You’ve probably heard the term ‘Financially Free’ before, but what does it really mean? Financially Freedom occurs when you can comfortably meet monthly bills and have some excess for wants. When you are no longer dependent on your salary, you are financially free. Can’t imagine not being dependent on your salary? It sure does sound far-fetched, but it’s possible.
To achieve the financial freedom you must replace your monthly salary with investing income. One source of investment income is dividend-yielding stocks. To get started you need to know how much money you should have in your stock portfolio to generate enough dividends.
Here’s a simple calculation to find out your magic number– multiply your monthly income by 12 and then divide it by 5% (5% represents the typical dividend yield). For example, let’s say you earn $1000 per month, it would be…
Step 1: $1000 x 12 = $12,000
Step 2: $12,000 / 5%
Magic Number: $240,000
Now, you know the formula you can calculate your magic number. One important point to note is when you calculate your magic number don’t be alarmed by it. Rome was not built in a day, so by consistently investing you can and will reach your magic number.
Here are a few tips to help you reach your magic number:
- We all got skills. Look into monetizing one of your skill sets. It is time to start that side- hustle.
- Are you getting rental income? If so, put it towards your investments. Don’t spend it
- Do you get any bonuses from your job? Think about putting it towards your magic number instead of spending it.
- Lastly, take the gains from your current investments and reinvest them towards your magic number
Let’s take this concept a step further by bringing it all home. Do you remember when we spoke about the importance of consistency and growing your portfolio? All these lessons are connected and work together to build your wealth. Here is how your magic number and investing consistently support each other. If you bought 1000 stocks @ $3.00 each in company A and did not add to your investment, when the company pays a dividend of 5% per share, you would only receive $150. However, if you consistently added to your stock holdings monthly, with the objective of achieving your magic number your dividend payment would have been $240,000.
Join us in the Money Squad to learn more about investing strategies that can help you achieve your magic number.