The 3 Milestones for Dividend Investors

September 2, 2014

in Investing

By Financial Freedom (guest contributor)

So you’re all geared up and ready to set out on your journey towards financial freedom. Or you might already be halfway there, like myself. Whichever stage you’re at, you’d have earned the first share of your dividend income. Different people have different ways of looking at and utilizing their dividend income — how do you use yours?

Stage 1: “Expenses” coverage

If you’re a newly-minted investor, you’d realize that your dividends, while sufficient for personal daily expenses, are hardly enough for family expenses, such as travelling. When I’d first started, I’d used the dividends primarily for my daily or weekly food expenses. As my dividend income grew, the coverage expanded to utilities and forms of entertainment. Now, it can cover a wider range of expenses such as luxury meals, transportation and so on.

Stage 2: “Part-time” income

Some investors may view their dividend income as an addition to their monthly salary. In that sense, the dividend income is akin to a part-time worker helping you to earn extra while you focus on your full-time job. However, as time goes by, you might come to see such “part-time earnings” as an easier and better source of income than your full-time job. This is where despair and restlessness may set in, especially if your day job is one that does not quite suit you.

Stage 3: “Full-time” income

As the clock ticks away, your body starts to get worn down from your day job and you find yourself incapable of working long hours like you’d used to. At this stage, your dividend income slowly morphs into your full-time income and you have to accept earning less than you once had. This can be good, especially if your dividend income has surpassed your active one. It is a choice that lies entirely in your hands. Your new full-time income will be happy to listen to all your commands and cover any expenses you’d incurred. By now, you’d have successfully reached the tunnel of financial freedom.

So what would you do with your dividend income? Which stage are you at right now?

 

By Financial Freedom, a Singapore personal finance blog whose founder is a contributor to CPF’s IMSavvy.

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