The average dividend yield is only 2%. So while you may have heard people live off dividends, is it even possible? After all, you want to be able to live comfortably.
So let’s look into the math. How do you get started in dividend investing, how much do you need to be invested to live off dividends, and how can you achieve this goal? We’re going to figure it out.
Investing in Dividends Is a Long Term Goal
The problem with investing to live off dividends is it takes a lot of money. That’s not to say it’s impossible though. But unless you already earn close to 7 figures, don’t expect to have enough dividend income to quit your job by next year.
So if it’s so hard to attain, why do people focus their investments on dividends? After all, there are plenty of other forms of passive income.
Because it’s a no-work gold mine. Unlike other forms of passive income, once you’re invested in enough dividends to support your lifestyle, you never have to work on it again.
Real estate requires managing tenants. Blogging or vlogging requires maintaining your media and regularly uploading new content. Royalty content like songs and books require the initial creation, which can be a time-consuming effort.
But dividends? Invest your cash and you’re done. Just make sure you have a decade or so to dedicate to your investments.
So How Much Do I Need to Invest?
How much do I need to invest to live off dividends? That’s the big question.
If you want to live off dividends alone, you need to figure out how much you need to be invested. That’ll depend a lot on how much you want to live off every year.
Retiring on $75,000
Studies show money stops buying happiness at about $75,000 a year. So if you want to live on $75,000 a year, assuming a 2% dividend yield, you need $3,750,000 invested in dividends.
So if you want to retire off dividends alone in 10 years, you’ll need to invest about $305,000 every year for the next 10 years. That’s about $25,416 every month.
Retiring on $30,000
But what if you’re a frugal person and you can live comfortably at $30,000 a year instead? In that case, you only need $1,500,000 invested.
If you want to retire off dividends alone in 10 years, you’ll need to invest, about $121,000 every year for the next ten years, or about $10,083 every month.
The amount you need to invest will vary depending on the returns on your dividends. If you invest in dividends with higher returns, some as high as 10%, you won’t need to invest as much to live comfortably.
Keep in mind that traditionally, investments with higher dividend yields tend to be riskier.
That’s Too Much Money!
If you want to retire off dividends in a decade, you already need to be making pretty decent money. There’s no way you can invest $25,416 monthly if you make barely more than that in a year.
That’s why when you’re starting, it may be a better idea to focus on making more and spending less. Here are a few tips to get you started.
Make More Money
If you want to start setting aside money to invest in dividends, you need to be making more money. You need to be able to cover your basic expenses and still save a good portion of your income.
Get a raise or promotion. If you can, get a raise at your existing job. Prove to your boss that you’re worth it. You can make it more likely that you’ll get the raise you deserve by learning valuable workplace soft skills or work skills.
Get a better job. If you’re making pennies, it may be worthwhile to go back to school and get a degree that will help you get a job that will pay more. If there’s no room for advancement, it’s time to find a new career.
Work a side hustle. Ideally, this should be a side hustle that will keep making money, even if you’re not on the clock, such as a blog or a monetized YouTube channel.
Start your own business. This should be a business that you don’t need to show up for once it’s up and running. Starting a business is a lot of hard work, but it’s a great way to earn passive income if you have good people managing it.
Invent something. Write a book, compose music, build an app, or create an invention. Anytime people buy your product, you’re making passive income.
Here’s the ultimate secret to financial wealth: it doesn’t matter how much you earn, it matters how much you save. If all your additional money means you’re spending a lot more, you’re only ruining the point of making more.
Along with growing your income, focus on cutting your expenses. Get rid of unnecessary subscriptions. Avoid eating out and keep your grocery spending low. Figure out how to cut your biggest expenses down – your housing and your transportation expenses.
The more you can save and invest, the sooner you’ll reach your goal of living off dividends alone.
It Is Possible to Live Off Dividends
But it ain’t easy. Learning to live off dividends requires a lot of hard work and careful, strategic investing, especially when you’re young. This way your portfolio has time to grow.
Coupled with strategic investing, the smaller you can make your living costs, the sooner you can live off dividends. If you can live off $30,000 a year, you’ll be able to retire much earlier than if you wanted to live off $80,000 a year.
So start soon, and keep your spending small. You too can learn to live off dividends.
We’re dedicated to taking control of our money. Want to join us? Keep exploring for more tips on how you can take control.