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
I’m starting a Dividend portfolio for this exact reason. What investments do you have in your dividend portfolio? I started with AT&T, but will keep adding to it soon.
So far, my core holdings are Verizon and First Energy. Both have 5% yields and look fairly stable.
I also have some REITS, but I’m thinking about shifting out of them soon.
Why are you shifting out of REITs? Do you think they peaked already? I thought the housing market is still in the dump.
I’m not totally shifting out, just a few of the more risky ones. Plus I have a feeling the fed is going to raise interest rates sooner or later and that will have an impact.
You know I agree with you! Right now my dividends barely would pay for lunch (hat tip) once a week but one day they’ll be paying much more than that…I envision on being able to turn on the stream of income one day to be able to pay for huge expenses
Yeah, you and I are on the same page 🙂
I have my lunch experiment (that’s going to be changing shortly), But that’s just for fun, I also have a regular less risky stock portfolio too, and I’m hoping that it will provide enough money for vacations and secondary causes.
I’m right there with you! I dream of the day I can live on only my passive income! Thanks for letting me know I’m not alone!
Timothy
Lol, I notice that RB40, Evan and you all have dividend post too! Apparently we’ve all been thinking the same lately 🙂
It would be great to live off of passive income, or at least have that option!
As I near retirement, I plan on increasing the dividend portion of my portfolio.
I’m plan on using my dividends to pay for my expense even now. It’ll keep the idea fresh in my mind!
Sounds like you are on your way!
Dividends are becoming more and more of my core holdings! The power of dividend paying companies cannot be stressed enough!
Yeah, I’m just starting, although I have held certain power companies for years and years.
I think a better may to maximize your dividend is to use dividend reinvestment whenever possible.while you will still have to pay income taxes on the divdends the stocks are puchased at a much lower rate and the power of compounding ismaximized, I have had great success in doing this with blue chip stocks such as Pepsico.
Ah yes, a DRIP (Dividend Reinvestment Program)… dollar cost averaging is naturally built into such a mechanism.
Glad to hear Pepsico has done so well for you!
Dividends are great!! With the stock market on the road to recovery, hopefully more companies bump up their dividend payments.
I love this approach because it’s a way to chip away at your retirement one expense at a time.
Can you tell me which expenses you will focus on first? I’d probably try to have my fixed expenses like taxes and insurance covered before anything else.
Having a source of passive income paying for expenses is the whole point of savings. Dividends are just one source. I also consider interest and rental income as sources to pay my expenses someday. Gradually it all begins to take shape even though it seems slow at first.
Ya I agree with optionsdude…multiple streams of course is ideal. In case of a black swan event like 2008, you are still covered and shouldnt see a huge hit to your income. At least thats the idea 🙂
My dividends cover my interest expense of my margin usage. Whenever I use my margin for buying a stock, I don’t have to worry about the interest.
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