Wednesday, January 09, 2013

Dividend-Paying Companies: A Job Where You Don't Have to Work

I saw this article this morning from The Motley Fool and wanted to share it. It contains a bit about a few interesting individual stocks (I saw it because I track McDonald's stock, that being one of the companies mentioned in the piece), but it's the observation of a child quoted in the article that really interested me:
"The important thing for the investor to remember about dividends was summed up by my 8-year-old this morning. I was driving her to school and she asked about the money she got (she wants to buy a bike). I told her I'd invested her Christmas money in her favorite restaurant, McDonald's. When she asked why I told her that McDonald's would pay her to own the shares every year. Her reply? “Wow, it's like having a job without having to go to work.”
It's like having a job without going to work. Let that roll around in your head for a while."
Exactly why I prefer to invest in dividend paying stocks (including exchange traded funds, mutual funds, etc., whether they contain stocks, bonds, real estate, whatever - show me the money!). While I don't currently directly own shares in McDonald's (I sold the last time it was over $100), I do hold positions in plenty of other dividend payers, specifically because of what this little girl said - my investments are "working" for me every day, whether I'm working or otherwise.

Going beyond the basic understanding that this eight-year-old already has (and that's great - I wish my parents thought in these terms when I was growing up), I combine that understanding and action with conscious identification of what I value in life so as to focus my spending on those things (those familiar with Your Money or Your Life probably recognize that). In short, I don't spend money on crap that I don't care about, that doesn't enhance my happiness, etc. That's not just stuff I dislike, but also stuff that I can do without that I won't miss.

It's astounding how much cheaper paying for your life can get when you practice that discipline. The purpose of doing so is to shrink the gap between one's passive income and contentment-necessary expenses (yes, I think I just coined that term).When that gap is closed (what the YMYL folks refer to as "FI," short for financial independence), the thing I am aiming at with these activities is reached: ownership of my time. I want to convert work from a necessity to an option, to move my interpersonal interactions as close to completely voluntary as possible, to spend as close to 100% of my time doing what I really want to do as I can, and to be as unbound from particular places on the globe as I can be (then I could Enjoy the Decline from somewhere nice, like a beach in Panama maybe).

Working cannot get you to FI. Work is labor in, dollars out, followed by life = dollars out, rinse, repeat. Eventually you get too old to keep doing it. Work can get you passive income, if you handle your self and your cash right, which can eventually cover the life = dollars out part. 

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