Earning Less Passive Income Has Changed My Life For The Better – Technologist

In October 2023, my passive income took a significant $150,000 hit, representing a decrease of 39%, following the purchase of a new house. It was funded by proceeds from selling public stocks and bonds.

The decision to buy the house with cash was agonizing, as we didn’t need a nicer home. It also meant we would technically no longer be financially independent since our passive income wouldn’t cover all our living expenses.

However, driven by my desire to provide a better life for my family, I chose to take the risk. Over the next six months, life became stressful as cash flow tightened.

I had violated one of my 30/30/30 home-buying rules, specifically the one about ensuring 10% of the property’s value remained in liquid assets. I vow never to make that mistake again.

Despite enduring a difficult period, I’ve emerged stronger. After writing about the negatives of my decision, I now want to reflect on the positive aspects of earning less passive income. Overall, ironically, earning less passive income has improved my life.

So for those of you who currently have no passive income or are still far from accumulating enough to cover your expenses, I hope this post will motivate you.

The Best Things About Earning Less Passive Income

Here are the five best things about earning less passive income, followed by some deep-rooted psychological reasons why I decided to derail my financial independence journey.

1) Paying fewer taxes feels better

This year, I spent about six hours doing my taxes—a tedious and time-consuming task. One of the biggest annoyances is inputting all the K-1s from investing in private funds. However, since I handle my own taxes, I get to see firsthand how much I’m paying in taxes each year and make strategic moves to optimize my tax liability and plan for the future.

With about $150,000 less in passive income, I anticipate paying about $35,000 less in federal and California taxes next year. This reduction in taxes feels satisfying considering the six-figure sum I already pay annually in property and income taxes.

Everyone has a threshold for the amount of taxes they find acceptable to pay each year to support our country. Some will discover this threshold while others may never earn enough to reach it. Some are even OK with laying no income taxes.

Fortunately or unfortunately, I’ve surpassed the level of taxes I’m comfortable paying. I’ve tolerated the discomfort because it takes over $300,000 to afford a middle-class lifestyle for a family of four in San Francisco today. However, this $150,000 decrease in passive income serves as a welcomed tax adjustment that provides a sense of relief.

In my view, the ideal income is up to $200,000 per person or $400,000 per couple. With this income level, most of your income falls within the 24% federal marginal income tax bracket, which I consider reasonable. The 32% federal marginal income tax bracket is quite a jump.

2) A healthy return to budgeting and frugality

For years, I haven’t prioritized budgeting and frugality. It became an afterthought as I consistently paid myself first by setting aside a certain percentage for saving and investing. However, with $150,000 less in passive income, I’ve been compelled to reassess our household budget and implement necessary changes.

Upon review, I realized we had become lax with some expenses. For instance, I was charged $9.99 a month for Apple TV for 18 months without watching a single minute—a cost I promptly eliminated. Similarly, we discovered a $150 monthly charge for a massage app subscription, which we promptly canceled after using up the remaining credits. Those sneaky expenses!

The need to be more frugal prompted my wife and me to discuss our discretionary spending. Consequently, we’ve reduced food delivery orders and increased home-cooked meals, leading to weight loss and improved health for both us and our children.

The rise in food costs have also encouraged us to eat less. Personally, I feel hungry more often, which serves as a reminder to not take basic necessities for granted.

3) Reduces the chances of raising spoiled and entitled children

Financial independence allows for flexibility and freedom, which can be beneficial, but it also poses risks when raising children. Without careful guidance, children may develop a sense of entitlement, believing life to be effortless due to their parents’ financial stability.

To counter this, we’ve engaged in household chores like gardening and landscaping, demonstrating the value of manual labor to our children. When they see mom and dad pull weeds and haul large bags of rocks and mulch, they can’t help but participate.

Children need to witness their parents’ commitment to work to understand the importance of diligence and perseverance. Merely chauffeuring them to school isn’t sufficient; each parent should engage in meaningful work to set a positive example.

Earning less passive income has alleviated my concerns about raising spoiled children, one of the biggest worries as a FIRE parent. Over the past 20 years I’ve seen way too many grown adult children still live at home with their parents and struggle to launch. Too much coddling and providing by parents is more dangerous than we know.

4) Made me figure out ways to make more money

While my Provider’s Clock initially led me to prioritize maintaining our passive and online incomes after our son’s birth in 2017, I overlooked optimizing our income streams. However, the $150,000 reduction in passive income served as a new catalyst for me to explore additional revenue sources.

Since October 2023, I’ve successfully found tenants for my old house, sustained my publishing frequency at three posts a week instead of my previous goal of two, updated numerous old posts, initiated new business development deals, and submitted my second book with Portfolio Penguin for final editing.

Experiencing a financial setback reignited my drive for financial success, which brings a sense of reassurance. One concern I had after retiring early in 2012 was whether I could generate additional income if necessary. After all, re-entering the workforce after years of retirement can be challenging.

Now, I strongly believe that when faced with adversity, most of us have the ability to increase our income sources. This newfound confidence is essential for achieving financial peace of mind.

5) Earning less passive income has made me more appreciative, leading to greater happiness.

Although my net worth didn’t change with the purchase of a house, transitioning from stocks and bonds to real estate made me feel poorer and less free. That doesn’t sound like a good thing, but in actuality, I ultimately feel happier as a result because I feel more appreciative.

Years of financial stability can make us take money and freedom for granted. A trap akin to why companies replace disengaged employees and why seemingly perfect couples split. Losing a significant portion of my passive income has made me value what I once had more deeply, igniting a desire to regain my previous financial standing.

The journey toward financial freedom is far more exhilarating than simply maintaining it. Today, I feel like a recent college graduate, eager to tackle new challenges with a wealth of experience.

Be aware of the emotional letdown

If you achieve financial freedom, it may lead to questioning what comes next, potentially stirring feelings of discontentment. There is what is called “the trough of sorrow,” a depressing feeling many people who work so hard to achieve something, and finally do, sometimes experience. Having a purpose to earn, therefore, becomes deeply gratifying.

With a newfound purpose to provide a better home for my family, I’ve found greater happiness. As a man, I feel a natural inclination to work and support. Merely indulging in leisure activities eventually loses meaning, driving me to seek deeper fulfillment through intense competition and meaningful pursuits.

Perhaps this craving for meaning is why I continue to participate in intense league tennis competition instead of just casually hitting with friends. The pressure to perform is thrilling!

Final Benefit of Earning Less Passive Income: Rectifying Regrets

If you want to save money on expensive therapy, take up writing. After spending a couple of hours writing this post, I realize I may have intentionally reduced my passive income to address two major regrets:

1) I regret not working longer.

In my post titled “If I Could Retire All Over Again, Here Are The Things I’d Do Differently,” I delve into my regret of not working several more years. In hindsight, retiring from a lucrative finance job at age 34 in 2012 was shortsighted.

Departing at the onset of a decade-long market upswing in stocks and real estate was a missed financial opportunity. Had I extended my tenure by five years, my family’s financial security would likely be stronger today.

Reflecting on this decision, I’m disappointed that I lacked the perseverance to endure three-to-five more years in the workforce. My original plan, conceived in 1999, aimed for retirement at age 40 in 2017, fueled by aggressive saving and investing. However, the stress and chronic physical discomfort eventually became unbearable.

To reconcile this regret, I wrote a book about how to negotiate a severance package to buy back time. I’ve also committed to reentering the workforce either through part-time consulting or a full-time job once both kids are in school full time. By pushing myself to work for the next three-to-five years, I aim to mitigate the disappointment I feel for not doing so in my 30s.

Back then, the opportunity was in finance. Today, the opportunity is in artificial intelligence or working at a promising startup. The challenge will be in finding that ideal job and sticking it out for three-to-five years after being used to so much freedom.

2) Most of all, I regret having children late.

I regret investing significant time and energy into pursuing wealth during my 20s and 30s. Yes, it’s easier to say now after having achieved my target net worth, but still I regret not focusing more on family.

The primary source of my regret lies in becoming a parent later in life. Welcoming our first child just two months before my 40th birthday, five years later than I deem ideal, leads to this sentiment.

I waited because I felt compelled to achieve a certain net worth before embarking on parenthood. Recognizing that time holds greater significance than money, I regret not having those extra five years to spend with my children on the back end of my life.

Rather than opting for early retirement at 34, I wish I had pursued a better work-life balance. Having children while working would have provided me with a greater sense of purpose in my career. They would have also allowed me to benefit from parental leave and subsidized healthcare insurance, which now costs us $2,500 a month.

I’m envious of modern knowledge workers who can work remotely and enjoy leisure activities during weekdays. Employees who can quiet quit and remain employed have it great. Had such arrangements been available in 2012, I likely wouldn’t have left my job prematurely.

Compensation and punishment

I’m attempting to compensate for being an older father by providing my children with a nicer home. It’s like a parent who throws money and gifts at a child to make up for the guilt they have for hardly ever being around.

While I know nothing can replace lost time, a nicer house serves as my gesture of apology for potentially missing out on significant milestones in my children’s lives, such as college graduation, marriage, or having children of their own. I have doubts I’ll be around for that long.

I know my children are content as long as they have us, regardless of where we live. Personally, I was perfectly content in our previous home too. Therefore, I see this move as a self-inflicted financial wound, a form of penance for past mistakes.

As I continue to grind away, my hope is that my regret will gradually fade. Only time will tell.

Enjoy Your Financial Independence Journey

While I prefer earning more passive income, every choice carries consequences. Now, I must face the price of my decisions.

Yet, amidst this challenge, my vision of returning to my original passive income level and owning a fully paid-off forever home remains a powerful motivator. Though it may take five years, I remain hopeful of reaching my goal.

Best wishes to you on your own path to financial independence. Remember to pause and reflect on your progress, appreciating how far you’ve come. Embrace the obstacles, for they may become cherished memories once overcome.

Reader Questions

How is your journey to financial freedom going? Are there any other benefits to having less passive income or income in general? Have you found that you can earn more money if you want to? What are some of the regrets you have in work, family, and life overall? Have you ever created a self-inflicted wound as punishment for your past mistakes?

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