For the first time since 2012, Sam Dogen is working a regular job.
That was the year Dogen resigned his job as an investment banker after 13 years of working, saving, investing, and generally burning himself out.
At the age of 34, his portfolio and real estate investments generated approximately $80,000 per year, which was sufficient to support him and his wife indefinitely. So he accepted his severance and left. His wife did the same in 2015.
Dogen, founder of Financial Samurai and author of “Buy This, Not That,” admits to living in a dual-income family for some time.
Well, not W-2 income, anyway. The couple’s intentions altered, so the $80,000 per year they thought would last them a lifetime needed to be increased. The couple had their first kid in 2017, and their second in 2019.
Dogen gradually increased his passive income streams to approximately $380,000 per year – $288,000 net of taxes. That was adequate to support the family’s expenses while living in San Francisco, until now.
In a recent post on his website, Dogen, 46, explained why he sold a chunk of his stock and bond assets to buy a multimillion-dollar mansion in cash.
By exchanging income-producing assets for a home, “I basically have a lot more dead money now,” Dogen explains. This means that his passive income streams are no longer sufficient to pay his family’s expenses, thus he must return to work.
The heading on Dogen’s post is “Blew Up My Passive Income, No Longer Financially Independent.” That is correct, however like with all good headlines, it makes things appear abrupt, exciting, and new.
After 12 years of financial freedom, Dogen was aware that giving it up for a while was an option. In truth, he had sort of planned it.
“After my younger child was born, I promised to be a stay-at-home parent for five years. Then kids go to school full-time, and I’d like to do something else, like consult or work,” Dogen explains. “My daughter is starting school full-time in September. So I answered, “Okay, I believe the best time to buy the nicest home you can afford is when your children are at home.”
Dogen gave up his financial independence — the situation in which your investment and passive income match your living expenditures — for the time being by purchasing the house in cash.
Dogen forecasts that his four rental properties, portfolio dividends, and other kinds of passive income, such as book royalties, will generate approximately $230,000 in nonworking income in 2024. That leaves him around $113,000 short of his expected annual expenses for what he describes as a “realistic and comfortable” living.
In the immediate term, Dogen intends to find a consultancy job that will allow him to work roughly 20 hours per week for a salary of around $145,000. This would offset this year’s shortfall while still allowing him to spend quality time with his children before and after school.
In the medium run, he hopes to rebuild his passive income streams so that he may become financially independent again. One option, he adds, is to eventually sell the house he and his family are leaving, but he doesn’t see San Francisco as a seller’s market.
“We’re past the bottom of the San Francisco real estate downturn,” he said. “We’re going to grow over the next few years because of artificial intelligence, technology, and everything. So, for the time being, I’d like to rent out the house.
He believes he could earn somewhat more than $100,000 in annual rent, for a net profit of around $40,000, which he may use to help rebuild his investments. The same is true for an eventual sale.
In the meanwhile, Dogen says he’s pleased to devote his efforts to something else now that he and his wife are reducing their hours as full-time parents.
“The more you invest in something, like being a stay-at-home parent, the more you have to fill this void of emptiness once they go to school full time,” he said.