Thursday, September 26, 2013

The Chronological Way of Looking at Dividend Income

So you're all set, geared up and ready to set out on your financial freedom journey. Or you might already been there halfway like myself. Wherever you are in your journey, you might already earned your own first pie of your dividend income. Different people have different ways of looking and utilizing their dividend income. So how do you look at your dividends income that you've received?



As a mean of "Expenses" coverage

If you are an investor who just started like myself, you would have found out that the amount of dividends income you've received are not big enough to sustain a family living expenses such as traveling but enough to pay off your daily expenses such as food, utilities or entertainment expenses. When I started my journey for instance, I would usually use the dividends received to cover my daily or weekly food expenses. As my dividend income grows, the coverage would expand to utilities and some other entertainment expenses. Now, it can cover a wider range of expenses such as luxury food meals, transportation and so on.

As a mean of "Part-time" income

Some investors may also look at their dividends income as an extra income in addition to their monthly active income from their work. The dividends income are like a part-time worker that helps you earn side earnings while you focus on your full-time job during the day. However, as time goes by, you might realize that your part-time earnings may seem to be an easier and better way to earn than your full-time job. This is where you started to feel despair and restless in your day job, especially if the job is one that you feel does not suit you.

As a mean of "Full-time" income

As the clock ticks away, you will feel that your body starts to get weary down from your day job and you find yourself unable to work longer than the amount you used to work in the past. At this stage, your dividends income will slowly become your full-time income while you age and will eventually have to step down to earn lesser earnings than you used to in the past. This is a great idea especially if your dividends income at this stage has surpassed your active income. It is a choice that you and only you have and can make. Your new full-time income will now be able to listen to all your commands and cover any expenses you incurred. By this time, you would have successfully reached the tunnel of financial freedom.

So how do you look at the dividends income you've received? Which stage are you at right now?

17 comments:

  1. Hi there,

    I save all the dividend income; it forms the basis for my opportunity fund which I use to deploy when valuations are attractive.

    ReplyDelete
    Replies
    1. Hi MW

      It looks like the majority of you, AK and Uncle CW are already earning plenty of dividend income that you can use to deploy on opportunistic stocks. Unfortunately, I am not at that point yet but hopefully will get there next year.

      Delete
  2. Till Today, I haven't spend a single cent (dividends and net trading gains) in my bank account designated for investment purpose.

    :-(



    ReplyDelete
    Replies
    1. "At this stage, your dividends income will slowly become your full-time income while you age and will eventually have to step down to earn lesser earnings than you used to in the past."

      When our passive income surpasses our earned income, that is when we choose to work because we want to and not because we have to. Definitely resonates with me. :)

      Delete
    2. Hi Uncle CW

      Wow, that is awesome. The amount you've accumulated over all these years must have been astounding since you didnt touch any of them.

      Delete
    3. Hi AK

      I'm always still puzzled why you choose to continue working when your passive is already more than your active. Unless your active is doing something which you like, but i realize you hardly blog about your daily job or maybe i miss them :)

      Delete
  3. I used to reward myself with the dividends I receive. But not anymore. Now I reinvest it or keep it in my investment account. Hoping to reach financial freedom earlier and enjoy the fruits of labour. :p

    ReplyDelete
    Replies
    1. Hi SGYI

      I have friends like you who love to reward themselves when they receive the dividends. I think it is a worthy effort since you've put in so much effort in building the capital castle, so enjoying the fruits is a natural thing to do.

      Delete
  4. B,

    My passive income never surpassed my active income.

    But I chose to take my sabbatical from work because I can ;)

    I now makan all my dividends - they pay for my living expenses.

    I work weekends because I want to :)

    ReplyDelete
    Replies
    1. Your passive income exceeds expenses @ inflation = financial independence.. This is easier to achieve for many of us.

      Delete
    2. Hi SMOL

      I always envy your life. Whenever I see your picture or your posts, I feel you are like a bird roaming the world while I am a bird stucked in a cage. Oh well, different people different life. Sigh.

      Delete
  5. I am still a little far from the right level of Dividend Incomes my Net Worth should be able to support. Capital gain is still my type of character. And i have a "Huge" warchest ;)

    ReplyDelete
  6. Oh forgot. I do not separate out my dividend to be specially manage ... they are all investment opportunities like any cash in the banks

    ReplyDelete
    Replies
    1. Hi Cory

      Like you, capital gain is a part of my plan especially if the gains are already outweighing the valuation. It's great to see you having a huge warchest. Cash is king. It is one which I will try to build up on for rainy days.

      Delete
  7. Guess my dividend income should be able to qualify as "part-time" income already.
    About $400 a month, can probably pay for our 3 meals a day?

    It's still a long journey to "full-time income". Not sure if it's healthy but I do have share Scott Adam's mindset too!

    ReplyDelete
    Replies
    1. Hi Hww

      Since you are still young, I believe that qualifying dividends received as a part-time income is no surprising. Journey to full-time income is a long one but certainly it'll be better if we can do it heart happily.

      Delete
  8. Hi 15 HWW,

    I am amazed by how frugal your lifestyle is, as seen by $400 for a month's meals.

    But are you willing to hold back using the dividends, reinvest them instead, such that you will have much much more passive income, but at a later age of say 43 instead of 35?

    ReplyDelete

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