Wow, you should be proud of yourself because having $400/month available to save and invest in a massive achievement. Don’t be fooled by the fancy cars around you; most people are broke.
$400/month allows you to do some cool things with your money, including saving, investing, and investing for income. Welcome back to the Saving and Investing series ($200), where we push our piggy banks to the limit.
Emergency fund first. You should have already saved your Tier 1 ($1,000) emergency fund. If not, take the first three months and get this done.
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Once we have our $1,000, we can continue to save $100 in our high-yield savings account. We are working towards our Tier 2 emergency fund, which should be roughly $10,000.
This money can solve most of our problems, allowing us to keep pace with our life. It’s nice to have $10,000 at the ready—trust me.
Next comes the savings. We have a couple of options for our subsequent $100 savings. We can invest in Certificates of Deposits (CDs) or Series “I” Bonds.
I prefer Series “I” Bonds because they last 30 years. I can automatically purchase them from the Treasury Direct website. “I” Bonds also keep pace with inflation, not interest rates.
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People prefer CDs because of their diversity. You can choose anywhere from 1-10 year CDs, which gives you more options. You can also spread these to several other banks to diversify your money.
Of course, you can invest in both. Maybe you choose one every other month. The good part of having money to save is that you are the boss.
Time for index funds. This leaves us $200/month to invest, which is a substantial amount of income. I remember a time in my 30s when I was finishing each month with negative savings.
This meant I was going into debt each month. Boy, times have changed. Again, you should be super proud of having $400/month to save and invest. I cannot say this enough.
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Index funds are an essential part of investing. They capture any portion of the stock market vital to your success.
There are four major index funds to invest in; you can start with only one or grab all four. Remember, there is no wrong answer.
- Vanguard Total Stock Market (VTI): Captures the total stock market
- SDPR S&P 500 (SPY): Capture top 500 companies
- Dow Jones Industrial Average (DIA): Top 30 mature businesses and pays monthly
- NASDAQ 100 (QQQ): Top 100 growth businesses
My favorite index fund is VTI, the total stock market; I have it across all my portfolios. However, I have exposure to these index funds because they outperform each other at certain times.
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I recommend putting $50/month in your complete index fund portfolio. That can be $12.50 each or $50 in one. Brokerages like STASH and Cash App allow you to invest as little as $1 into stocks and ETFs.
Individual stocks and Dividend growth investing. Now that we have remaining money to invest, we can gain exposure to dividend growth investing (DGI) via individual blue chip stocks.
I have countless books on Dividend growth investing, so I will point you toward those. However, we can do a quick recap.
DGI is the process of investing in dividend-paying blue-chip stocks over time. We can invest $50/month into individual stocks.
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Most companies pay dividends quarterly, so it is incumbent on us to find a good dividend payment schedule. For example, McDonald’s pays dividends in March, June, September, and December.
I recommend investing $50 into the company that pays you that month. You will see a higher dividend payment from that company in three months. This keeps it simple to maintain and grow your portfolio. Here is an example schedule
- Jan, Apr, Jul, Oct: Phillip Morris (PM), Altria (MO), Medical Property Trust (MPW)
- Feb, May, Aug, Nov: AT&T (T), Verizon (VZ), AbbVie (ABBV)
- Mar, Jun, Sep, Dec: McDonald’s (MCD), Public Storage (PSA), Ares Capital (ARCC)
Your dividend payments will start very low but will grow with time. In the last two days, I received $81 from Annaly Capital (NLY), $27 from AT&T (T), and $13 from Verizon (VZ).
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These all went directly to my Dividend Debit Card; as you can see, I spent $100 at the store on the military base. It feels incredible to have guilt-free spending money, so I want to expose this to you as early as possible.
Income Investing for the Win. DGI is a great long-term strategy. In the long run, you will have a massive nest egg that pays you great dividends. However, I want income today; you may be different.
I absolutely love income investing, and buying income is my favorite part of the investing scene. I simply pick a security that pays me income.
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With our last $100, we can invest for income. This is an extraordinary amount to dollar-cost average for closed-end funds.
Closed-End funds use leverage, which means the prices can be volatile. However, I only worry about buying solid products that pay me a high income. If you love watching your stock prices rise, stick to index funds.
One of my favorite CEFs is Pimco Dynamic Fund (PDO). It usually yields about 10%. If you invested $100/month into it for three years, you would earn roughly $30/month in dividends.
If you reinvest these dividends, your totals will be higher. You can also use that income to buy more Series “I” Bonds, CDs, or preferred shares. Or you can use it to go to lunch with your spouse.
Conclusion. My wife and I reached $1,100 in dividends this last month. That is money that keeps coming in whether we work or not.
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The goal of saving and investing is to buy your freedom. Imagine having $100,000 in our emergency fund while earning $3,000/month in dividends.
We both could work simple jobs or move overseas and live like a king and queen. Yes, achieving these numbers may take some time, but it starts with investing $400/month.
The more you save and invest, the more passionate you become about saving and investing. You’ll get an internal drive to produce more income while saving more money.
Wealth is having excess income versus expenses. Your $400/month will help you establish confidence in the markets. Keep up the excellent work; I’m proud of you. Good Luck!
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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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