My wife doesn’t read this blog, so I have to give her all of our financial updates in person. A few days ago I was chatting with her about our passive income, how it’s grown, and how it compares to our salary. As I was running through the numbers, I had a pretty cool realization.
For 2019 we should have somewhere between $90k-$95k of passive income. My first full year working (in 1999) I worked for about 2,000 hours and made…$93,900.
We are nearing the point where our passive income in 1 year will exceed my earnings from my first year of full-time work!
That’s absolutely astounding to me – the amount of cash that our investments generate will be greater than the cash I generated from 2,000 hours of work!
Here’s the table I put together for my analysis:
A few things to point out.
First, I’ve rounded my yearly earnings to the nearest $100, solely to prevent any identify fraud (the IRS sometimes asks for previous year’s earnings to help with identification). I might be overly cautious, but this rounding has virtually no effect on the analysis.
Second, I am showing both the actual earnings and the inflation-adjusted earnings (right column). For 1999 you’ll note that the inflation-adjusted earnings were about $143,701, and we are still a ways away from our passive income hitting that mark. In fact, assuming a roughly 10% annual increase in our passive income, it should take 5-6 years to hit that number.
Third, from 2000-2004 my inflation-adjusted income bounced around in about a $25k range (From $161k – $186k). Our passive income should hit the high end of that range in about 10 years.
Fourth, these numbers are all gross income. However, since capital gains are taxed at lower rates than earned income, the after-tax number for passive income will be higher than the after-tax number for earned income.
How about the rest of you? Have you already hit the point where your passive income exceeds your first year of active income? If not, how far away do you estimate that you are?