I want to invest in money, retire early, and/or survive retirement. And if I am truly blessed, I’d like to leave something behind for my son.
Thanks for writing, Connie. Your desire to retire early and even leave something behind for your son is admirable. So let’s see if we can help point you in the right direction.
To be able to retire early (and survive it) and leave behind a legacy requires financial freedom, which is something I’m pretty familiar with.
First, we must realize that most people want financial freedom. I’d be willing to bet that very few people would pass up the opportunity to become financially free, if they had an opportunity. It’s a very worthwhile goal, and it’s an amazing life position to be in. So it’s not surprising that a lot of people desire it.
[ad#Google Adsense 336×280-IA]However, few people actually reach financial freedom.
Why is that?
Well, that’s because they don’t have a plan.
Or they don’t make the right choices (knowingly or unknowingly) that will put them on the path toward financial freedom.
People tend to not approach living, saving, and investing in the systematic and holistic manner necessary to reach financial freedom relatively early in life.
So a lot of people want financial freedom. But few have it because they’re either unwilling to do what’s necessary or unaware of what’s necessary.
That means if you think, act, save, and invest like everyone else, you’ll probably end up like everyone else.
Said another way, you’ll have to live differently than everyone else if you want to end up unlike everyone else.
But what could be more worth living differently for than financial freedom?
For perspective, I went from worth less than $0 in early 2010 to financially free in mid-2016. And I’ve shared my tactics via my “blueprint” to early retirement.
But it took a lot of “living differently” to get from where I was to where I now am.
Where I now am is wonderful, as I control a real-life, six-figure portfolio that generates five-figure dividend income on my behalf.
That’s right. I earn an annual five-figure income before I even think about lifting a finger to work and earn a dollar on my own.
How did that happen in six years?
Well, I had to aggressively save and invest every single penny I possibly could.
I adapted a systematic and holistic approach to living, saving, and investing.
In order to become financially free, you’ll have to save a high percentage of your net income. I knew I had to save more than half of my net income, because I knew I wanted to become financially free within a decade or so.
If your time frame is similar, you’ll have to aim for a similar savings percentage.
But with the national personal savings rate treading somewhere around 5% right now, you’ll probably have to make dramatic changes to your lifestyle in order to get your savings rate to 10 times what most people manage.
Indeed, I made plenty of dramatic changes.
I sold my car. I moved to a cheaper, smaller, and older apartment. I ate ramen noodles until noodles were coming out of my eyeballs (that’s a joke, but I seriously ate a lot of cheap noodles). I cut cable. Changed my cell phone plan.
Every single penny was tracked. I tried to avoid wasting one red cent. If there wasn’t a purpose behind my spending, I cut it.
And so the first thing you need to do is set up a budget.
If you don’t know what you’re earning and spending, you can’t possibly make your way toward financial freedom.
Trying to become financially free without a budget is like trying to reach a destination without knowing where you’re at or where you’re going.
The budget is your road map.
Once you have your spending down to the minimal level, you should also aim to increase your earning. After all, your savings rate can be boosted by both saving more and earning more. Since spending can only be cut so much, your effort should go toward figuring out how to earn more once your spending is cut to the bone.
This could be accomplished by getting a second job. Maybe you take on some overtime at work. Gigs like becoming an Uber driver (if you keep your car) could also work. Get creative. Financial freedom is worth it.
At this point, you should be generating some serious savings every month.
That means it’s time to invest that capital.
You’re a first-time investor. Well, I was also a first-time investor back when I started my journey toward financial independence back in early 2010.
Well, the investment strategy I personally used to get here worked for this first-time investor, and it might very well work for you, too.
That investment strategy is dividend growth investing.
I decided on this strategy because it’s very straightforward, rewarding, and perfectly designed for financial freedom. In addition, it’s easy for even a first-time investor (which I was, and which you currently are) to grasp and implement.
Dividend growth investing simply involves the buying and holding of high-quality stocks that have excellent fundamentals and reward their shareholders with growing dividends.
It’s also an intuitive strategy.
After all, the growing dividends these stocks pay out are funded from the growing profit these companies generate.
And it doesn’t make sense to not invest in a company that isn’t routinely increasing profit.
Many dividend growth stocks have been paying out growing dividends for decades. As such, it would follow that these companies have also been growing their profit for decades.
Dividend growth stocks that I’m personally invested in include Johnson & Johnson (JNJ), The Coca-Cola Co. (KO), and McDonald’s Corporation (MCD).
You might think to yourself that these are blue-chip stocks. Well, you’d be right.
It just so happens that dividend growth investing and blue-chip investing are pretty synonymous in a lot of ways.
These are all companies that pretty much everyone has heard of. And they’re business models (healthcare, non-alcoholic beverages, and fast food, respectively) that aren’t hard to understand. All of them sell products and/or services to people all over the world, giving them an incredible source of increasing profit. And that increasing profit allows these companies to increase their dividends for decades on end.
Johnson & Johnson has increased its dividend for 55 consecutive years; Coca-Cola, 55; McDonald’s, 41.
Moreover, all three stocks offer appealing yields that will surely beat anything you can get down at the local bank.
In fact, the three stocks offer an averaged yield of 2.76%. And that’s before even factoring in that income that’s reliably increasing year in and year out. I can tell you that your local bank isn’t going to be handing out annual 7% increases in what it will pay you.
Because financial freedom requires both income now and income for, perhaps, decades of your life, you have to think about your income needs both now and in the future. And because inflation means a dollar today will be worth less tomorrow, you have to make sure your income grows at least in line with inflation.
Well, dividend growth investing should have you covered on both angles.
You can find more than 800 examples of dividend growth stocks via David Fish’s Dividend Champions, Contenders, and Challengers list, which is an incredible resource that Mr. Fish maintains for the investment community.
And another fantastic resource here on the site is designed to get anyone – even first-time investors like yourself – up to speed on what dividend growth investing is, why it’s so valuable, and how to implement it for your own long-term financial goals.
Designed by fellow contributor Dave Van Knapp, it’s a series of lessons on dividend growth investing that essentially reads like a book from start to finish, and it’s a fantastic way to learn about the strategy.
In addition, I cover an undervalued dividend growth stock of the week each Sunday for readers, which provides an actionable and appealing long-term dividend growth investing idea for readers. Once you’re ready to invest your capital, this series should give you plenty of ideas for your investment needs.
You now have some valuable tools at your disposal, Connie.
However, it’s up to you to live like nobody else so that you don’t end up like everyone else.
Financial freedom is worth living differently for.
But you have to start today.
I wish you luck and success.
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.