Every day, another frustrated employee comes home from work, pops open a drink, and spends the rest of the night fantasizing about the day they can finally escape the rat race. For some, the only way to do this is to win the lottery or work for the next 40 years to earn a pension, but there is another option. This popular escape strategy is what I call dividend freedom, or generating enough dividend money to never have to work again. Living a life of dividend freedom is more possible than most people assume. So let me tell you how much the lowest money you need to invest to achieve precisely that.
How To Easily Live Off Dividends
One of the worst kinds of living, in my opinion, is having to exchange the majority of your life at a job you despise for a paycheck that barely keeps the lights on. Call me a dreamer, but I believe that life is about more than just being productive, especially when that productivity is used to make everyone but yourself wealthy. Unfortunately, most people are living the life I just described, and you may be as well. It didn’t take long for me to discover that the bright vision of the nine-to-five existence painted for me in college wasn’t precisely the reality I’d be stepping into once I entered the workforce.
Maybe I was naive, but when I first started working, I assumed everyone would be happy to be there since they were getting paid, but this was not the case. Once you’ve received one paycheck, the excitement wears off, and all you’re left with is typically a slew of tedious tasks and days that seem to stretch on forever. At first, I assumed it was simply the persons I worked with who were unhappy; after all, if most people weren’t pleased with their jobs, why didn’t they just quit?
Well, I quickly discovered that when you look at the concrete data, people’s dissatisfaction with their work is far more prevalent than I could have expected. According to a 2019 Gallup poll, 52 percent of Americans feel disengaged at work, which is perhaps why you see your coworkers perusing job sites in the hopes that their next job would be one that they can really endure. Worse, even while people are barely tolerating their existing occupations in many cases, their overall work experiences appear to be worse.
Another Gallup survey asked respondents about the state of their working circumstances, and almost 40% responded that the quality of their employment had deteriorated in recent years. Fortunately, there is a remedy to these deteriorating working conditions: living off dividends. If you ask me, living off dividends is the highest form of financial independence. Unlike many other types of dividend-paying passive investments, there is practically nothing to do but sit back, relax, and cash your checks when they arrive.
Unfortunately, although being a fantasy for most people, this is all that many will ever have because few will ever be able to sustain themselves entirely on dividend income. Let me explain why this is the case.
Why most people will never achieve Dividend freedom
If you ask me, there are three reasons why most people will never experience Dividend freedom. The first is that they are unaware that this is even a possibility. People like you and me have known about dividend investing for a long time, but we are not the majority. In fact, just 56% of individuals in the United States hold any stock, indicating that not as many people are aware of the dividend independence lifestyle.
The second reason most individuals never live off dividends is that they simply do not produce or save enough money to begin saving for such a high financial objective. Indeed, recent 2021 statistics reveal that more than half of Americans are still living paycheck to paycheck. I hope you’ll agree that living off profits would be difficult if you didn’t have the finances to invest in the first place.
Finally, for some people, amassing a large enough dividend portfolio to support their dividend independence goals is simply too difficult. to put this into perspective
The lowest money need to invest to achieve Dividend freedom
let’s look at how much the ordinary person would need to invest to begin living a life of dividend independence. The average cost of living in the United States was around $60,000 per year as of late 2021. Most reputable dividend ETFs now give a return of roughly 2.5 percent per year, thus based on this cost of living figure, one would require 2.4 million dollars to hand in their two weeks’ notice at work and begin living the life of dividend freedom.
When compared to the typical household retirement savings of $65,000, the bulk of individuals is nowhere near being able to employ dividend investing to extricate themselves from their 9 to 5 jobs. I know what you’re thinking: why not just invest in assets that create greater yields, which is, of course, the way to get more dividend income every year? For example, IBM is a dividend aristocrat with a five percent annual yield.
To cover a sixty thousand dollar per year lifestyle, you would need to invest 1.2 million dollars. This is a considerable reduction in the number of assets necessary to reach dividend freedom when compared to our previous example, but I believe we can both agree that amassing over a million dollars is no simple task. The next obvious step would be to continue looking for equities with increasing dividend yields in order to minimize the amount you need to save in order to live solely on dividends. However, in general, a stock’s dividend yield is inversely connected to its reliability and risk.
As you can see, many corporations will aim to get investors to put their money into efficient businesses by offering a high dividend return. So, while you may believe you’ve found your ticket to dividend independence with these high-paying firms, you may be disappointed when their dividends are reduced or the company goes out of business. In reality, even some of the most dependable dividend stocks have proven to be dangerous from time to time. For example, AT&T, one of the most popular dividend stocks, stated at the beginning of 2022 that its dividend will be slashed in half.
As it goes through organizational reorganization, even the most dependable dividend stocks might leave you high and dry in your pursuit of ultimate dividend freedom. You’re probably thinking that your prospects of ever surviving off dividends are about as little as your chances of ever finding a match on tinder, and you need to know one thing. Being successful and eventually living off dividends is just a matter of maximizing two crucial factors: your cost of living and, as previously said, your dividend yield.
The good thing about your cost of living in the dividend freedom equation is that you have complete control over it. Whether you want to live off $200,000 per year or $20,000 per year is totally up to you. This is vital to understand since this selection has a significant impact on how much you must save to begin your dividend-supported existence. For example, cutting ten thousand dollars from your annual living expenditures and living off fifty thousand dollars a year at a 2.5 percent dividend return would allow you to avoid saving four hundred thousand dollars in your portfolio, which would take most people years to do.
Then there are the returns themselves. We just discussed how investing in a single firm may be rewarding but also dangerous, and let’s face it. You want to spend your whole post-work life on your investment app, hoping for good news about the one firm that keeps you from having to go back to work. When investing, you should diversify rather than risk all of your money on a single investment. However, diversification must be accompanied by adequate returns, and here is where the solutions to most people’s dividend concerns emerge. Cover call ETFs are an excellent way to combine diversity and high payouts.
Cover call ETFs
When I say cover calls, I don’t mean those collect calls from friends asking you to pick them up from the police station. When I say cover call ETFs, I mean funds that buy a group of equities and then sell call options on them. The benefit of investing in a cover call ETF is that investors gain from covered calls without having to physically participate in the options market. The fun handles the covered calls for them, making this procedure completely hands-off. You may be asking what sort of returns you may anticipate while investing in this type of fund, and I believe you’d be pleasantly surprised.
Popular cover quality applications have an annual yield of 11.8, such as the globe blocks NASDAQ 100 cover call ETF or the QYLD. To begin living off dividends with a regular living expense of $60 000 per year, you will need to have a little over $500 000 invested. Going back to our previous point about diversification, you could be thinking that even if I’ve just invested in one asset, this is still a lot of money, and you’d be right. However, this investment is spread across numerous reputable firms such as Apple, Tesla, and Google. In contrast to our earlier example, you are distributing your dividend freedom among a number of high-performing enterprises.
Furthermore, you don’t have to create a brokerage account tomorrow and deposit $500 000 to make this investment strategy work. It is quite possible to begin investing in this fund gradually and then reinvest and increase your position with the dividend income it generates. In reality, this is how the majority of large dividend portfolios are constructed, but in this instance, the amount required to be completely reliant on dividend income is far more attainable.
However, even a $500 000 will be a lot of individuals who just cannot comprehend collecting such a large sum of money, therefore I’d like to propose one final option. When you think about it, the biggest advantage of living off dividend income is that you may obtain complete time freedom while never having to worry about paying your expenses again. Fortunately, there is another way to achieve the same lifestyle without investing hundreds of thousands of dollars, and it involves the development of an automated online business. The internet is more than simply a storehouse for cute cat videos, as you should know by now.
The internet provides a method of creating online assets that may pay you handsomely every month and, in my opinion, represents most people’s greatest opportunity of enjoying a work-free life in the near future. I realize that living off internet money without having to work seems like a crazy concept, and I thought the same thing until I did it for myself. I can practically manage my lots of Blogging websites entirely through outsourced work and yet make enough money to pay my expenses without having to work, and the same lifestyle is possible through a variety of popular online business models like drop servicing and drop shipping. YouTube, as well as virtually all other kinds of e-commerce.
Now, even if starting this type of online business is free, there is no guarantee that it will be successful. You might be astonished to find that you can create a six-figure internet passive income business with little or no money and attain economic freedom 10 times faster than you ever imagined possible.
DISCLAIMER: I do not provide financial advice. These articles are strictly for educational purposes. Investing in any form carries some level of risk. While risk can be reduced, your investments are entirely your responsibility. It is critical that you do your own research. I am only giving my thoughts with no promise of profit or loss on investments.