I’ve been a steadfast dividend growth investor since the summer of 2010.
Living below my means and investing my excess capital into high-quality dividend growth stocks at reasonable valuations in order to become financially independent has been a mantra of mine.
That repetitive, consistent thought process became completely ingrained into my behavior.
Spending and saving with a scarcity mindset, while simultaneously investing and building businesses with an abundance mindset, radically changed my life.
Free At 33
This lifestyle led to reaching financial independence in early 2015, at just 33 years old, roughly six years after I set out toward the goal.
It’s crazy to me how short of a timeline it really was. If you want to spend your life working to earn and earning to spend, have at it. But it’s actually a pretty simple and straightforward undertaking to “unplug” and achieve a more meaningful life, if you so desire it.
It also might be a surprise to some that there weren’t many moving parts to this. It was more about taking care of and focusing on the few moving parts it takes to become financially independent. I’m no genius. I didn’t do anything revolutionary or groundbreaking. It’s not that I was super intelligent; I just avoided making dumb decisions.
Furthermore, too many people spread themselves too thin, wasting resources on things they may not be terribly good at. That’s probably in effort to speed things along, but it’s more likely to actually delay success.
I instead decided to focus on the few things I don’t suck at.
The Snowball Effect
More importantly, I let the snowball effect that is compounding work on my behalf, which is magnified when you’re reinvesting growing dividends from high-quality dividend growth stocks – effectively letting increasing dividends buy more increasing dividends.
Well, taking a trip down memory lane made me recently realize something really special.
My monthly dividend income of February 2011 is now my average daily dividend income of early 2018.
Let’s check it out…
I earned $34.90 in dividend income in February 2011.
That dividend income came from two companies: Procter & Gamble Co. (PG) and Abbott Laboratories (ABT).
A modest sum. But nothing amazing occurs overnight. Even the mightiest oak tree once started off as an acorn.
Keep in mind, too, that I had already been saving and investing for something like nine months by this point.
But anything worth having is worth working hard for. And so I kept plugging away straight through this period – and beyond.
I worked as hard as I could. I woke up before the sun. Plowed through 11-hour workdays and smiled straight through. Came home so that I could crunch numbers, track expenses, figure out how to save/invest more, search out investments, and read annual reports. I’d go to bed just in time to get six hours of sleep, maybe.
~$35 might seem like pennies. But the power of pennies is such that they add up over time. They add up to quite a bit, actually.
Money Works Harder Than We Ever Could
While I was working hard, my money was also working hard for me.
One of the most wonderful aspects of dividend growth investing is that money starts to work for you pretty quickly. When you invest in some of the best businesses in the world, you then have thousands – or even millions – of people working for you.
Money can work harder than I ever could. And that’s due in part to the fact that money doesn’t need sleep, food, or rest. It’s a machine that’s at 100% operational workload 24 hours per day, seven days per week.
Better yet, money becomes more efficient at working for you and compounding itself the more it does so. The more money replicates itself, the better at replicating itself it becomes.
And now that I’m essentially collecting a dividend a day, my money has become very proficient at working for me, replicating itself, and compounding on my behalf.
Monthly Dividend Income Becoming Daily Dividend Income
To illustrate that, and to show the juxtaposition between February 2011 and February 2018, the dividend income I collected during the entire month of February 2011 is now my average daily dividend income.
I’m sitting here, exactly seven years later…
My dividend growth stock portfolio, which I call my Full-Time Fund (because it works full time so I don’t have to), is now pumping out more than $12,000 in annual dividend income.
That averages out to ~$33/day, which is right about what I collected during the entire month of February 2011.
Now, this isn’t a total apples-to-apples comparison because I’m comparing a monthly snapshot to an ongoing average. Still, the snowball effect that is the compounding of growing dividend income is illustrated very well here.
Indeed, a 7% increase in my February 2011 dividend income would amount to $2.44.
A 7% increase in my average monthly dividend income would now amount to $70.19.
In the latter case, that’s the equivalent of investing $2,000 in fresh capital at a 3.5% yield, except I don’t have to do anything other than just let old money make new money.
Said another way, my portfolio is growing in such a way that it’s like I’m investing $24,000 per year in fresh capital, before I even invest a new dime. And this will only accelerate exponentially over time.
What you should take away from this is that starting off with a modest sum isn’t anything to be ashamed about.
In fact, it’s something to be quite proud of.
Most Americans can’t cover a $1,000 emergency.
And so even having just $30/month in dividend income is a fantastic start toward financial independence, because it requires a portfolio worth thousands of dollars in order to generate that passive income.
Furthermore, even what might seem like a small sum of passive income will almost certainly turn into a rather large sum of passive income, in time.
That’s because you already have the mindset in place that it takes to start saving and investing. As you see success, you’ll want more success. Saving begets more saving. Investing begets more investing. And success begets more success.
And once the compounding effect starts working, it’s something that only becomes more powerful over time.
Even while I was collecting less than $35/month in passive dividend income seven years ago, I never disbelieved in myself or the end result. I always knew I was already financially independent. I was 100% confident there was a me that existed in the future, enjoying all the fruits of my (and my money’s) hard work.
That’s the crux of it, folks. If you work hard and let money simultaneously work hard for you, you practically cannot fail. You can’t not become successful. Financial independence is an inevitability for you.
Maybe you’re just starting out. Maybe you’re looking at the $30 or $40 or $50 in monthly dividend income, feeling like it’ll take forever to get there.
Well, I’m not you. And you’re not me. So I can’t say for sure how long it’ll take you to make your dreams come true.
However, I can tell you that if you play your cards right, that $30 or $40 in monthly income can and will turn into your daily dividend income. And it probably won’t take that long for that eventuality to play out.
So keep rolling that snowball. Let those snowflakes accumulate. Have fun with it. And know that your snowball is likely going to become an avalanche one day, showering you with a blizzard of dividend income, freedom, and options.
Full disclosure: I’m long PG and ABT.
How about you? Have you turned a modest sum of monthly dividend income into daily dividend income? Has the snowball effect worked in your favor?
Thanks for reading.
Image courtesy of: bplanet at FreeDigitalPhotos.net.
P.S. If you want to turn monthly dividends into daily dividends, reaching financial independence in the process, check out the fantastic resources I personally used to become financially independent in my early 30s!