The Poor Rich Need Dividends?

This article originally appeared on The Div-Net on March 1, 2012.

I was recently reading an article on Yahoo! about bankers and other professionals working in the finance industry becoming frustrated by the lack of blockbuster bonuses being given out by major banks like Goldman Sachs (GS). You can read it below:


Bonus Withdrawal Puts Bankers in “Malaise”

But, if these “financial professionals” actually followed good financial sense and lived below their means, invested in quality dividend growth stocks and followed a long-term financial plan the loss of income that wasn’t promised in the first place (a bonus) wouldn’t be as painful. When one’s income drops, you could simply stop reinvesting your dividends and temporarily use them for paying day-to-day expenses until you’re back on your feet and able to reinvest them. That’s one of the strengths of dividends that are rarely talked about: flexibility. Once they land in your brokerage account, you can reinvest them, use them for paying expenses or just let them sit there.

So, do the poor rich need dividends? Maybe. They definitely need a better financial plan.

Thanks for reading.

Photo Credit: chrisroll

Comments

  1. says

    Yeah I am always baffled (and disgusted) by such sob stories. There were a lot of them a couple years ago when the economy really started to get bad. I saw one news story about some government worker who was lamenting the loss of the job he had worked at for 15 years or something, and he was about to lose his house, blah blah. He said he had even stooped to apply for jobs at 50-60% of his previous income.

    Come to find out his previous income was $250K.

    How can you get paid that much for even a few years and not have any savings? its ridiculous.

    • says

      The Money Monk,

      I also find it ridiculous that people making this kind of money do not have any savings. It’s a bit unbelievable, but I guess they truly believe the money will never stop flowing. It’s a bit of a fantasy land when you’re living this high. It reminds me of sports starts and lottery winners. They think the money will never end.

      I’m creating my own lottery fund that I’m guaranteed to “win” at the end.

      Best wishes!

  2. Anonymous says

    With Most Yahoo Advice, you want to follow the complete opposite. This is what peaked my interest in why every financial planner was for 401k’s, now i know to put my money else where. 401k’s tie up your money until you die of a heart attack well before 62, laws will change before your 62 and you will have to wait until your 72 to withdraw with 10% fees, fee’s are gruadually increasing in all funds, why give your money to someone else to play monopoloy with for free and with your Risk? Employers get incentives for every employee they have sign up for a 401k. Definitely not worth the little tax advantages!

    • says

      Anonymous,

      I agree with you on most of the Yahoo! advice. It’s meant to be mainstream fodder, and unfortunately does little to help most people.

      I agree with you in part on the 401k’s. I think that, for me, they are not useful. However, I think for most people they are a helpful tool to save money and take advantage of the tax savings.

      Take care!

    • says

      I think 401k is a great tax saving vehicle. Let’s say you’re in the 28% bracket, that’s 28% saving. 28% is huge. Can you make 28%/year in your after tax stock account?
      Anyway, those rich bankers should max out their 401k and invest in dividend stocks as well. Seems silly that they don’t have a big saving when they make that kind of money.

    • says

      Anonymous,

      Yes, NSC had a nice pop today. I don’t really enjoy big pops like that, and I’m hoping for a market dip to be honest. I see little value on the horizon.

      Best wishes!

  3. says

    “When one’s income drops, you could simply stop reinvesting your dividends and temporarily use them for paying day-to-day expenses until you’re back on your feet… one of the strengths of dividends that are rarely talked about: flexibility.”

    Couldn’t agree more, man. Seeing that I was approved for a home loan this week, I’ve found myself constantly factoring my passive dividend income into the equation when pondering how much house I could afford.

    Will I be able to make my payments? What if I can’t? How many months could I make my payment by diverting my dividends from reinvestment to mortgage?

    Simply put: I love the flexibility of dividends!

    • says

      Pey,

      Glad to see you stopping by!

      I’m with you 100%. That’s something that a lot of people don’t talk about. If you’re investing in a taxable account you can withdraw the dividends at any time, helping with monthly expenses when times get rough. I count on my dividends as a small reserve to my emergency fund. It’s there if I need it, but I hope I never do.

      Keep in touch!

  4. says

    Becoming wealthy isn’t rocket science. Basic math says spend less than you make, invest what’s left over, and let time do it’s thing. It’s that simple, but the 3rd factor, time, is the bummer. Short-term gratification is always better for most folks. I’ve fallen victim to it from time to time… But we have to live like no one else, so later on we can live like no one else. Even if that means being weird to people. But I like weird. =/

    • says

      Henry,

      I completely agree. Although it’s theoretically “easy” to become wealthy, in reality it’s difficult because it requires patience, perseverance and plenty of hard work. Delayed gratification is the order of the day and I completely concur with your last statement!

      Take care!

  5. says

    Quoting the article:

    “Paid a lower bonus, he said the $350,000 he earns, enough to put him in the country’s top 1 percent by income, doesn’t cover his family’s private-school tuition, a Kent, Connecticut, summer rental and the upgrade they would like from their 1,200-square- foot Brooklyn duplex.”

    Wow! $350,000 a year AND a bonus and this guy is still complaining? Even after the kids out of school, and the upgrade is completed (I’m pretty sure he won’t let a little thing like cash get in the way) this guy is still going to be miserable.

    • Anonymous says

      A financial Slave will always be a Slave when they spend frivolously and never think to break their bonds.

    • says

      The Kechi One,

      More money, more problems? I guess these people really do not live in a reality shared by most blue collared mortals like you and I. I think it’s a case of hedonic adaptation where they get used to the higher income and then buy more things as the lifestyle escalates. They then need more and more stuff to keep the “pump” alive. It’s a self-fulfilling prophecy that leads them to depression when they suffer a drop in income. It’s quite sad.

      Best wishes!

    • says

      yeah it’s pretty ridiculous. Especially when you consider the amount he was making in a single year is what most of us are looking for to retire for good and live off of the rest of our lives.

    • says

      Compounding Income,

      No sympathy from me either. I think the fact that I found this article so appalling is what made me want to re-post it.

      TMM,

      I’m with you 100%. It’s really amazing that these people make in one year what we’re looking to retire off of permanently, and yet they have little or no savings in the bank.

      Best wishes guys!

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