Get your stuff to pay for your lifestyle???

Let me show you a typical example.

  1. John Doe, who earns $4000/month. He spends it all with some 5% savings, and he’s pretty happy of his progress. It’s not shabby, and he’s content. In a good month, he can save more, around 10%. In about 10 years, he’s socked away some $24,000.
  2. Jane Doe, who also earns $4000 a month. She decides to save a little more so she can invest 30% of her income every month into dividend stocks. She follows some of the tricks of the trade I share here in nigelchua.com. In 10 years, assuming the dividend stocks pay out average 7% per year and she reinvests every single dividend, she’d have $241,210.81. That’s already 10X of John. 7% per year on this means if she stops working, she’d continue to receive $16,884.7567 per year in dividend.

Which sounds sexier?

I dont know bout you, but I really really like #2’s approach better.

I can budget to spend at least 50% of my dividends on frivolous purchases, and reinvest the difference.

Maybe even take some of the dividends to start an online business.

Get delicious dividends (literally free money)

Ah, I remember receiving my first dividend – it was a mix of euphoria and orgasmic even.

This is the closest thing to a true passive-passive income. Dividend stocks are public listed companies that focuses on paying out a big percentage of their profits to shareholders for tax benefits. There are market fluctuations where the price of the dividend stock can go up or go down (or both), and they will pay out their dividends every 3, 6 or 12 months (so that means 1X, 2X or 4X per year).

There’s 2 ways to this:

Dividend stocks per se

These are the stuff I’m typically referring to in this article, and they typically will pay out the dividends automatically into your bank account when it’s dividend paying time. There’s so many to choose from, be it

  • by country (every country has their own, and many)
  • by sector (hospitality, REITs, trusts, telco etc)
  • by payment frequency
  • by stability of dividends

Growth stocks

Some had emailed me to tell me that dividend stocks and growth stocks are similar, in the sense if you choose growth stocks that historically have been growing 5-10% per year, you can actually “trim” the 4%+ as dividends per year, and voila! Dividend stocks similar.

For me, it’s a yes and no.

  1. I’m a bit lazier, so I like it when it’s done for me, the dividends are sent to me automatically (it’s a nice feel too).
  2. Dividends give me options to take the dividends to reinvest into other assets (just more options cos it’s cash)
  3. I dont trigger fees when dividends are sent to me, but if you trim/sell a portion, you will have to pay fees

Growth stock on the other hand, it can keep compounding and growing on itself, so that’d depend on your preference.

Some considerations

  1. You need to choose dividend (or growth) stocks that are steady, in the sense their P&L have been steady
  2. The dividend rate must be stable and not inconsistent: need to be same or higher every year
  3. The dividend amount must NEVER be more than net profit

How to create cashflow that will give you more money to spend

I learnt the concept of cashflow from Robert Kiyosaki’s rich dad poor dad, and since 2003, I’d learnt again and again how important cashflow truly is. I try as best as possible to create streams and streams of positive cash flow into my bank accounts.

Like the example I gave earlier, on smart money tactics, I immediately split money into different baskets with specific functions. An example if my income is $5000/month, I will take out 20%, which is $1000/month to be put into assets that will pay me regularly be it

  • dividend stocks
  • rental properties
  • REITs
  • etc

This will be an every-month-process, and I’ll do this month-in-month out. Let me extrapolate on the example above.

  • Year 01: Every month $1000 x 12 months = $12K. At 5% ROI, my dividend would be $600
  • Year 02: Every month $1000 x 12 months = $12K + $12K. At 5% ROI, my dividend would be $1200
  • Year 03: Every month $1000 x 12 months = $12K + $24K. At 5% ROI, my dividend would be $1800
  • Year 04: Every month $1000 x 12 months = $12K + $36K. At 5% ROI, my dividend would be $2400
  • Year 05: Every month $1000 x 12 months = $12K + $48K. At 5% ROI, my dividend would be $3000
  • Year 10: Every month $1000 x 12 months = $12K + $108K. At 5% ROI, my dividend would be $6000
  • Year 20: Every month $1000 x 12 months = $12K + $228K. At 5% ROI, my dividend would be $12000
  • Year 30: Every month $1000 x 12 months = $12K + $348K. At 5% ROI, my dividend would be $18000
  • etc

And I hadnt even calculated if I

  • increased the amount I put in every month as my pay goes up / business grows
  • invested bonuses
  • reinvest the dividends

The name of the game is to keep investing into cashflowing assets again and again.

Now’s the time to get rich investing in appreciating assets (I share two examples)

Why now?

We’re in an interesting season.

Just recovering from the dang COVID19; and the aggressive Russian dude decides to invade Ukraine; both of these is causing more world, economic, power and food issues.

People are more uncomfortable and fearful; interest rates are going up and some items are going on discount. But it’s funny.

When an item you like goes on same, be it steak or phone or flights, do you get scared to buy it?

Of course not.

  • iPhone on sale? (lol never) — buy more
  • favorite steak on sale — buy more
  • flights on discount? Let’s freaking gooooooooo
  • so many more examples

Right?

So when it comes to dividend-paying stocks or appreciating assets, why do we get jelly feet when their prices drop?

I get it, we get scared thinking or feeling that “maybe the price will drop further, so we’ll wait a bit”.

We then wait a bit, and the price

  • goes down, we get more scared, thinking the price may go down further, and we dont do jack shit
  • goes up, we think it’d go down again, so we dont do anything

Regardless of price action, net-net is we didn’t take the opportunity to buy some appreciating or dividend-paying assets on discount.

How to work around this psychological and emotional fear?

#1: Dollar cost average into good projects.

Find the good projects that you like (yes, you got to do some research) and then carve out a monthly budget so you can buy it monthly, be it price up or price down. At the end of the year, you’d get a median price. Research shows that this approach is the safest approach and most effective to bypass our natural innate (and irrational) fears.

#2: Use some metrics to support such as NAV and PTB

Sounds a bit geeky and technical, but what this means is that

  • NAV = net asset value
  • PTB = price to book ratio

These are quite interlinked; and to me more importantly, is PTB or price-to-book ratio. Most of the time, PTB means that if a company you wish to buy into, have $10000 in assets, so the shares should reflect $10000 value at least right (other than operational / sales activities). Sometimes the assets reflect $10000 buuuuuuuut the shares may reflect as $5000 instead of $10000, so that means the PTB is 50%.

To me, that’s a beautiful and delicious 50% discount (assuming this is a fair to good company of course).

That’s it, and DCA from hereon, month-in-month-out, into assets that push cash into your pocket or grow in value year-on-year.