Inflation will stick around for 5-10 more years, so we must fight it at all costs. If your income leaves you behind, expect to have a challenging decade.
Income investing is my favorite way to combat inflation because of the level of control it gives you. Each dividend you earn gives you a choice between reinvesting, spending or holding.
I wrote part one of this article roughly a year ago, so let’s check in to see how my income investing portfolio has performed in that time.
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Checking in on my portfolio. I love income investing because I am creating a paycheck I can harvest at my leisure.
The more I invest, the more money I receive and the choices I have. Let’s review how my portfolio has looked over the last few years.
- April 2019: $0
- April 2020: $115
- April 2021: $290
- April 2022: $948
- April 2023: $1,322
Wow, that’s a lot of dividend growth. You can see how addicting it is to build an income investing portfolio tailor-made to suit your needs.
Remember, your income should increase every year. Inflation will eat your lunch if you don’t consistently grow your income.
The three types of dividend actions. As I said earlier, I have three options for my dividends: reinvest, spend, or hold. Let’s look at each individually.
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Dividend reinvestment. Dividend reinvestment is a great way to keep growing your income. When I first started, I reinvested every penny back into the portfolio.
However, over time, I invest more into the portfolio when I spend some dividends. Using some of your dividends in daily life is a wonderful idea because it keeps me hungry to grow my income.
Reinvesting 25-30% of your dividends will ensure you beat inflation. This is because we aim for our portfolio to produce 9-10% yields.
Spending dividends. There is nothing better than spending your dividends. It is the definition of guilt-free spending.
2023 has been an expensive year for my family. We have had to renovate parts of each of our three homes. Plus, our cars needed some repairs.
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My wife also stopped working, so she needs to leverage her dividend income. We have enjoyed using our dividends as a backup.
Having an extra $700 to $1,000 throughout the month is excellent. It’s great to wake up to an additional $50-$100 in your account.
Holding dividends. Sometimes we must prepare for the unknown. I love letting my dividends stack up throughout the month.
Can you imagine if your savings account would grow by itself? That’s actually what my dividend portfolio does for me every month.
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Let’s take my Wells Fargo brokerage account, for example. If I left it alone for a year, it would start with a zero cash balance and grow to $3,700.
How cool would it be to check your balance in one year and see $3,700? You can also collect your dividends for vacations and other expenses.
Beat inflation with dividends. How exactly does income investing help you beat inflation? Your 9-5 job will not beat 5-6% inflation yearly.
Sure, you can keep changing jobs, but eventually, you will get stuck in a horrible position. It’s better to keep a solid job and create additional income streams.
I can hold my dividends in cash for the month. I can reinvest to create more income next month if nothing random happens.
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The worst part of inflation is the unknown. Prices continue to rise monthly; you never know where it will hit the hardest.
My income investing portfolio gives me the confidence to face life head first. If things go as expected, I can grow my income for tomorrow.
Why income investing? I love income investing versus real estate and business because I get a high level of control.
Our properties’ rents continue to increase, but so do the expenses. I love my book royalties, but they are sensitive to a recession.
I don’t have control over dividend cuts, but I can control what income-investing securities I hold. Once I receive a dividend, it is mine to do as I please.
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Let’s say I receive a $100 dividend from Ares Capital (ARCC). I can survey my current situation and determine how I can leverage it.
I can reinvest $30, spend $40, and hold $30. This scenario gives me the best of all worlds. I can enjoy a movie with popcorn and buy 1.5 shares of ARCC. I also have $30 in case something else happens.
Life is about being smart. For some reason, we try to brute force through life. We try to earn as much money as possible, thinking this will protect us from the unknown.
However, life is about being intelligent and flexible. If you receive $500/month in dividends, make your entertainment budget $300.
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This ensures you reinvest $200 back into your portfolio. If $300 is insufficient, work harder to find cheaper entertainment alternatives.
Income investing isn’t about making more money for the sake of having more money. It is a lifestyle that puts budgeting as your top priority.
Income investing + budgeting. Sure, you will have much more income than you did before. But with great power comes great responsibility.
Income investing plus budgeting equals the perfect life. Combining income investing with a hardcore budget beats inflation every time.
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Let’s say your entertainment budget for 2022 was $500 per month. As you enter 2023, you keep the same $500 budget.
You just beat inflation right there—congratulations. It will be more difficult to entertain yourself on the same budget, but it takes more planning and critical thinking.
Conclusion. Perhaps instead of seeing two movies a month, you cut down to one. Instead of a film, you hike or play pickleball.
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Preventing lifestyle inflation is the true way to beat inflation. But, you will need income for the unknown—that’s where income investing comes into the picture.
I have some resources for you if you want to start an income-investing portfolio. I have been an income-investing fanatic for four years and love it more every day.
- The Six Types of Income Investing (Amazon)
- The Magic of Income Investing 2 (Free PDF)
- I Heart Income Investing (Free PDF)
These articles will give you more information about the joys of income investing. If you are on the fence, think about having an extra $1,000 per month. Would that change your life?
It has changed mine. Now, I am setting my sights on reaching $2,000/month in dividends. Life is good when you have resources and options; trust me. Good Luck!
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