What is Your Goal with Investing Your Money?
- Do you need a passive income? Is that a safety net when you lose your job? Is it like to have your dividends replace your full-time income?
- The first thing to identify is how much money you need coming in each year to live off. Some people don’t need that much money to live off. They enjoy the simple things. Other people love spending money & they need a lot of money to fulfill their desires. They need more money from their dividends to live off.
- First, we talk about an average person like me. If we look at the Bureau of Labor Statistics the median wage for workers in the United States is currently $50,000 per year. Living off $50,000 some of that’s going to your kids’ tuition & food, some going to investments. You are not using all of this income by yourself. Let’s assume that you use around $30,000 of their income to live off each year. So, we need $30,000 in dividends to replace their income for us to be fully financially free.
- So, what is our goal? How much do we need to invest to get $30,000 in dividends each year?
Dividend Investing Strategy
- The first thing you need to identify is your dividend investing strategy. Are you going to go for the high yields, the high-risk companies? Are you going to play it more safe & go for the lower dividend yields, low-risk companies?
- Companies that I like personally pay a nice dividend but also they’re using some of their earnings to reinvest in the business. If they are paying out all of their earnings as dividends I think it’s somewhat risky because paying all their earnings how are they going to keep growing as a business? I like to buy businesses that grow year after year.
For example Warren Buffett’s Coca-Cola. Buffett first started buying shares in Coca-Cola in 1988 & this was a company that had a strong business model behind it. By 1989 he had purchased 23 million shares worth $1.8 billion & he profited $19.4 billion in terms of share price increases plus he received $7 billion in terms of dividends. It is a great example of paying dividends & growing the company.
What Do We Consider a Nice Dividend Yield?
- The average person’s living expense is around $30,000 per year as we mentioned earlier. A 3% dividend yield is a good dividend yield & with a 3% dividend yield we need to cover our 30k income. By dividing $30,000 by the dividend yield of 3% we get the number $1,000,000.
How Much Do We Need To Get Retired
- Most people think that saving up to $1 million is an unrealistic goal. That’s a total lie. The people who think $1 million is a very big number the people who look up at a big mountain & think oh it’s impossible to climb. One concept these people don’t understand is compound interest. If you invest your money & give it the time it needs to grow $1 million is an easy goal that can be achieved by anyone.
