A friend at work asked why am I working so hard to saving dividends to pay for my lunch expenses.
Cross-over point to the positive
He was actually referencing the fact that I don’t go out as much because of my experiment called: Lunch Dividend Experiment. He thought it was a risky move because what happens if the stock stops paying dividends or goes belly up and I lose my entire investment in that company.
Well, my friend is only seeing part of the equation. The part he forgot about was that if I paid for expenses with my earned income, my money is gone after I pay for the expense. However, with stocks that pay dividends, I have the opportunity to keep my initial investment, only spending the dividend portion. It’s true that such stocks won’t increase in value as fast that way, but the idea is someday that I will increase my investment in that stock too, once the dividend payout is more than what is required to pay for the expense and taxes.
At the very least, I’m not spending my earned income, never to see that money again!
That said, I won’t be able to use dividends to pay my mortgage (if I still had one), but everything else is fair game!
Almost all of my dividends are overloaded in purpose. By this I mean that I’ll use my dividends for a want, but if something happens, I’ll switch it to cover a need. For example, I’m working on building up my dividend payouts so that they can cover future vacations, or at least help pay for vacations, but if some disaster happens like I’m unemployed, that dividend stream will go to other more important things such as food or paying my real estate taxes.
That the beauty of dividend goals! Just because they are ideally focused on one goal, doesn’t mean that they can’t be switch to a new high priority goal if the need arises.
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!!
