Tag Archives: personal spending money

Using Dividend Stocks For Extra Spending Money

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I would like to buy some dividend paying stocks so I can use the dividend for Extra Spending Money instead of using money from earned income.

First let me say that each month I thought I only spent $250 as my personal Extra Spending Money, but I was wrong!  I spend well over $300.  While I’m going to use $300 as my basis for the calculations below, I want to go back to the $200 to $250 that I use to consume someday.

My current formula for using money for my “Extra Spending Money” is a more of a consumption based model.  This is where once the money is gone, it’s gone!  Here are my simplified steps:

  • The money I have allocated for spending, all gets spent
  • I have zero dollars left at the end of the month.

My future formula for using my “Extra Spending Money” will be a investing-spending hybrid model.  I envision it as the following steps:

  • I save $200 of the $300 that I have allocated.
  • $100 of the $300 is for spending.
  • Invest the savings into a stock that provides a 5% dividend.
  • After year 1use the dividends to help supplement the $100…
  • Eventually as the dividend become big enough, stop spending the $100 and have it go into the dividend stock.

This process will be similar to my Free Lunch Experiment, but this experiment require much more money invested and time than the Lunch experiment.  So I’ll have to do it gradually over years, unless I come up with a way to speed up the investment contribution.

For example, just to generate a monthly $50 from the stock, I’d have to have $12,000 lump sum at an interest rate of at least 5%.  So that would mean some far off future day, to get up to the minimum $200 level, I would need to save at least $48,000 to $50,000 at a similar 5% interest rate.  and this isn’t even taking into account taxes and inflation!  I could envision the true amount that I would need for the month $200 payout being more in the range between $80,000 to $100,000.

I will provide more details in the future, thanks!

-MR

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