How to Live on Dividend Investments
One of the safest passive income streams.
Good morning investors,
How would you like to be paid the salary you are making right now, but you never have to work again if you don’t want to?
That’s basically what dividend investing is. ( more or less)
Briefly for anyone who doesn’t know:
A dividend is a sum of money paid regularly (usually quarterly) by a company to its shareholders out of its profits. ( or reserves )
Today I want to give you a guide to living on dividends.
How Much do you Need to Live on Dividends?
The answer to this question is different for everyone. But take a mental note of how much money you want to be earning when you retire and how much money you are currently making.
Personal finance has a well-known 4% rule. This rule allows people to spend their investments when they retire While keeping a healthy account balance that will be around for many more years.
By only spending 4% (sometimes three percent if you want to be safer) of your net worth per year in retirement, the investments you own will compound faster than what you can spend every year. ( given there isn’t a major financial crisis or pandemic)
So take whatever you want to earn per year on dividends and divide it by 0.04, and you will get your number.
Example:
$100,000/year in dividends income.
$100,000 / 0.04 =
$2,500,000 net worth
Growth is key
$2,500,000 is a lot of money for the average American. The chances are that you are reading, thinking you will never reach that, but if you consistently invest, you will.
Stocks, unlike bonds, tend to grow over time. The thing with dividend stocks is that they might grow less per year than, say, a growth company, but they also will pay you just for owning shares.
So, each year when you are making your weekly or monthly contributions to your investing account, the dividends you earn before you retire can be used to buy more shares. That way you will receive more and more dividends as the shares compound faster and faster.
What it Comes Down to
Dividend investing is not for everyone. The catch is that most of the growth happens right before you retire because that’s when your account balance is highest, yielding the most dividend income.
However, with some simple planning, you can be on your way to living entirely on passive income with dividend investing.
Everyone can take advantage of dividend investing’s compounding income, both young and old.
If you enjoyed today’s article, feel free to share it with a friend who might want to take on dividend investing.
As always, have a great day, and remember to live in the moment : )
