September 2019 Dividend Income Update
Welcome to my latest dividend income update for 2019 folks – happy to have you on the site.
For those of you new to these posts on my site, for a few years now, every month I discuss our approach to investing using Canadian dividend paying stocks and how that approach is helping us realize financial independence.
To recap, we take a hybrid-approach to investing and these posts are only a portion of those updates.
- Approach #1 – we own a number of Canadian dividend paying stocks for income and growth. These updates focus on that progress.
- Approach #2 – we’re owning more units of low-cost U.S. Exchange Traded Funds (ETFs) inside our RRSPs over time.I believe owning more U.S. ETF units (over time) is a great complement to our Canadian dividend income machine…
Financial Independence (FI) is key, not Retire Early (RE)
Dedicated readers will know I’m not a huge fan of the “Retire Early” part of the #FIRE movement.
To be blunt, I simply don’t see any value or benefits in being fully “retired” as a 30- or 40-something.
I mean, what 30- or 40-something is going to sit around and watch Netflix for weeks on end?
They don’t. I don’t know of any 30- or 40-something that is truly retired anyhow. They blog for income, they sell books for income, they have a few side-hustles, and then some.
They work, they just tend to work on their own terms.
#FIWOOT is much more fitting but I know it’s not as catchy as saying “I’m retired” or “I FIRE’ed”.
FI and dividend income paths converge
Until we moved and got settled into the new condo this summer, I didn’t really think about these monthly dividend income updates in the context of financial independence and the steps it takes to get there.
I mean, I know we’re saving and investing towards a major goal, but it never dawned on me that there might some scalability to my journey – a phased approach to FI that others might want to emulate.
My phases to FI (Financial Independence):
Phase 1 – FI awakening. This is where there is an awareness or at least an initial desire to achieve FI even if you don’t know exactly how or when you might get there.
(I had my awakening just before I decided to become My Own Advisor, triggered by the financial crisis of 2008-2009.)
Phase 2 – FI understanding. This is the phase where people are getting themselves organized; they start to diligently educate themselves on what their personal FI journey might be.
(I would say it took me until my mid-30s to get my financial life in order through more financial education and improved financial literacy.)
Phase 3 – FI funding. In this phase, people start to realize some financial stability. Maybe the emergency fund is now fully established. Usually an approach to long-term investing has been solidified. More than likely, student loan debts are being dissolved or better still, they are completely put to rest for good. Debt management is under control – you have avoided buying too much house, too much car or you’re making changes to curb your financial behaviour.
The FI funding phase means you’ve taken steps to start optimizing your financial life – reducing waste and excess. It’s doesn’t mean you’re perfect but you do start to align your spending with your financial values.
(In speaking about my own FI funding experiences, my wife and I really upped our FI journey once we landed on our two-pronged investing approach: owning a basket of dividend paying stocks for growing income AND owning a few low-cost ETFs for long-term growth.)
I believed then (like I continue to believe now) our hybrid approach will deliver a masterful 1-2 investing punch to achieve FI.
Phase 4 – FI adoption. This is where a routine, but often diligent combination of debt repayments and wealth-building is occurring over time to the point where, should an emergency or an unfortunate unemployment situation were to occur, it would not cause financial ruin. Essentially, there is money in the bank to ride out a financial storm for multiple months or quarters, or maybe even years.
Within the FI adoption phase you’re actively executing on your FI plan. There is no longer any second-guessing about what to invest in, why; you’re not rattled by stock market noise or various reports. You’ve carved out your FI path and you’re confidently marching on it. You continue to optimize your life. You have plans to do so, it’s motivating to you.
This phase is realistically the longest.
Now that you’ve fully adopted your FI journey, you’ve accepted that journey could take many years or even a few decades, depending upon your path to FI. It is highly dependent on your savings rate and the ability to cut back expenses.
The more you save and invest, the more ruthless you are towards cutting back expenses – the sooner you can achieve your desired-level of financial independence.
My wife and I have determined that somewhere around age 50 is when we could be reasonably considered FI on our terms. That is in a few years. I hope to post a new financial freedom update later this year.
Phase 5 – FI security. This phase is where your basic living needs (home expenses, groceries, other small necessary items like insurance) are covered from cash flow from your investment portfolio (the combination of distributions, dividends, interest, or selling assets as needed) and/or from passive income sources like rental income or royalties.
My wife and I aren’t there yet – but we are getting close to this phase. If we had no debt, I’ve calculated we’d be pretty much be there with some meager part-time work.
We’re optimistic that dividend income (without selling any assets) from our non-registered portfolio alone should cover our condo property taxes and our condo fees for life – sometime next year. Those expenses are estimated to be in the range of $12,000 per year in 2020. Those expenses will likely increase with inflation over time. We’re optimistic that dividend raises from the companies we own will help offset those inflationary costs.
Beyond taxes and condo fees, we’ll need to eat!
RRSP withdrawals (over the coming decades) will cover groceries and other expenses each month (another $12,000 or so per year in 2020 dollars).
FI security is a Crossover Point
FI security equates to a financial Crossover Point. The Crossover Point was popularized in the book Your Money or Your Life. This is the point whereby investment income matches or ideally exceeds monthly expenses on a consistent basis. Reaching the Crossover Point means you have a steady income stream for life (other than reliance on your job for income).
At our Crossover Point, we’ll just work part-time to provide some financial buffer.
Again, I don’t believe in the RE part of FIRE (Financial Independence, Retire Early) but we are actively striving towards the FI portion.
Phase 6 – FI freedom. This is what I consider the final phase in my FI journey where truly all expenses (basic and discretionary) are covered by existing and more than likely growing assets (if you did not draw down your portfolio at all).
There is no need to work at all, although some people may choose to do so for social, physical, mental and other wellness benefits. (I intend to.)
As part of your FI Freedom Day, the income delivered to you (from your investment portfolio, from other assets) covers everything you need and much more. Since you’re well beyond FI security now, you can buy those gently used vehicles every few years – if you wanted; travel more on your own terms – for many months on end; upgrade your lifestyle with better food decisions – all without ever worrying about breaking the bank.
The reality is though, because you’ve been a financial optimizer for the last few decades on your FI journey, the actualization of your FI Freedom Day might be a big non-event. Sure, it would be exhilarating to claim financial freedom but because this has been your mission for many years on end it’s hardly surprising when you arrive at your destination.
I suspect this might be the feeling for my wife and I – at least we hope so…
My September FI update
In my FI journey context – we remain firmly in phase 4.
We have some debt on the books and we’re working to kill that off.
We strive to max out our TFSAs (Tax Free Savings Accounts) and RRSPs (Registered Retirement Savings Plans) every year although my wife does have some contribution left. I have next to nothing to contribute to my RRSP this year.
For us, FI security is on the horizon.
At the time of this post, we’re projecting our tax-free (i.e., TFSAs) and tax-efficient investing (non-registered account) might yield close to $19,250 this calendar year by end of December 2019. We should realize this total as long as the companies we own continue to pay the dividends they do.
To FI or not to FI
Regardless if you subscribe to the FIRE movement or not, I believe most of us aspire to some form of financial independence (FI). The ability to work at what we want, when we want, how often we want without any financial consequences is very motivating.
My wife and I are getting closer to FI security since we’ve graduated from phases 1-3 on my FI journey, and with more diligent work in our current phase, it’s not really a matter of if but when we realize FI security.
I’ll write more about my phases to FI in a future post but for now, what do you make of our journey and what would you like to know more about? Thanks for reading.