I would like to buy some dividend paying stocks so I can use the dividend for Extra Spending Money instead of using money from earned income.
First let me say that each month I thought I only spent $250 as my personal Extra Spending Money, but I was wrong! I spend well over $300. While I’m going to use $300 as my basis for the calculations below, I want to go back to the $200 to $250 that I use to consume someday.
My current formula for using money for my “Extra Spending Money” is a more of a consumption based model. This is where once the money is gone, it’s gone! Here are my simplified steps:
- The money I have allocated for spending, all gets spent
- I have zero dollars left at the end of the month.
My future formula for using my “Extra Spending Money” will be a investing-spending hybrid model. I envision it as the following steps:
- I save $200 of the $300 that I have allocated.
- $100 of the $300 is for spending.
- Invest the savings into a stock that provides a 5% dividend.
- After year 1use the dividends to help supplement the $100…
- Eventually as the dividend become big enough, stop spending the $100 and have it go into the dividend stock.
This process will be similar to my Free Lunch Experiment, but this experiment require much more money invested and time than the Lunch experiment. So I’ll have to do it gradually over years, unless I come up with a way to speed up the investment contribution.
For example, just to generate a monthly $50 from the stock, I’d have to have $12,000 lump sum at an interest rate of at least 5%. So that would mean some far off future day, to get up to the minimum $200 level, I would need to save at least $48,000 to $50,000 at a similar 5% interest rate. and this isn’t even taking into account taxes and inflation! I could envision the true amount that I would need for the month $200 payout being more in the range between $80,000 to $100,000.
I will provide more details in the future, thanks!
-MR
Did you like this article? Then please subscribe to my RSS feed so you can check out new articles when they become available. You will help this blog grow by doing so. Thanks!
Looking forward to yet another interesting experiment MR!
Thanks, I’m going after stocks with a much lower beta number than the stocks I bought for my lunch experiment.
This one is funded with money that is part of my “automatic budget” category “personal spending”, and perhaps from other money sources…
Unlike the “Free Lunch” experiment, if I lose this money, it’s not free and I would feel it…
My husband was just talking to me about creating our own mutual fund, but then he decided that in order to make it profitable we’d need a ton of money. Sometimes I think he’s only thinking of a few years down the road. If only I could get him to see farther into the future. *sigh*. I’m interested in seeing how this experiment works. Keep us posted!
You’re living my dream with that mutual fund! I would love to get into that area, but the compliance department prevents me from doing so.
Plus there is so much government regulation in that area now… I’m not sure if I would want to get into it or not anymore.
Perhaps I would try to create something like Buffett did back when he was younger.
Pingback: Tweets that mention Using Dividend Stocks For Extra Spending Money | Money Reasons -- Topsy.com
If I interpret this correctly, it seems like you’re chipping away at your budget bit by bit with your dividend investing approach. First lunch money, now pocket money, next it’ll be taxes or utilities…eventually, you’ll have everything covered and it’ll be time to retire right?
It seems like a much funner way to work towards your retirement goal vs saying, okay, I just need another $1.3MM to go before I can call it quits. You get to have little victories along the way.
I love it.
It’s trick actually, all my little dividends fund server double duty. My future vacation fund will also serve as my real estate tax fund, etc…
This way, I’ll be able to enjoy the money, unless some hard times hit, then I have my core expenses covered (hopefully)…
Not quite retirement (my 401k is for that), more like liberated employment or self employment 🙂
Thanks!
I wish I had started earlier (kind of like what I’m doing for my kids)… Oh well, it’s still good!
Once I get this fund rolling, I’ll post what I described here in a future article…
I don’t get it. If you already spend over $300 a month, how are you going to cut that down to $100/month for years? Is that realistic?
Keep us updated though.
$300 a month is a fun number, not really for an expense. So actually it would be pretty easy to cut it back just by not going out to eat at night with the family so much. Take tonight for instance, it was my idea and it cost me $72 (that includes tip).
So if I cut out three of those dining out experiences per month and instead only go out once a month, it would save me $216.
Actually its a bit more complex than that since sometimes we do only go out once a month (this month we were bad though), but you get the idea…
Ironically, this past summer, I actually forced myself to spend more as in this article: Why Spending A Little Money At All Ages Is Okay, at least I was a success 🙂
Another option to think about would be putting some high grade munis in there (scary market right now lol) so your after tax payments can be lower…