A friend at work asked why am I working so hard to saving dividends to pay for my lunch expenses.
He was actually referencing the fact that I don’t go out as much because of my experiment called: Lunch Dividend Experiment. He thought it was a risky move because what happens if the stock stops paying dividends or goes belly up and I lose my entire investment in that company.
Well, my friend is only seeing part of the equation. The part he forgot about was that if I paid for expenses with my earned income, my money is gone after I pay for the expense. However, with stocks that pay dividends, I have the opportunity to keep my initial investment, only spending the dividend portion. It’s true that such stocks won’t increase in value as fast that way, but the idea is someday that I will increase my investment in that stock too, once the dividend payout is more than what is required to pay for the expense and taxes.
At the very least, I’m not spending my earned income, never to see that money again!
That said, I won’t be able to use dividends to pay my mortgage (if I still had one), but everything else is fair game!
Almost all of my dividends are overloaded in purpose. By this I mean that I’ll use my dividends for a want, but if something happens, I’ll switch it to cover a need. For example, I’m working on building up my dividend payouts so that they can cover future vacations, or at least help pay for vacations, but if some disaster happens like I’m unemployed, that dividend stream will go to other more important things such as food or paying my real estate taxes.
That the beauty of dividend goals! Just because they are ideally focused on one goal, doesn’t mean that they can’t be switch to a new high priority goal if the need arises.