Dividends, Dividends, Dividends. Why all the talk about dividends? Some people live and die by dividend investing, while others pay them no mind. Why such a stark contrast?
The simple answer is that some people want to become rich, and others want to be wealthy. Rich people have a plethora of assets that are worth a lot of money. Wealthy people’s assets produce income—a ton of income.
For what it’s worth, I want to be wealthy. I love having an abundance of income, which ensures my day-to-day troubles slip away into the night.
The Passive Income Hero 2
The more income I produce, the more I can use it to make more income. My income creates more income; we call this Compound Interest.
Snowballs for everyone. Dave Ramsey often talks about the debt snowball payoff process. During this process, you pay off your smallest debt and use that momentum toward the next one. Eventually, you will become debt-free and highly motivated to save and invest.
I used the debt snowball process to pay off $77,000 in debt from 2019 to 2021. I cannot tell you how great it felt to free myself from debt bondage.
Something interesting happened to me after becoming debt-free: my income kept increasing. I am not talking about my employment income (US military) but my passive income (dividends).
The more money I made from dividends, the more they kept growing. Every year, I make more and more income. I am not talking about an extra few dollars but huge year-over-year increases. What was going on?
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I am experiencing the power of compound interest. Compound interest is part of the extraordinary power of compounding in nature—everything in nature (including education) compounds.
To understand more about compounding, read “The Compound Effect.” The book changed my life and perspective on what I should be doing every day to harness the power of compounding.
If everything we do compounds, whether good or bad, how does that change our actions? Would you rather read a book every day or eat a cheeseburger? Which will compound into better results over a year or two?
The Dividend Snowball Effect. I chose to focus on dividend investing as my compounding element. Watching my dividends grow year over year is my favorite pastime. So, let’s examine how my dividend income has grown since 2019.
As you can see, the dividend growth is just ridiculous. To say I earn $2,136 a month in dividends is bonkers. More importantly, my mindset and passion have grown more than the actual income.
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You see, something happens to your goals as you exceed them, and you want to increase them for the next time. In July 2019, having $100 in dividend income seems impossible.
Now, I am on my way to $5,000 per month in dividends by 2028. That’s my goal, and I am sticking to it. However, I need to do big things in life to get such massive results from my dividend portfolio.
The push for income. My military retirement pays me enough that I will never need to get out of bed again; however, that’s not my life goal. To increase my dividend income, I must increase my input.
Therefore, I created multiple other income streams that feed into my dividend portfolio. Let’s examine my other income streams.
- GI Bill. I am using a similar product to the GI Bill to go to college. The VA pays me $1,700 (tax-free) to attend Pensacola State College and get my Business degree.
- Roommates. My wife and I recently got a roommate. We went almost 1.5 years without one, but our thrust for dividends led us back. We earn $1,000 per month from our roommate.
- Options Trading. I trade options less than I used to, but I can bring in roughly $100 monthly.
- Book business. I write and publish books. It’s more of a hobby, but I earn $200 to $300 monthly.
- Rental properties. We have two rental properties that net us $700 per month. We mainly keep these for our children.
To increase our dividend income, we can create as many income streams as we deem fit. That’s the power of the dividend snowball effect.
What If Your House Paid Dividends?
How can you harness the Dividend Snowball Effect? Don’t let me be the only one earning big dividends; it’s time for you to jump in.
Investing in dividend-paying stocks can be challenging because the media tells you to invest solely in index funds or mutual funds in your 401 (k).
The problem with these products is that they don’t give you “the information.” They don’t teach you how to convert $1,000 into $100 per year in passive income ($8.33 per month).
The true power of dividend investing is examining what you buy now and estimating how much income it could otherwise generate.
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Let’s say I get a $10,000 bonus from my employer and want to purchase a new $5,000 couch for my family. I can purchase the couch and invest $5,000 in the closed-end fund PDI at a 12% dividend yield, which creates $600 per year in annual dividend income.
Or, I could invest the entire $10,000 in PDI and earn $1,200 in annual dividends. In four years, I could purchase the couch from the dividends I collected.
More importantly, I could purchase a couch every four years for the rest of my life. That’s the magic of dividend investing. You take a large lump sum and generate a lifetime of income.
The Magic of Passive Income Investing
Getting more dividend education. I have been writing about dividends for four years and don’t plan to stop anytime soon. I want to give you some articles that can get you started.
- The Four Principles of Index Fund Investing
- The Four Principles of Dividend Growth Investing
- The Four Principles of Income Investing
- The Magic of Index Fund Investing 2
- The Magic of Dividend Growth Investing 2
- The Magic of Income Investing 2
Conclusion. Somewhere in these articles, you will find the dividend growth path that works for you. Some people (like me) are as hardcore income investors as they come. I want high yields that produce money now.
Others love to invest in massive corporations that raise their dividends annually. These companies include McDonald’s (MCD), Johnson & Johnson (JNJ), and Coca-Cola (KO).
The Magic of Dollar-Cost Averaging
Of course, you can mix and match investment styles to create “your” style. Ultimately, you want to sleep well at night, knowing your dividends are safe and growing.
Dividend investing will play a major role in ensuring your family beats inflation and high cost of living pressures. Also, they can help you save for weddings and down payments.
People call compounding the 8th wonder of the world, and I must agree. I have never been a part of a more powerful force, and I was a US Marine for 24 years.
Once you learn the power of the Dividend Snowball Effect, you can pass the information to your kids. That way, they can harness the power in their 20s—unlocking an obscene amount of compound growth. 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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