Back in 2016, I finally found my dream job: a high school tennis coach. I have always wanted to be a teacher, but my career in finance straight out of college got in the way for 13 years until I finally retired from the profession in 2012.
When I looked into becoming a middle school or high school teacher in San Francisco, I discovered I first needed to get a teaching credential. The process would take 12 months. Without credentials, I couldn't even become a substitute teacher.
Instead of giving up, I kept looking for opportunities. Then one day a friend told me about a tennis coaching job that opened up at his son's high school. To be able to combine my love for teaching with my love for tennis was a perfect fit. Further, I didn't need to spend 12 months getting any credentials. My USTA 5.0 tennis ranking, a TB test, and passing a background check was good enough. I applied and got the job!
The pay is only $1,100 a month for five days a week for 3.5 months. Each workday averages about three hours. Sometimes the day lasts 5 to 6 hours if we had a particularly long commute or nail biter.
I'm proud to be a tennis coach. When anybody asks me what I do, even though it doesn't pay so much, that is what I say I am. To be able to mentor our youth and teach them some of life's important lessons is an honor.
But some have wondered how I'm able to provide for my wife, why is a stay at home mom, and two year old son in expensive San Francisco on only $1,100/month.
The answer is straight forward: like many of my peers, I do more than just teach or coach to make a living.
Let me explain more below.
Providing For My Family In SF
My secret to taking care of my family on my high school tennis coaching salary is through investment income and side hustling.
When I was in finance from 1999 – 2012, I saved and invested 50% – 80% of my income. Banking hours are brutal and I knew I couldn't last for decades as my parents did in their respective careers.
While working in finance, I also started Financial Samurai in 2009 as a cathartic way to make sense of the financial crisis. Over the years, this site has grown to generate some advertisement revenue which I plow completely back into generating more investment income.
Below is the annual investment income I've been able to produce after 20 years of saving and investing 50% – 80% of my annual after-tax income.
As you can see from the chart, we generate about $16,300 a month in after-tax retirement income if we use a 20% effective tax rate.
Add on $880 a month I earn after-tax from high school coaching and my total investment and coaching income is around $17,180 a month or $206,160 a year.
Clearly, I'm not able to provide for my wife and son on just my high school tennis coaching income alone. The majority of our income comes from investment income that we've diligently been building since 1999.
With $17,180 a month we are able to pay for housing, food, clothing, transportation, and tuition for our son. We are also saving roughly 30% – 40% of our income for a rainy day.
Our ideal target is to generate $18,000 a month in after-tax income to pay for upcoming preschool and private grade school tuition if he does not win the SF public school lottery in three years.
Below is an analysis of the major investment income categories.
Risk-Free Investments: $1,045/month (5% of total)
Thanks to an aggressive rise in interest rates since the end of 2015, my risk-free income has risen tremendously. To be able to earn ~2.45% risk-free after making massive gains in the stock market and real estate market since 2009 feels wonderful.
I always want to have at least 5% of my net worth and investment income from risk-free investments. It let's me sleep better at night.
Stocks & Bonds: $7,560/month (37%)
My public investment portfolio accounts for 37% of total investment income. I've been invested in stocks and bonds since 1999, when I first joined the equities industry.
My overall stock/bond asset allocation is roughly 50/50, and will likely go closer to 40/60 to be more conservative. I use Personal Capital, a free financial app to track my investment performance and asset allocation.
My overall goal is to earn a 5%-7% annual return on my public investment portfolio, which is equal to 2-3X the 10-year risk-free rate of return.
Real Estate: $6,550/month (32%)
Real estate is my favorite asset class to build wealthy due to the utility it provides and the rental income it generates.
I own a rental property in San Francisco and a vacation property in Lake Tahoe in addition to my primary residence.
After having a son in 2017, I didn't want to manage as many rental properties any more so I sold one for 30X annual gross rent.
I reinvested $550,000 of my proceeds in real estate crowdfunding to diversify into heartland real estate where valuations are lower and cap rates are much higher.
My favorite real estate crowdfunding platform is Fundrise which was founded in 2012 soon after the JOBS Act passed. It has the most innovative platform and is the creator of eREITs.
Alternative Income: $5,220/month
My main source of alternative income is a severance book I wrote in 2012 called, How To Engineer Your Layoff: Make A Small Fortune By Saying Goodbye. I wrote the book after negotiating my own severance that provided for 5 years of living expenses.
To generate $50,400 a year in almost passive online income from a book would require amassing a $1,008,000 portfolio generating 5%. Not needing to have capital is why I'm so bullish on building online real estate as well. There is almost no risk except for putting your education and creativity to use.
My venture debt funds are passive. Their target IRRs are between 15% – 20%. I'm still waiting for the first fund from 5 years ago to fully payout. The second fund just completed 92% of its capital call.
Finally, I invested in Kleiner Perkins' new $600 million venture capital fund. I don't expect any payout from this fund for at least five years.
A Quick Budget Overview
Below is our estimated budget on how we can live off $200,000 in gross passive income while taking care of one child.
As you can see from the budget, there's not that much fluff. Health care is very expensive at $1,765 a month because we pay the full premium for a platinum family plan. We don't have an employer who subsidizes the majority of our health care costs.
The other main budget item is housing expense given the median home price in San Francisco is roughly $1.5 million.
Our house in Golden Gate Heights is valued at about 25% above the median price based on an appraisal done recently for our mortgage refinance. Although we did buy it for $1.25 million back in 2014 and spent money remodeling it. With ongoing maintenance and property taxes, the costs add up quick.
Our childcare assistance expense will rise from $800/month to $1,800/month with the cost of preschool. We'll probably still get some help on occasion so we can have adult time. Therefore, the cost will likely rise to $2,000/month.
Based on our current after-tax investment income of ~$200,000, we should have enough to care for two children comfortably. But we're going to continue trying to earn more investment income just to make sure.
Always Build Passive Income
Given it's unlikely any of us want to work forever at the same job, I highly recommend everybody build as many investment and alternative income streams as possible.
I've ranked the top investment income streams based on five variables for your review. Feel free to agree or disagree. I've invested in every single one of them for many years.
Finally, I leave you with my five main tips for generating investment income to one day achieve financial independence:
1) Save until it hurts. Most people think that saving for retirement in their 401(k)or IRA is enough, but it is not. In order to have the optionality of retiring early or ensuring a healthy retirement at a more traditional retirement age, it’s important to max out your 401(k) while also contributing at least 20% of your after-401(k), after-tax income to an after-tax investment portfolio.
2) Focus on income producing assets. Buying high flying growth stocks is fine when you're younger and can tolerate more volatility and risk. But as you get closer to retirement, it's best to focus on dividend generating stocks, certificates of deposit, municipal bonds, government treasury bonds, corporate bonds, and real estate. Your goal is to convert your high growth investments that don't produce dividends into stable investments that do.
3) Start as soon as possible. Building a large enough early retirement portfolio takes a tremendously long time largely due to declining interest rates since the late 1980s. Gone are the days of making a 5%+ return on a short-term CD or savings account. You need to save early and often to make compounding work for you. It has taken me aggressively saving and investing since 1999 to finally feel comfortable being just being a high school tennis coach and still taking care of my family in expensive SF.
4) Have specific retirement goals. Achieving financial independence takes discipline and focus. A good goal is to try and generate retirement income to cover all basic living expenses such as food, shelter, transportation, and clothing. Once you hit that goal, focus on covering your wants.
5) Make sure you are properly diversified. The first rule of financial independence is to never lose money. We saw a lost decade for tech stocks between 2000 – 2010 after the first dotcom bust. For NASDAQ investors, it took 13 years to get back to even. Then we experienced a housing bust of epic proportions between 2007 – 2010.
You always want to be moving forward on your journey to financial independence. The closer you are to retiring, the more conservative your investments should be. Please do not confuse brains with a bull market.
Remember what Chinese philosopher Laozi said, “a journey of a thousand miles begins with a single step.” Developing a meaningful amount of investment income takes time so don't delay!
Recommendation: Keep track of your net worth with Personal Capital, the web's #1 free financial app. I've used them since 2012 to x-ray my portfolio for excessive fees, track my net worth, and plan for retirement. Leverage their free tools for a better financial life.