Category Archives: Goal Funds

Paying Expenses From Dividends

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Paying normal expenses is a lot like renting, you never really get ahead and may even be living paycheck to paycheck for your entire life, just barely getting by.

Or perhaps you are hording away money living like a miser until it’s time to retire.  The problem with that approach is retirement may never come, after all, accidents happen…

Maybe your plan is to just spending everything, going into massive debt figuring that you can always declare bankruptcy and start overall someday in the future.

All of these are ways to handle expenses and spend money, but what if we tried paying our expenses from dividends instead of money from our paychecks?

In fact, what if from the beginning of adulthood we started paying expenses from dividends?

If from the start, we took our salary or wherever you get your income, and bought stocks that provide a stable dividend, we could have a level of freedom that most people don’t have after 10 or 20 years!  I’m sure you are thinking that it wouldn’t be possible, and you would be right!  It would have to be a gradual process, buying some dividend stocks at the beginning, but slowly using that dividend money to pay your expenses.

Using the graph above, the red would be the money we bleed from our paychecks, whereas the green would be the dividend money that would continue to grow over time.  Eventually we would be paying all of our expenses from dividends!

You wouldn’t have to directly use the dividend money, instead you could have the money automatically reinvest back into the stock (let’s say a DRIP), while paying from your paycheck as normal.  it might take decades for your expense to totally be handled by your dividends, but it’s worth a try!

Much like the line in the graph above isn’t straight, neither would the stream of dividends.  At the end, it would dividend money would grow more quickly, so it would be slightly parabolic.

So I’m going to try this approach, but more importantly, I’m going to teach my kids early when they are young.  If they could incorporate such a system into their lifes, I think they would be well provided for in the future!

Bests,

-MR

Buying Dividend Stocks For Christmas Expenses

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Christmas Fund

Christmas is just around the corner (lol), so I thought I’d prepare now just to get a small jump on my Christmas expenses.

Okay, I’m buying dividends for Christmas expenses but most likely I won’t use it until year 2012 or maybe even 2013…

I’ve had such great success with My Lunch Experiment, that I decided I wanted to do something similar with another source target for the stock dividends to be allocated for.  The beauty of the Lunch Experiment is that the money was free in some respects, since its money that would have been spent if I didn’t come up with the idea for the lunch experiment in the first place.

The money for a Christmas Fund is a bit tougher since the money for my lunch experiment was supplied by the money that I would have spent on lunch out at work.

I ended up gathering up money from sources where my paper money was just sitting doing nothing at home.

Money Sources included the following:

  • Cash that was sitting in a drawer in my office.  This purpose of this money was used for cash gifts for Birthdays (mainly for the kids).
  • Cash that was sitting in a small firebox in the basement.
  • Money that I had stashed in my car for “on the road” emergencies
  • A few small piggy banks around the house
  • And finally 100 dollars I had in between a few pages of a book.

All told, I was able to collect about $1,200 for the purchase of the dividend stock(s) that will be used in the Christmas Fund purchase today.  I’m tempted by some high stock yields, but I’m probably going to settle on less risky dividend yields(shooting for the 3% to 5% range).

After I get money back from income taxes, I think I’ll add in $1,300 to the amount in the fund, bringing the total to $2,500.  This should be a great base for such a fund!

I think after a number of years, once I get to $12,000 in the fund, I will only contribute $500 per year.

I know it seems like I’m really focused on dividends lately, but I really want to get these funds established early this year!  I’ve learned thought previous experience if I don’t start them early when it’s still solidly on my mind, the task may get put off, sometimes for years.

-MR

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Creating My Kid’s Christmas Money Fund

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Old Wallet

Old Wallet

This year, I paid for my kid’s christmas money (I give them each $100), out of my pocket. Zapped, right out of my old wallet.  Next year, I’m going to start a “ Kid’s Christmas Money Fund”!

So what is a Kid’s Christmas Money Fund?

The fund will be money I put into a 4 to 6% dividend yielding stock that is relativly low risk (I hope).  Maybe an energy stock (or energy transfer stock) or something that has a similar risk level (maybe McDonalds?).

My goal is for the fund to pay out $100 to each kid until there are 16, then I’ll double the amount to $200.

So how am I going to start out this fund?

Starting in January, I’m going to seed the fund with $1,000 from savings.  Then each month, I’ll start to save $200.  Every time my saved amount equals $1000, I’ll buy more shares of stock.  So my total deposits  per year will end up being $2,400. 

Once the kids are in college, perhaps I’ll give some of the extra money from the fund to them for spending.  The Green bar below in the chart represents when I’ll start giving the dividend to them.  So each would get half of $687 (around $340 piece).  I’m not 100% sure if this is what I want now or not.  I’m experimenting with ideas still.

 

The Kid’s Christmas Money Fund

Additional Scheduled Accumulated Interest Dividend
Year Money Deposits/Yr Amount Rate Yield
2010 0 1000 1000 0.04 $40
2011 0 2400 $3,440.00 0.04 $138
2012 0 2400 $5,977.60 0.04 $239
2013 0 2400 $8,616.70 0.04 $345
2014 0 2400 $11,361.37 0.04 $454
2015 0 2400 $14,215.83 0.04 $569
2016 0 2400 $17,184.46 0.04 $687
2017 0 2400 $19,584.46 0.04 $783
2018 0 2400 $21,984.46 0.04 $879
2019 0 2400 $24,384.46 0.04 $975
2020 0 2400 $26,784.46 0.04 $1,071
2021 0 2400 $29,184.46 0.04 $1,167
2022 0 2400 $31,584.46 0.04 $1,263
2023 0 2400 $33,984.46 0.04 $1,359
2024 0 2400 $36,384.46 0.04 $1,455
2025 0 2400 $38,784.46 0.04 $1,551

It’s a little fund, but a fairly easily obtainable.

I wonder if it’s worth the trouble…

Spot Budgeting To Save Money For A Goal Fund

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First, let me say, that I’ve always admired people that create budgets and could follow them to the T.  I’ve actually tried to create a budget when I was in college, but it’s never worked out for me. There was always something that would pop up that I didn’t save the receipt for.

Surprisingly, while doing my Breakfast/Lunch experiment, I “out of the blue” realized that my experiment is really a form of budgeting.  I decided to call this type of budgeting “Spot Budgeting“.

Here’s how “Spot Budgeting” works for me:

  • First, every monday, I clip 5 sheets of paper I recycled together and use them as a log for things I do at work.
  • At the top, I add Breakfast and Lunch cost to these 5 sheets, 1 entry for breakfast and 1 for lunch on each sheet.
  • On Friday, I add up the total cost for breakfast and lunch, then I do the following calculation:
    • Is 60 – (weekly breakfasts + weekly lunches), greater than 40?
      • If 60 – (weekly breakfasts + weekly lunches) is greater that 40, then I pay myself the full $40 dollars for an allowance.
      • If 60 – (weekly breakfasts + weekly lunches) is less that 40, then I pay myself the amount that’s less than $40 dollars.
      • The following week I’ll make it up by not eating out for lunch as much.  Then I’ll pay myself the amount over $40 dollars that I didn’t spend.
  • Since I’m adjusting and tracking this weekly, I don’t do any monthly or yearly budgeting comparisons (this makes it simple).
  • Since it a weekly comparison, and it typically only involves 20 entries (only 2 a day) to log per week, it’s very simple and quick to do.
  • If I want to calculate my yearly savings, it’s just (40*52, which is $2080)
  • That’s it…  My budget is just for Breakfast/Lunch and during the typical workweek only.

Now my next stage is to take the money I save by budgeting and put it into a dividend yielding stock (etf, bond, mutual fund or whatever).  Then use the dividend paid by that investment to increase the amount of money I have for lunch.  See my attached spreadsheet table below:

So after 3 years of saving, I can afford to buy another cheap lunch per week, while I’m at lunch… so instead of 2 days out for lunch per week, I’ll added another lunch out with the guys after every 3 years of savings.

My view on the “Spot Budget” is that you are no longer paying for the lunch out of your earned money, but instead using the money from your investment dividends.  So after the 1st year of investing the money, this will effectively be my “Lunch Fund”.

To speed up the savings, I also add “Additional Savings” to my “Lunch Fund”.  The “Additional Savings” could come from bonuses, part of my tax refunds, etc.

Additional Main Adult Total Yearly Amount & Interest Monthly Weekly
Savings Savings Allowance Contributions Interest Interest Rate Earnings Earnings
2009 1000 2080 3080 3,080.00 $154 3,234.00 5.0% $12.83 $2.96
2010 2080 2080 5,160.00 $258 5,418.00 5.0% $21.50 $4.96
2011 2080 2080 7,240.00 $362 7,602.00 5.0% $30.17 $6.96
2012 2080 2080 9,320.00 $466 9,786.00 5.0% $38.83 $8.96
2013 2080 2080 11,400.00 $570 11,970.00 5.0% $47.50 $10.96
2014 2080 2080 13,480.00 $674 14,154.00 5.0% $56.17 $12.96
2015 2080 2080 15,560.00 $778 16,338.00 5.0% $64.83 $14.96
2016 2080 2080 17,640.00 $882 18,522.00 5.0% $73.50 $16.96
2017 2080 2080 19,720.00 $986 20,706.00 5.0% $82.17 $18.96
2018 2080 2080 21,800.00 $1,090 22,890.00 5.0% $90.83 $20.96
2019 2080 2080 23,880.00 $1,194 25,074.00 5.0% $99.50 $22.96
2020 2080 2080 25,960.00 $1,298 27,258.00 5.0% $108.17 $24.96
2021 2080 2080 28,040.00 $1,402 29,442.00 5.0% $116.83 $26.96
* The idea here is to pack food, which saves money and to pay my allowance out of that money

This is my first “Goal Fund”, eventually I plan on have other “Goal Funds” that will pay dividend for other goals, perhaps vacations, taxes, etc.

Well, this is my evolution of my lunch experiment into a Lunch “Goal Fund”.  I’m kind of excited to see this come to fruition!!

Goal Fund for lunch

Goal Fund for lunch

– D