With dividend growth investing, the best results will be generated on the long term. But before you get there, you need the money now in order to make the initial investments. And the more wealth you can build up from the beginning, the higher your return will be in 5, 10 or even 20 years.
There are two ways to build up more wealth, at least how we look at it. The first is to live below your means and grow your savings accordingly. The second is generating (passive) income via one or multiple streams.
Imagine your savings ratio is a nice 50%, and you invest all of your savings into a well build portfolio. With the dividends earned from your investments, you can invest more and more. With this compounding effect, over time, the growth of your portfolio will increase every year more rapidly. And over 15 or 20 years you will have a nice portfolio of which you, hopefully, can live off the dividends and reach financial independence.
Sounds nice right?
This is something we aim for too. Everything we save will be invested in solid companies which will pay us in dividends. Because we allocate fresh capital every other month, our wealth will grow and hold steady against inflation. Additionally we gain extra dividends because every year (most) companies grow their dividend pay out and because new dividends will be added from new investments.
For most of us, our day job is the first source of a steady income. But if you want to achieve financial independence sooner, you must build up multiple ways of income streams. We all want to quit some day, right?
Knowing that ever euro or dollar invested now, will give you a higher return later, it’s wise to focus on growing you’re income more passively through multiple streams.
For now, we only have one extra income stream next to our dividends. We earn additional money by selling books online. This started out as an experiment with selling books we already owned. Because of it’s success, now we’re buying books in order to sell later. Doing this generated a €350 return in 2016. It requires not a lot of time and effort. And although not very high it still generates a nice stream of income.
Off course, this still isn’t a getting rich quick guide. But even a small stream of extra revenue can make a major difference.
Why it matters.
The best thing about passive income, is it doesn’t eat away your time. In our society the most common phrase is: time is money. Which stand for an equal exchange of time for money, often how we look at our day jobs. You get paid an hourly or monthly rate in exchange for a vast amount of time. By spending time for better education or standing out in what you do, you can climb the ladder of the corporate world. The best decision towards income is choosing the one that earns you the most amount of money for the least possible time. Whereas passive income, than, when done properly, will cost basically no time on an ongoing basis. The catch however is that most sources do require time or even money to start up.
Examples of receiving passive income
- Invest in dividend paying stocks
Ok, most of you will already be doing this. But truly, this is the most rewarding way of passive income you can get.
- Rent out real estate
This could be bought rental property which will provide a steady cashflow, because of always existing demand. The downside is a lot of research, time and money has to be invested in order to be successful. But also think about renting your own home via AirBnB while you’re out of town or on holiday.
- Make money out of your hobby
If you are good at something, and you like to do it. It will probably cost not much more effort to make money out of it. For example: if you do something with photography you can easily list you photographs at sites for stock photo’s or anything similar. The same you can apply to crafting and Etsy, or driving and Uber.
- Advertise online
When having a successful brand in the online environment you can choose to advertise on you’re site via banners, or joining affiliate partnerships. The more people you can attract, the more money you can earn.
- Sell yourself – or knowledge
If you’re an expert at something, try to rent out/sell this. This could mean you could tudor to school children, giving advise to those who needs it or apply to an expert platform where you can offer you’re skillset. There are lots of people willing to pay for expert knowledge, you just have to get it out there.
These are only a few of the possibilities out there. In my opinion these are the ones that are easiest to fulfill and bring in the most money, although some time needs to be invested. A perfect combination when looking for a solid income stream.