Dear DTA,
I am interested in investing so that I’m able retire at an early age. I also want to be able to take care of my family much easier than today.
-Jim F.
Hi, Jim.
Thanks so much for taking the time to write in to us. We greatly appreciate that.
Your desire to retire early and take better care of your family is something I feel like I can help with. And so I’d be remiss if I didn’t do what I could in that capacity.
While I don’t have children to take care of, I was able to quit my job at 32 years old and put myself in a position to live off of passive income at 33 years old.
I believe that qualifies me to provide you with some excellent ideas that can help you put yourself in a somewhat similar position.
Passive income is durable. And money is fungible. While I use my passive income for my lifestyle, passive income could just as easily be interchangeably used to pay for certain familial responsibilities.
The concepts I’m going to explore and describe are incredibly straightforward.
These are ideas and strategies that almost anyone can use. And that’s why I love this stuff.
“If I can do it, anyone can” is a phrase that’s perhaps overused.
But in this case, I feel like it’s incredibly apt.
That’s because I’m nobody special. I don’t have any unique advantages that other people lack.
It’s actually quite the opposite – I grew up in abject poverty, dealt with the loss of both parents, left college in my junior year, and found myself deeply in debt in my mid-20s.
Yet I was still able to become financially free at 33.
The path I took is the same path almost anyone can take.
I simply lived below my means and invested my excess capital into high-quality dividend growth stocks.
And you can do the same, Jim.
Living below your means involves budgeting, spending less on things you don’t really need, and finding value in every expenditure you have.
People too often spend money they don’t have, on things they don’t need, to impress people they don’t know or care about.
If they instead abstained from this behavior, saved the money, and intelligently invested that capital, they could retire decades before most people.
So the time to budget and save is now. Not tomorrow. Not the day after.
This means you’ll have to be surgical with your spending, cutting out any unnecessary fat.
Maybe you live in a house or apartment that is too big and/or expensive. Maybe the car you drive is way fancier than you need, or maybe you don’t need a car at all. Maybe the restaurant visits could be cut out completely.
I can tell you I moved halfway across the country in order to earn more money, cut out state income taxes, and live in a (warmer) climate that would allow for easier car-free living.
I worked hard in order to make more money. I downsized my living space. I sold my car and took the bus. I packed 15-cent lunches.
Desperate times call for desperate measures.
And what could be more desperate than our time?
What could be a bigger emergency than saving your life?
Once you get the spending under control, it’s time to intelligently invest that capital.
The investment strategy I’ve personally used, which is the same investment strategy I believe most people can use and benefit from, is dividend growth investing.
This involves buying up shares in high-quality businesses that pay their shareholders regular, reliable, and growing dividends – dividends which are funded by the regular, reliable, and growing profit these businesses are generating.
You can find more than 800 US-listed dividend growth stocks via David Fish’s Dividend Champions, Contenders, and Challengers list.
Investing in high-quality dividend growth stocks can be the key that unlocks the early retirement door.
But don’t take my word for it.
Don’t think for a second I’m only talking the talk.
I’ve been walking the walk – as vigorously and quickly as possible.
And walking that path has led to investing my excess capital in a way that built a six-figure portfolio from scratch, in just a few short years.
Indeed, my FIRE Fund is proof of this.
The FIRE Fund is the financial foundation of my FIRE (financial independence/retired early).
It produces the five-figure and growing passive dividend income I need to cover my real-life expenses in life.
While this passive income allows me to live a job-free life, it could just as well be used to pay for family expenses. The more passive income you have, the more opportunities and flexibility you have. Enough passive income could cover both an early retirement and family care.
Keep in mind these aren’t high-risk stocks I’m buying.
These are mostly blue-chip stocks.
You’ll recognize most of the names right away.
Johnson & Johnson (JNJ) is my largest holding. PepsiCo, Inc. (PEP) is another massive position in the FIRE Fund.
So on and so forth…
See, high-quality dividend growth stocks are often blue-chip stocks because of the very nature of growing dividends.
A company needs to run a tight ship and operate a quality business in order to maintain the wherewithal necessary to fund growing dividends to shareholders for years – or decades – on end.
Just imagine the pressure management has on them in order to write ever-larger checks to shareholders, year after year.
You can’t run a terrible business while simultaneously writing those checks. Something will give. Quickly.
Keep in mind, Jim, this note to you is just a quick primer.
For a more in-depth look at dividend growth investing, you should check out fellow contributor Dave Van Knapp’s lessons on dividend growth investing, which is a series of articles that describe and discuss the entire strategy of dividend growth investing.
And if/when you find yourself ready to invest your excess capital, we’ve got you covered once again.
I personally highlight a high-quality dividend growth stock, every Sunday.
Through the Undervalued Dividend Growth Stock of the Week series, I uncover what appears to be a compelling long-term dividend growth stock investment, based on fundamentals, qualitative aspects, risks, and, of course, valuation.
So you have some fantastic tools at your disposal, Jim.
But it’s ultimately up to you to walk that walk.
The best time to start that journey is today.
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.