I have written multiple articles on how we plan to retire on dividends, and I will continue to do so over the next 30 to 40 years. But in reality, our military pension will be enough to cover our significant expenses for the rest of our days.
So why do I keep writing about dividends? Because they are just freaking cool! How amazing is it to create your own paycheck, and continue to grow it, and also have companies help you grow it as well? Over time, the compounding effect becomes a tremendous joy in your life.
And as much as I love seeing $20, $30, $40, and even $50 dividends being deposited in my account, I always remember that I had to start somewhere. Yes, precisely two years ago, my dividends looked like $0.20, $0.30, $0.40, and $0.50.
How to Start Dividend Investing 101: Find Your Why
So today, after two years of being a dividend investor, my best advice is to Set Small Goals. And as a side note—Enjoy Your Dividends. To get the best results in the early days, you will want to combine these two ideas to keep motivating you. Let’s dig into these topics.
Set small goals and enjoy your dividends go hand and hand together. Set small goals refers to having small goals for your dividends to replace parts of your spending habits. For example, having $20 worth of dividends pay for your Netflix account.
Indeed, I have seen many people online say to start slowly having dividends pay for smaller bills along the way. I think this is a great idea, if not boring. This is why I throw in the “enjoy your dividends” caveat. Why use your dividends to pay bills when you can use them for guilt-free spending?
I would rather use my $20 in dividends to buy two Starbucks coffees or go to breakfast at McDonald’s. I think you get the full effect of dividends when you use them on something fun, meaningful, and for relationship building.
In the beginning, I reinvested all of my dividends, as the internet instructed me. However, once I started my Cash App challenge, I realized that not everything had to be reinvested. Why wait 30 years to have fun with dividends. By that time, you will just be using them to pay bills anyway.
I decided to use a portion of my dividends to fund such a fun lifestyle, and it is truly motivating me TO SAVE MORE. That’s right, the more I look forward to receiving big dividends, the more I want to invest my earned income to increase my payouts.
The Year of Dividends
If I were just reinvesting my dividends, I would just let time and compounding do their things, with no motivation to see pay increases. Now, I am counting the days for my Pimco payments (PCI, $51), AT&T (T, $32), Phillip Morris (PM, $20), Prudential (PRU, $22), and AGNC (AGNC, $13). Those are just a few of the many paychecks I get throughout the month.
Where should YOU start? Now it is time for you to pick your starting goals. I wish I had picked some small starting goals in the beginning. I just looked at my dividends on a spreadsheet for the first year—no fun in that.
Dividends vs. Capital Gains
What is something minor you love to buy at the gas station or Walmart but you feel guilty about? Maybe a bag of chips, some candy, or a collection of shot glasses? Whatever the case, I would start with something smaller than $10/month. It may take you a couple of months to get to that amount of income.
From there, move on to the next goal. It may be a $40 monthly manicure or pedicure. How about taking the family to dinner at Applebees for $100. It is all in the realm of possibility with consistent dividend investing. And boy, does it feel good to be in control of your finances. I have never had this level of stress freedom (just made that up) in my life.
For example, Kris doesn’t check on her dividends accounts often; it’s mainly my forte. However, when we checked her Wells Fargo account, she had accumulated over $100 in dividends over the last 4-6 weeks. Truly an amazing accomplishment.
I could have just reinvented the cash, but seriously, what is the fun in that? She has four brokerage accounts, and they all have some form of reinvestment strategy; we can spare a few dollars. I asked her what she wanted to do with it, and she suggested letting it sit there.
However, in proper spouse form, she found some shoes she wanted to buy. So I transferred the cash from her brokerage account to her checking account, and she bought the shoes. Truly guilt-free, stress-free living.
Pay Off Debt or Start Investing?
This is just a tiny example of how dividends can indeed be life-changing. Sometimes, you need to imagine how these dividends will compound into vast numbers, like $2,000/month or $4,000/month. Can you see the possibilities?
But don’t get too excited yet. Let’s start with your $10/month goal—what do you have in mind? If I had to go back, I would have started with a weekly ice cream bar for $5/week. Now, I go into the store, buy my ice cream, and feel fabulous because dividends funded the purchase.
Let me know what your small goal is and what you plan for your more extensive purposes. Your dividend goals truly can come true if you stay the course. Enjoy and Good Investing.
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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.
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