualified dividends differently than non-qualified dividends. I’m sure you’re wondering what the difference is. Check out this explanation from Investopidia.com. But basically, for me, dividends are taxed at 15% instead of the earned income tax bracket I’m in. One day in the future, maybe in say 10 years from now, I’m anticipating that the majority of my income will come from dividends. That’s a huge tax break when my earned income from a job (tax bracket is probably around 24%) goes to zero.
I have 2 savings accounts at Ally Financial. Ally is an internet bank that provides highly competitive rates for savings, checking, and CDs. They offer mortgage and brokerages services, but their reputation is most known for their great savings rate. My emergency fund is here, as well as normal savings account for projects, vacations, or yearly expenses.
At first, I considered not including savings accounts and emergency funds here. But, it’s important to have safeguards. Sure, over time inflation is going to gobble it up. However, this is about transparency and we do make monthly income on our cash being saved for rainy days.
Income from Rewards Cards
We started using Fidelity’s reward card near the end of 2018. It pays 2% on all purchases, which I deposit right back into the taxable dividend account mentioned above. It solves two problems for us. For one, it unifies all our spending into one account and provides a breakdown into what your categories you spend money on. The other benefit, and the most important one, you’re going to be spending money on stuff anyway, why not get 2% on it all? To date, I’ve received $278.94 in rewards over 5 months just by using it and paying the balance off.
It appears that outside of our normal 9 to 5 job we’re generating $146 per month or $1,752 per year. That’s actually better than I expected. So what needs to happen next? Well, in our next post we’re going to use the Cost of Living calculations as well as our work here on Income, and combine them to see the Balance Sheet.