What are Your Dividends for?
The end of the year is time for contemplation, and this year is no different. I wanted to talk about the reasons why I am so passionate about investing and why I’m pursuing it so single-mindedly.
Thinking about your best life
An exercise that can be very revealing is spending some time thinking about your ideal day. Simply sit down and write out what a day in your life would look like if you had total an utter control over every minute of every day.
Without knowing my readers personally, I am quite certain that very few of these perfect days would involve meetings where people use words like “capacity”, “revert” and “synergies”. Mine doesn’t. I’m also certain that none of these perfect days involves significant commutes.
I suspect all of these days involve exercise, being outdoors, and spending time with family and friends.
Your list of musts.
While I have a “perfect life” plan outlined, my honest assessment is that it is pretty unlikely to ever occur. But there are a number of things that I’m not willing to compromise on in my best day. These are what I call “musts”, and there are a few things that I consider as musts.
- I want to work for 2-4 hours on things I personally find interesting, without having to worry about money,
- I want to be located in an area of my choosing in comfortable housing.
- I don’t want my family to have to worry about money either.
- I want to travel.
I actually want to keep working
I don’t think that anyones best life is best served by simply relaxing and doing nothing. There is a significant amount of research showing that an active mind is beneficial to a long and healthy life.
A life of simple pleasure would leave a large holes. I truly believe that all people want to contribute to something bigger themselves, to have their contributions affect something larger. Despite knowing that ultimately very few people will contribute in a way that leaves a lasting mark, a sense of belonging is vital to good health and well being.
The solution then is to find work that satisfies your desire to contribute, without compromising your ability to enjoy life. The answer is not to report to your job for 10 hours a day to attend conference calls, stress about power point slides and deal with email. These are not good ways for any body to spend the majority of their waking hours.
I do believe that many people self select into jobs they are interested and passionate about. Unfortunately, there is a significant amount of non-work costs that people must “pay” before being allowed to work on things that are interesting to them. Personally, I know the frustration of working on unproductive tasks – the box ticking exercises that exist before you can stuck in to your passions.
Whats the number?
Everyone has a number that would enable them to, if they chose to, work specifically on things I found enjoyable without regard for whether it was profitable or not. My number is large. In fact, its so large that it is almost not worth talking about. Unless I get extremely lucky or something bizarre out of normal historical occurennces occurs, I will likely never reach the number I’m shooting for. But that’s ok.
Whats the minimum?
The second question, and more important one: whats the minimum? Whats the minimum number in purely passive income (dividends) that I would need to be confident of receiving that would cover my minimum expenses? The number where dividend expenses cover my fixed costs – rents, insurance and food.
I think, and this is purely a very vague estimate, that the number is $2500. That’s $30,000 a year. After tax.
If we ignore taxes, given $30k in income would require very little tax paid given the tax advantaged nature of dividends, and assume that the average grossed yield of the portfolio is 6%, then the portfolio needs to be $500k. That’s the minimum.
Whats the best life number?
The perfect life requires a magnitude more. One of my favourite quotes is “always think about adding one more zero to what you are doing – but never more than that”. Seems apt for my purpose, and I think 10x in passive income would allow me to live a sustainably ongoing excellent life. At this point, money certainly wouldn’t be the primary concern in what I choose to work on.
While I honestly think I can make it, I’m not close. I might get there, depending on how disciplined I am over time and how my investments perform. I plan on tracking it quarterly, and you can follow along here.
Something else to think about:
I personally am concerned that a large amount of what currently passes as productive employment can be automated away. There are certain jobs that are more resilient to this than others (and as always, those with the ability to sell products will be fine) but for me personally, my chosen employment is right in the firing line. This adds some added emphasis and urgency to my mission to reach the numbers outlined above.
So what are your dividends for? For me, its buying hours of freedom – hours away from the busy work that characterises a lot of employment today, hours away from the politics that characterises most work places.
Its about designing and taking control of your best life, rather than living like everyone else and having other people dictate the shape of your life to you. Its about acknowledging and sacrificing early in your journey, to ensure that your journey is your own.