What Are Your Dividends For?

June 28, 2011 by Dividend Mantra Team 17 Comments

Anyone who has been reading this blog knows that the reason I’m living frugally and investing in dividend growth stocks is to hopefully retire young. My target is to “retire” by 40 years old. The reason I put quotations around the word retire is because I’m not quite positive I’ll retire by standard definitions. I think the better phrase to use might be “I want to be financially independent by 40 years old”. I largely want a choice in how I spend the majority of my time. I currently spend most of my time (55 hours a week) working in an environment that isn’t particularly appealing to me, as I have been the last five years. Would I do that if I had a choice? No. So, my dividends are going to provide me a choice…a choice in how I spend my time. I’ll still probably engage in some time of active and paid employment, but it will be something I choose to do and hopefully something I enjoy a great deal more than what I do now. It will also likely be something part-time or seasonal, allowing me freedom to travel cheaply and see family or friends.

I’ve had some readers question why I don’t just quit my job and do something I enjoy now. Well, that’s difficult when you have tenure in a particular career and it pays better than any known alternatives. We are in a period of record unemployment and I’m actually grateful just to have a job. Would I be happier working by the beach serving up Mai Tai’s? I probably would, but I’m not sure how realistic that is right now.

My dream job?

The main reason for me delving into my personal choices for doing what I do is to ask you, the reader, what are your dividends for? What are you trying to achieve with your investments?

The question could be phrased a lot of ways. Why do you invest? Why do you spend your time looking at balance sheets, trying to analyze earnings, revenues, debts, etc? A lot of us investors spend a lot of time trying to pick out what we think are value stocks, that pay a good dividend which will hopefully provide us with a replacement and/or addition to our paycheck. Are you simply trying to supplement your income and appropriately augment your lifestyle or retirement? Are you trying to retire early? Become financially independent? I think it’s important to have a goal in mind when you are investing your hard-earned money. Perhaps you are saving now, so that you can give to charity later. Many people would like to pass on wealth to future generations in the form of an inheritance or trust. I also think some people want a legacy, something to be remembered by. Any reason is a good reason, as long as it fits you and promotes responsible and regular saving/investing.

I think most of us dividend investors are looking to live off our dividends, once a portfolio is large enough. That’s certainly my goal. Most people think living off a pension, retirement portfolio or Social Security is for when you are 65 years old and possibly past your physical prime. I really don’t think it has to be this way. Obviously, Social Security will not be something I’ll draw on until I’m old enough, but I plan to live off my dividend income well before I’m in my 60’s. Do you? Or, are you planning on investing until you are 65 and collecting SS, pensions, etc.?

My dividends will, hopefully, provide me an alternate way to meet expenses. The alternative to paid employment. I’m living very frugally now, limiting my expenses and maximizing my investments and savings. I’m living like no one else will now so that I can live like no one else can later (props to Dave Ramsey). My portfolio of dividend stocks is called the Freedom Fund because I hope it provides me the freedom to do what I want in life. Maybe I’ll go on a long road trip, visiting all 50 states. Maybe I’ll go back to school. I could backpack Southeast Asia. But, what I do is beside the point as these are just hypothetical examples. The point is that I value time over money. I’m hoping to unlock and “buy time” with my dividends. Instead of spending 20-30 more years working, I’d like to have my time to myself to spend freely, however I see fit. That’s what my dividends are for.