The costs of owning or renting a home are rising at unprecedented levels. Everyone who stays inside a shelter feels the effects of economic inflation and corporate greed.
There is literally nowhere to hide; all we can do is get better. I want to look closer at what is causing this housing inflation and how dividends can help us beat it. Let’s begin.
What is housing inflation? When you lock in a 30-year mortgage on a home, you guarantee the amount you pay for principal and interest.
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However, other factors contribute to your escrow payment each month. These include property taxes, home insurance, and homeowner association fees.
If one of these costs shoots up rapidly one year, then your mortgage servicer usually hits your escrow with a shortage amount so that you can catch up.
Before you know it, these costs take on a life of their own. Many homeowners do not prepare themselves for these quickly increasing payments.
In fact, I was one of those homeowners in 2008. I had no idea what to do because my payments were increasing so fast. Luckily (or not so luckily), the 2009 housing crisis cut home prices in half and lowered our property tax.
How does this affect renters? Renters still feel the effects of these housing costs because homeowners (landlords) pass these prices down to them.
Whenever a homeowner receives a massive new escrow payment, they immediately research how much they can raise the rent. Everyone will eventually feel the effects of these costs.
Pumpkin Spice & Royalties 3
However, this is not a pity party. We can still position ourselves to outpace housing inflation easily; however, it will take some sacrifice on our part.
What are dividends? My preferred way to beat housing inflation is by investing for dividends. Dividends are potions of profits that companies pay you if you own shares in their corporation.
For example, McDonald’s (MCD) pays an annual dividend of $6.68, based on a $275 share price. The good part is the company raises their dividend annually.
Oftentimes, their raises can be enough to offset the prices of your housing inflation. You can also beat inflation by reinvesting some of our dividends to ensure your next payment will be even larger.
Investing for dividends and income is an entirely new concept for most people. Many believe that the only way to earn income is through a W-2 job.
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However, a W-2 job will not always allow you to beat housing inflationary pressure. Remember, housing inflation does not exist in a vacuum.
As housing escrows increase, prices for food, gas, utilities, clothes, education, car insurance, and medical care also rise.
Everything around you is increasing except for your paycheck. Now is the time for you to take a stand and start dividend investing.
Getting started with dividends. Most people will say they cannot find the money to invest for dividends—and I am sure they cannot.
But you aren’t like most people. You want to live in comfort, knowing that you can beat housing inflation every year.
How to FALL into Investing 3
Creating a hardcore budget is the best way to find extra income to invest. A hardcore budget drills down into each segment of your lifestyle, and puts a limit on your spending.
Let’s say you make $10,000 monthly. Your hardcore budget may include the following: mortgage ($2,000), utilities ($800), bills ($1,000), food ($800), personal allowances ($1,000), and debt ($2,000).
This amounts to $7,600 per month, leaving you $2,400 to save and invest. You can further improve your balance sheet by cleaning up your debt (-$2,000).
But don’t forget that renting rooms or your car can add more income to your balance sheet. Let’s say you rent a room for another $1,000 per month. That cash flow can go directly into dividends.
Does dividend investing actually work? I have been dividend investing for five years now, and yes it works wonders. It allowed me to retire at age 42, along with my military pension.
The process of dividend investing starts slow but increases rapidly because of the power of compounding.
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Say you earn $10 of dividends on a $100 investment (10%). Next year, you will earn dividends on a base total of $110. The more you invest, the greater these totals compound onto themselves.
Comparing dividends to housing inflation. But you don’t need to take my word for it; let’s look at the facts. I will bring up the mortgage payments for my most inflationary home in Florida.
The mortgage payments grew annually at 4.8%, while the dividends grew at 53.5%. You can calculate these totals using a compound annual growth rate calculator (CAGR).
Dividend investing grows your wealth and income and helps you stay on budget by giving you a purpose.
The more cash you create by minimizing your spending, the more you can contribute to dividends. The more dividends you create, the more income you will receive in your next paycheck.
Happiness Isn’t Free 3
It’s a lovely cycle and best of all, it keeps you from feeling scared or nervous every time a new escrow analysis hits your mortgage website.
The fears of owning a home. Many people fear owning a home because of these giant leaps in costs, not to mention increased costs for maintenance and services.
However, there is great value in owning a home. Instead of letting fear control us, let’s take control by investing in dividends that can keep our income growing faster than inflation.
The best time to start dividend investing is now. I have a series just for you if you don’t know where to start.
- Dividend Investing 101: What Are Dividends?
- Dividend Investing 102: Picking the Right Dividend Stocks
- Dividend Investing 103: Picking the Right Platform
- Dividend Investing 104: Building a Dividend Payment Schedule
- Dividend Investing 105: Add a Safe Options Trading Strategy
- Dividend Investing 106: Building a 60/40 Portfolio
Conclusion. Nobody is coming to save us, and there is nowhere to hide. Whether you rent or own, you will feel the effects of housing inflation.
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The two things we can control are our budgets and income. Let’s make more money and spend less—this creates cash flow.
We use the excess cash flow to invest in dividends, which will create even more cash flow. This is a lovely cycle, and everyone should aim to achieve it.
I have been a distressed homeowner before with my family of four. Costs were rising, and I did not have a solution. It was not fun.
Rising costs still make me angry today, but I already have the income to pay for the increases. I can concentrate my time on building more income for the following year.
Your income should increase every year. If it does not, you must find a way to generate more revenue. That’s the only way to stay ahead of housing inflation. I offer dividend investing as a way to beat inflation at its own game. 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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