Dear DTA,
My goal is to find another income stream.
-Ron B.
Hi, Ron. Appreciate you taking the time to write in. We hope you enjoy your subscription and find a ton of value in the service.
It’s actually in the name of providing maximum value to readers like yourself that we’re directly responding to your email.
Your goal is admirable. And common.
[ad#Google Adsense 336×280-IA]I think almost everyone wants an additional income stream that can provide a little help in life or allow for some extravagance here and there.
This was a goal I also developed back in early 2010 at age 27.
Facing the prospect of working 50 or more hours per week until I was old and used up, I took a hard look at my life and finances.
You know what I found?
I found that I was worth less than a baby. I had a net worth that was below $0.
At least babies are worth zero (no assets and no liabilities). I somehow managed to live 27 years and went backwards.
Determined to turn it all around so that I could live life on my terms before I was in my 60s, I developed a holistic and systematic saving and investing plan that was designed to dig myself out of the hole I had put myself in.
Said another way, I adopted a lifestyle.
Anyone knows that you have to save and invest to get ahead. That’s not hard to figure out.
But what a lot of people fail to realize is that it’s actually an entire lifestyle that needs to be taken on in order to become really successful at building wealth and passive income.
You need to develop good habits. Good decisions must be made every single day. The long term must be preferred over instant gratification. And compounding must be allowed to work as soon as possible.
Think about this for a second.
Even just an extra $100/month of fat in your monthly budget can be crippling over time.
One way to to think about that extra $100/month is that it could turn into over $76,000 over the course of 20 years if it were compounding at 10% annually.
Another way to think about that fat is that it requires an underlying asset base of $30,000 generating 4% income in order to sustain that expense indefinitely.
So every extra $100/month in spending means you need to save at least an extra $30,000.
$100/month never looked so expensive!
In order to dig myself out of my aforementioned hole, I made radical changes to my own lifestyle. It’s a journey that I recount via my “blueprint” to early retirement, which expounds on pretty much everything I did.
I moved to a cheaper place, sold my car and rode the bus, altered my diet toward the leaner and cheaper side of things, and worked harder than ever in order to increase my income.
The gap between earning and spending grew as a result, to the point of achieving a net savings rate of over 50% regularly.
Said another way, I was saving more than half of my net income by adopting good habits and thinking of my future self.
Thinking of your future self is powerful.
Just imagine the you that will exist in 10 years.
What does this version of you look like? What kind of lifestyle do you want to give him?
Of course, earning more and saving more is just one part of the puzzle. I had to put that capital to work. Otherwise, it’s just sitting in a bank and losing ground to inflation.
Enter compounding.
Compounding is incredibly powerful. It can generate money from money.
Earning money from capital is much better and easier than earning money from labor.
But if you want your money to work for you, you have to put it to work.
After researching the available investment strategies out there, I decided on dividend growth investing to get me to where I wanted to be.
I basically started investing in high-quality businesses that pay increasing dividends, with these increasing dividends funded by increasing profit that is usually produced by selling more products and/or more services year in and year out.
For me, I can’t think of a better strategy out there.
After all, you’re getting the best of both worlds: increasing wealth and passive income.
That’s because the passive income comes about via the growing dividends that these stocks pay out.
And there’s a certain assurance that one has when you know high-quality dividend growth stocks like Johnson & Johnson (JNJ), for instance, have paid out increasing dividends to shareholders for 55 consecutive years.
Plus, as a company like Johnson & Johnson increases its profit (that which funds the increasing dividends), the business becomes worth more, increasing the stock value (and the price over time) in the process. That means your investment, and net worth, also increases over time.
This investment strategy helped me become financially free at 33 years old, just six years after I first started walking the path toward reaching the same goal you now have.
As a result of that systematic and holistic lifestyle of frugality, good habits, and intelligent investing led to the real-life six-figure dividend growth stock portfolio that essentially “bought” me my freedom by virtue of the five-figure and growing passive dividend income it pays me.
You can find more than 800 dividend growth stocks by taking a look at David Fish’s Dividend Champions, Contenders, and Challengers list, which is a compilation of all US-listed stocks that have paid increasing dividends for at least the last five consecutive years.
Just glancing over that list will reveal a number of household names… blue-chip stocks that everyone knows of.
Johnson & Johnson is but one of many. You can count on the likes of AT&T Inc. (T) and Colgate-Palmolive Company (CL) showing up on Mr. Fish’s list, too.
Colgate-Palmolive, for example, has been able to pay out increasing dividends for over 50 consecutive years because people repeatedly buy their toothpaste, soap, and other household goods. You’re not going to trust your teeth with just any toothpaste, right?
Dividend growth investing is also great because it’s so easy to pick up on.
For instance, a complete series of lessons on the strategy exists right here on the site, put together by fellow contributor Dave Van Knapp.
It guides investors from the beginning, showing why this strategy is so worthwhile and how it works.
And once you’re actually ready to put your capital to work, I personally reveal an undervalued high-quality dividend growth stock every Sunday via my undervalued dividend growth stock series.
You say you want an extra income stream.
Well, how about dozens of extra income streams?
That’s basically what happens when you build out a diversified dividend growth stock portfolio.
I’ve personally invested in over 100 of the world’s best businesses. That means I have ~100 passive income sources. Moreover, since many of these dividends are paid quarterly, I’m collecting a dividend a day.
If you eventually amass long-term investment stakes in just 30 different wonderful businesses, that could be 30 different sources of growing passive income.
However, none of this happens if you don’t act. That future you will look much like the current you, who has a goal but hasn’t yet started walking the path yet, if you don’t get started right now.
Compounding is powerful. But it needs time.
The more time you can give it, Ron, the better off you’ll likely be.
So it’s up to the you of today to put that you of the future in a much better position.
I wish you luck and success.
Jason Fieber
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Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.