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Pay One Bill at a Time With Dividends

Updated on June 30, 2019
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I've been an independent financial planner for several years now. I try to keep my advice as objective as possible.

Concentrate On One Bill At A Time

We live in a capitalist society. It takes money to do virtually anything. Most of us get our money by laboring for it. This is OK in the short run, but we should aim to replace wage income with something more permanent. As an employee of a business or government entity we have only one income stream. This stream of income can be cut off at anytime by someone else through no fault of our own. This is why it's good to build income that doesn't depend on clocking in every day. The best form of passive income I've come across is dividends from stocks. Anyone can participate in this system now. It's very democratic. Just take some of your wage income and put it into companies or funds you have researched that pay regular income. Dividends are usually paid every quarter so income might not be the same every month. Three reasons why we should build dividends are layoffs, disability, and freedom.

Layoffs or firings can happen at anytime. There really is no job security anymore. I'm not sure there ever was. When someone's job is taken away from them they lose their income. What does it take to survive? Income! This is why while you have a job you should build your dividend stream the best you can. With each dollar of dividend income you have just a little bit more freedom from the workforce. Even self-employed people or business owners should build dividend income. Their income from their business might be more under their own control, but it could still dry up or go down at some point. Unemployment insurance sometimes covers being let go from a job, but I say build your own lifetime unemployment insurance income. Unemployment insurance runs out eventually, but dividends keep on truckin'. I think what a lot of people do is become too dependent on job income and not think about what would happen if they lost that income. You've got to plant the acorns while you have them. Keep your expenses as low as possible, build a surplus, then put that surplus to work.

The second reason to build a dividend income is disability. Any of us could be disabled at any point in our lives. Once again you can buy insurance that will cover this need. If you have an adequate dividend income you don't need to pay insurance premiums. Losing employment income can be very stressful. The more dividends you have coming in the less you need disability insurance. Insurance to me is not an investment. It's a way to protect what you already have. The goal is to self-insure against unemployment and disability. Until you can do that it is wise to have the insurance. Social security disability is another option for income while disabled, but it's very hard to get. It's not something that should be relied upon. The time to think about potentially being disabled is while you're still employed. While you have the income it's good to build those dividends that can potentially take care of you at a later time.

The third reason to build dividends is freedom. I think it's the best reason really. It's a positive motivator not a negative one. In capitalism those people who don't have to work are free. I don't mean you shouldn't work. I'm saying you have the option. Some people call this retirement. I like to refer to it as financial independence. It's having a source of income other than paid employment that pays all your bills. Realistically this takes decades to accomplish. Life happens, and life can be expensive. Americans don't save enough money. Saving money is future thinking. You're sacrificing today for a better tomorrow. Someone who has a dividend stream that pays all their expenses is free to do what they want in life within reason. Money is never unlimited even at the highest levels of wealth, so a budget is always necessary. It's about controlling your money and telling it where to go for its most productive use. As the article title says build dividends to pay your smallest bill. Once that one is taken care of then pay your next biggest expense with dividends. This is not instant gratification. It's hard! It's much easier to spend the money today on some trinket. Discipline is the key. You won't start to see real results for years. Appreciate every accomplishment on the way to the larger goal.

Dividend investing can protect from unemployment and disability and give you more freedom. Planning for our future is being put more on our own shoulders. Companies and government entities are doing less and less for us. This can be looked at in a positive light though. It gives us opportunity to be more of a capitalist and less of a worker. Unless you're born rich you're going to be a worker for a good long while. Have a plan though to eventually not need a wage even if it takes you several decades to do it. And remember you might not ever be fully financially independent, but give yourself a pat on the back for even partial financial independence.

© 2013 Blair Williamson ChFC®


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