Dear DTA,

I would like to earn extra money in hopes for a new home. Early retirement would also be great!

-Larry M.

Hi, Larry. Great to hear from you. Thanks so much for writing in to us.

We want our readers to feel more informed and empowered, which is why there’s so much great content here.

In addition, we try to help our readers through this mailbag series, whereby we do our best to reach out to individual readers with tools and resources that can help accomplish unique aspirations.

You have two pretty large goals here: buying a new house one one hand, retiring early on the other.

The first thing I’ll say is that accomplishing the two concurrently could be difficult, but that largely depends on your means, age, and time frame (for both goals).

The more financial resources you have access to (income, existing wealth, etc.), the younger you are, and the longer your time horizon, the better.

That said, amazing things can be accomplished in a short time frame, even with relatively modest means.

I’d know this firsthand, as I built a real-life six-figure portfolio in just a few years’ time, all on a middle-class salary.

This portfolio generates five-figure (and growing) passive dividend income on my behalf, which has rendered me financially independent in my early 30s. Believe it or not I didn’t even start until I was in my late 20s!

All in all, I built most of what you see here in about six years. And I was working at a car dealership (making ~$50,000/year) for most of that time.

I wanted to retire by 40. And I wasn’t exactly making a huge income. So I knew I had to get extreme.

Extreme output requires extreme input.

So I moved to a cheaper city and apartment. Sold my car and rode the bus. Cut out all restaurant visits.

Said another way, I became best friends with frugality.

How extreme you want your output will be will largely dictate how extreme your input has to be.

But I would say that being able to both buy a new home and retire early, all within a few years or so, would be incredibly difficult without a pretty strong income that’s supercharged by intense frugality.

In fact, buying a new house may indeed put early retirement on the back burner, as the increased costs (down payment, RE transaction costs, potentially larger mortgage, additional upkeep, etc.) will likely delay early retirement.

As such, I’d take some time to think about what you really want in life.

I can tell you that I’m very happy to be financially independent in my 30s.

Most people aren’t able to live like I do until they’re in their 60s or 70s. Some will never get to live this way.

And that’s a shame, isn’t it?

Precisely when your body is at its peak is exactly when you’re typically working the most and enjoying that prowess the least. Conversely, it’s promptly when you’re worn out and less physically capable that you’re finally able to enjoy your time.

That seems awfully backwards to me.

So I decided to switch it up.

While most people are spending their true “golden years” working away, I’m able to take the time to hit the gym, go to the beach, take a walk, read, write, catch a movie, or do whatever else I want to do.

When you’re able to retire early in life, you’re able to own your time.

What could be worth owning more than your own time?

That aforementioned frugality allowed me to generate a lot of excess capital in my monthly budget.

And what I did with that excess capital, I invested it into high-quality dividend growth stocks like those you can find on David Fish’s Dividend Champions, Contenders, and Challengers list (a fantastic compilation of more than 800 US-listed stocks that have increased their dividends for at least the last five consecutive years).

I chose dividend growth investing as the right investment strategy for early retirement for a number of reasons.

First, it’s very simple and straightforward.

We’re talking about investing in some of the best businesses in the world here. Dividend growth stocks are often blue-chip stocks. It’s not a stretch to buy these stocks and sit on them.

Plus, these are businesses that are typically very easy to understand. It isn’t hard to figure out how, say, The Coca-Cola Co. (KO) makes its money.

When you’re dealing with great businesses that make money in a very simple way, you often see growing dividends.

That’s because these companies can only reinvest so much profit in an efficient manner, leaving a lot of profit left over to disperse among the shareholders.

And as the profit grows, so should/will the dividends.

Indeed, The Coca-Cola Co. has been increasing its dividend for over 50 consecutive years!

Well, that’s a great platform for early retirement.

That’s because the dividends are a great source of totally passive income. I don’t have to call up The Coca-Cola Co. for my dividends. They’re automatically deposited into my brokerage account.

And the key part of all of this is that dividend growth, which means my passive income is growing organically (all by itself). As my expenses surely rise over time (due to inflation), my passive income is at least keeping pace – but often growing faster.

Most of your expenses will be higher in 10 years than they are today. That’s just how it is. A bottle of Coke was once a nickel. That’s obviously no longer the case.

But when your passive income is growing faster than inflation (as is often what you’ll find with most high-quality dividend growth stocks), your purchasing power is thus increasing.

That means the difference between your passive income and expenses grows over time, which allows your lifestyle some breathing room or expansion. At some point, if you start things early enough, you’ll probably end up with too much passive income – opening up all kinds of possibilities.

But this is a long-term financial plan. It takes years to play out, because compounding requires time to really get moving. Moreover, you’ll likely experience plenty of volatility on the way. But if you liked a stock at $40, you should like it even more at $30 (assuming all else roughly equal).

If you decide you’d rather have the house, however, that’s great. If that’ll make you happier, go for it.

But at that point, you may want to think about minimizing your market exposure, because the house is more of a short-term financial goal that could less afford any large losses (due to less time to make them up).

However, if you think early retirement is the better path forward for you, you’ll definitely want to check out Dave Van Knapp’s series of lessons on dividend growth investing.

This is a series of articles that read essentially like a book, going through all the ins and outs of dividend growth investing. After reading these articles, you should have pretty solid foundation of knowledge to work from.

And then if/when you’re ready to put capital to work, I personally highlight what appears to be an undervalued high-quality dividend growth stock, every Sunday.

These are interesting and valuable long-term investment ideas that I present to the community, and these are made available to readers just like yourself for no charge.

You have some tools and resources at your disposal, Larry.

While this article is in no way an exhaustive look at your financial situation and options (I only know what you told us), I hope I provided some food for thought.

Either way you decide to go – house or early retirement – it’ll be important to start as soon as possible, though.

I wish you luck and success.

Jason Fieber

[ad#IPM-article]

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.