Dear DTA,
I would like to retire early. I’d also like to earn a little extra money. I’m still young and willing to take some risks.
-Katie M
I just love when people are interested in retiring early.
Early retirement is a lifestyle I’m intimately familiar with, and I genuinely enjoy pretty much everything about it.
And so I decided to institute some major changes in my life in order to get out early.
Moving across the United States in order to make more money, spend less money, and pay less in taxes was just one of many things I did in order to retire very early in life.
I also moved to a smaller and cheaper apartment that was located along a couple major bus lines, which allowed me to sell my car.
There were a lot of PB&J sandwiches in there.
And I worked two jobs simultaneously so that I could maximize my income while also minimizing my expenses.
This created a big gap between income and expenditures, allowing me to routinely save 50%+ of my net income each month… for years on end.
They say you can’t invest what you don’t have. Gotta have money to make money.
Well, your best bet for getting access to the capital necessary to invest is via your savings, so it’s important to make sure you’ve got the budget in excellent shape.
Once you have a routine source of excess capital (via your savings), it’s time to invest it.
I personally chose dividend growth investing as the investment strategy that would deliver me my early retirement dreams.
Well, I can say it worked out fabulously, as the real-life, real-money six-figure dividend growth stock portfolio I built over the last seven years now generates the five-figure passive and growing dividend income I need to cover my basic expenses in life.
Indeed, I quit my full-time job at 32 years old. And I became financially independent at 33.
So I speak from some experience here when I deliver this recipe for early retirement to you.
Dividend growth investing is a fabulous long-term investment strategy for early retirement because one is going to need a regular and reliable source of income to pay their bills, assuming they’re no longer working for a living.
This investment strategy has that aspect built right in, as investing in high-quality dividend growth stocks means you’re building a great source of totally passive income.
When you buy shares in, say, McDonald’s Corp (MCD), you’re essentially buying a small slice of the company.
With that slice comes all of the associated benefits. You’re buying into a small slice of the profit every McDonald’s store around the world generates.
And since a small slice of that profit is technically yours (assuming you’ve bought shares), McDonald’s pays you your fair share of that profit via a dividend.
Better yet, that dividend tends to grow in size every year, because McDonald’s is pretty good at making more money (profit) over longer periods of time.
As profit grows, so should your dividend payment.
Right?
Right.
While I’m not recommending you necessarily buy shares in McDonald’s at this time, it’s a great example.
But you can find more than 800 US-listed dividend growth stocks by checking out David Fish’s Dividend Champions, Contenders, and Challengers list.
You’ll see McDonald’s on there, as they’ve been paying an increasing dividend for an incredible 41 consecutive years. You’ll also find many other well-known companies with household brands.
By the way, that 41-year time frame includes multiple stock market crashes, wars, 9/11, and the recent financial crisis.
Yet McDonald’s kept right on paying their shareholders a bigger dividend year after year.
This is important because we know that your expenses will increase over time.
Inflation practically makes sure of that.
And so you don’t want just a source of passive income, but you want a source of growing passive income.
The great thing about many high-quality dividend growth stocks is that they’re often growing their dividends at a rate that actually exceeds inflation, meaning your purchasing power is growing.
Said another way, your passive income should and can grow faster than how fast your expenses are growing over time, which provides an ever-larger gap between passive income and expenses.
That allows for a lot of things. Perhaps some lifestyle inflation. Or maybe an extra trip here and there. Whatever you might want/need to spend the money on.
Either way, it provides for tremendous flexibility.
Katie, you said you wanted to make some extra money. Well, this is a great way to do that, besides the aforementioned benefits in terms of retiring early.
If you’re interested in dividend growth investing, I’d recommend reading through Dave Van Knapp’s fantastic dividend growth investing lessons.
These articles highlight the strategy, going over how it works, why it’s so robust, how to implement it.
We’re essentially talking a book here, but it’s a breezy read.
And then if/when you’re ready to put your capital to work, I uncover and discuss an undervalued high-quality dividend growth stock every Sunday, as part of a long-running series I helm here at the site.
Early retirement is possible.
I’d know, because I’m living and breathing it.
But the onus is on you to put in the work necessary.
And there’s no better time than today to start, Katie.
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.