Living paycheck to paycheck sucks! Sometimes you may not even understand that you depend on your next paycheck for survival. It’s not until you have a large amount of savings you can reflect and see the gravity of your prior situation.
America trains us to live paycheck to paycheck, by the way. When our paychecks arrive, we pay our expenses first, and what’s left, we consider discretionary income.
This is the worst way to treat our money and financial well-being. We need to pay ourselves first, then spend what we have left on living. Sound confusing? Good, learning is occurring.
Earned Income vs. Passive Income
First, let’s get out of debt. If you live paycheck to paycheck, chances are you have racked up some debts. This debt can be from student loans, car payments, and credit cards.
The first step to buying your freedom is getting yourself out of debt. There are a couple of methods to get out of debt.
You can take the Dave Ramsey way, which involves following his Baby Steps. Mr. Ramsey has helped thousands (or millions) of people get out of debt, so his method works.
I used Ramit Sethi’s method from his book “I Will Teach You to Be Rich.” He walks us through the steps from paying off credit cards to becoming an automatic millionaire.
You’ll also want to understand your personal philosophy of money. We each have limiting beliefs about money that we need to address. Two books I recommend are “Effortless Money” and “Know Yourself, Know Your Money.”
Life is too short. Life is too short to be in debt and living paycheck to paycheck. Once you commit to paying off debt, the process doesn’t take as long as you may think.
Ramsey says it takes 4-5 years to pay off debt. However, sometimes it only takes 2-3 years. My wife and I went from -$77,000 in debt to +$150,000 in 22 months. Yes, it moves quickly.
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Once you get out of debt, you will see the correct version of life. Sunny days will be brighter than ever. If you ever watched the original “Wizard of Oz,” you understand the impact of color. You’ll have the confidence to take on the world on your terms. It truly is life-changing.
Start investing or pay down debt? While we paid down debt, I started investing. Mr. Ramsey likes to pay off all debts and save an emergency fund before investing.
To me, building the mindset of an investor is the most critical step you can take for yourself financially. Understanding money is how we pay off our debt so quickly. I explain my thoughts in the article “Pay Off Debt or Start Investing 2.”
If you don’t feel like you control your life or finances, you lack financial education. That’s fine because they never taught you this vital subject. But now is the time to learn.
Income Investing. My favorite type of investing is called Income Investing. I have been writing about income investing a lot over the last few months.
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Income investing involves buying stocks and ETFs (electronically traded funds) that offer high yields. There aren’t guessing games, and you aren’t investing for capital gains (waiting for the price to go up.)
Paycheck replacement. The entire point of income investing is to replace your current paycheck—or add another paycheck to your household.
The securities you purchase via income investing yield between 6-11% in dividends. By investing in products, you are slowly building an excellent secondary source of income. This income stream follows you at all times, regardless of if you work or not.
Something is impressive about building your own paycheck. But how do you go from living paycheck to paycheck to creating your own income stream?
How to become an income investor. The best way to start income investing is slowly. As you pay down debt, you will begin to have a little bit of money left over from your paychecks.
Sure, you could use that pay down debt faster. But, for me, learning to invest is much more valuable than rushing to pay off debt.
If you have an extra $100/mo, you could start building an income portfolio. For example, you could open a Cash App stock account and invest $100/mo into AGNC (one of my favorite REITs).
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Over a year, you would invest $1,200. The following year would be receiving roughly $120/year on dividends. That equals about $10/mo in real discretionary income.
Yes, $10/mo in dividend income doesn’t sound like much, but let’s dig deeper. AGNC pays around the 10th day of every month. So, you would get your $10 paycheck from AGNC.
You can do whatever you want with this money because you know it’ll be there next month. You can reward yourself with a trip to McDonald’s or some ice creams.
Living on dividends. Most people cannot fathom living on dividends, but most people aren’t rich. Even with your $10/mo income, you make more passive income than 80-90% of the population.
Most people have no income without exchanging their time for money. You’re $10 AGNC paycheck represents so much more than $10. It means freedom from the grind.
All you have to do is keep repeating the process, and your $10 turns into $100, then $1,000. My wife and I are almost at $1,000 in dividend income. It took us roughly three years of investing to reach this milestone. You can achieve this amount as well.
Annuities vs. Dividends 2
Conclusion. Do you see the slow conversion from depending on someone else for a paycheck to creating your own? That’s why I believe everyone should start investing a small amount of cash monthly.
You have to understand the feeling of receiving dividends to benefit from the process truly. I look forward to my dividends more than my work paychecks!
Passive income is a mindset, so you have to believe in the process. Whether or not you think it works, you’re right. So why not believe, pay off debt, invest, and start living your dream life? You can do it!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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