Living Off Some Dividends Now Is A Nice Little Life Hack

Usually, when discussions of dividend investing come up, it is within the context of delayed gratification and the constant plowing of dividends back into more shares of stock that will, in turn, pay out some dividends of their own. But it does not necessarily have to be that way—you always have the option of taking the dividends as cash immediately and spending them on whatever you desire. While taking the dividends as cash will result in a lower end of amount of wealth when it is all said and done, it does recognize the fact that all money is taken and spent by someone.

You can spend it yourself. You can arrange your assets in a way that the government takes a lot of it and spends it on the various perceived needs of the nation, or you can pass it on to someone else who will eventually spend it.  And if you choose to let your current self enjoy the fruits of your investments now rather than delaying it all towards some future date, you can easily upgrade the quality of your life in an immediate sense just by setting aside some chunks of money so that you can live off the dividends.

If you save $10,000 per year for five years, and put them into assets that yield 5% (maybe companies like BP, Royal Dutch Shell, Realty Income, and Philip Morris International could yield 5% in aggregate if purchased at opportune times), you’ve just added $2,500 to your annual income to go through life.

There’s a lot of things you can do with $200 per month. You can treat the money as something that will pay your gas bills in perpetuity, effectively minimizing some of the ongoing costs of transportation. If you have a $1,000 per month mortgage, you can use the $200 monthly dividends as a sort of “ghost of your past self” helping you to get your house paid off. And as the dividends grow, those ghosts of your previous self would continue to pay off a larger and larger percentage of your mortgage each year.

Or heck, the money could be something that is pooled together so you can go on a “free” vacation each year that is funded entirely by your past decisions. My credit union is always offering “vacation accounts” and what not as of their services you could acquire. You could have the dividends funneled into that account, and pow, you can spend your Christmas through New Year’s living in style every year. You could look at those BP, Shell Oil, Realty Income, and Philip Morris International shares as “forty years worth of free vacations.”

The point is that money exists as a tool meant to serve your best interests. It’s an excellent idea to delay gratification and save up money for your “tomorrows”, but you need to make sure that those tomorrows eventually become a today at some point. Otherwise, you’re just aimlessly hoarding money for the hell of it, and you may not be enjoying your own life as much as you could if you started eating the fruit that your dividend trees produced.

It can be a great motivational tool to take some of your dividends as cash before you are financially independent. You don’t want to experience “burnout” with investing where you are always sacrificing but never living. It may not be the dumbest thing in the world to decide to use the dividends from some of your holdings to use immediately.

Imagine if you owned 25 stocks, and you chose 5 stocks to deposit the cash dividends into a bank account that is earmarked for immediate spending. You still have 20 securities plowing back dividends into even more investments that will eventually take care of your future self, but you also have some investments that enable you to enjoy your life more right now. Investing does not have to be all or nothing. While it’s great to take care of your future self, it can optimize your life to turn a couple of your checks for tomorrow into funds that can be cashed today.