Paying Allowances From Dividend Stocks:
First let me start by saying that I wish I had thought of this 10+ years ago! The following is an idea that I would have liked to pursue for my kids, and while it’s still possible, the upfront investment for such a dividend stream is a bit steep for me right now. So instead, I will introduce the idea to see if others may find value in such simple idea.
What I wish I would have done was buy some solid, reliable dividend stocks each year and have the dividend payout from the stock go to my kids as an allowance instead of me paying for their allowance out of my wallet each and every week. Of course, the earlier years of the dividend payout would go directly back into the dividend paying stock during the ages when the child was too young to receive such an allowance.
I might even have the kids receive the payout once a quarter, just to get them use to quarterly payouts instead of weekly ones.
The following chart calculation is a very simplified table that will give a ballpark number.
| Div Payout | Div Interest | |||||
| Year 1 | Contribs. | Principle | Percent | Amount | ||
| 1 | 1200 | $1,200 | 0.05 | $60 | ||
| 2 | 1200 | $2,460 | 0.05 | $123 | ||
| 3 | 1200 | $3,783 | 0.05 | $189 | ||
| 4 | 1200 | $5,172 | 0.05 | $259 | ||
| 5 | 1200 | $6,631 | 0.05 | $332 | ||
| 6 | 1200 | $8,162 | 0.05 | $408 | ||
| 7 | 1200 | $9,770 | 0.05 | $489 | ||
| 8 | 1200 | $11,459 | 0.05 | $573 | ||
| 9 | 1200 | $13,232 | 0.05 | $662 | ||
| 10 | 1200 | $15,093 | 0.05 | $755 | ||
| 52 | ||||||
| $14.51 | ||||||
So using the table above, the payout in a childs 10th year could be $14 dollar based on a 5% dividend payout rate. The table above doesn’t take into account taxes, so the actual dividend payout will be a bit lower that the number suggested in the table, but not enough to discount the value of the information!
Yet Another Stealth Emergency Fund:
Recently, I wrote about my stealth emergency fund, and these stocks could be used as yet another form of an emergency fund. Would I be tempted to use these dividend stocks for an emergency first? No, only after the regular savings from an emergency fund has been depleted would I consider these stocks. That said, it’s still definitely a consideration!
Conclusion:
I was considering trying this idea, but after writing about it, I think I may have missed the boat on the implementation of this concept. It would have be easier to implement the idea earlier while your kids are very young! So while I really like this idea, I will put my money in dividend yielding stock for other purposes than and allowance fund. If I have the other ideas fully funded, I make come back to this one and give it a try.
Have you consider creating such an idea for your kid allowance needs? It’s kind of a win-win if you think about it. You get to pay your kids an allowance, and at the same time you have a portfolio of dividend stocks that may continue to grow!
-MR
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