Tag Archives: wealth

You’re Richer Than You Think

That’s the campaign tagline Scotiabank launched back in 2006. At the time, Canada was in an economic downturn (political-speak for recession) and the bank caught a lot of flack for the slogan. I happen to like it. A lot.

Piggy Bank on CashThe slogan elegantly captures the idea that we all have more money than we realize. The problem is, most of us don’t keep track of how we spend it. We’ve all had that moment when we look at our bank account balance and think “Where did my money go? I have nothing to show for it!” Lots of little purchases can add up to the feeling of having no money. The reality is, we simply need to keep track of our spending. When we do, we might be satisfied with where our money goes but, if not, we’re armed with the information we need to make changes.

Let’s do some math. Maybe you like to grab a coffee on the way to work each morning. At Tim Hortons that would cost you $1.70 for a medium and at Starbucks a Grande would be about $2.10. For this exercise, let’s pretend you get four weeks vacation and 10 statutory holidays. That means you would buy 230 cups of coffee, or spend between $391 and $483 a year. Let’s imagine you go out to lunch a couple of times a week at $8 a shot. That’s another $768. We can all think of lots of other small, repetitive purchases we make but let’s just use these two for now. If you eliminated those purchases you would have $1,205 every year to invest. Now let’s imagine you do that for 10 years and you manage a return of 5.63% which is our annualized return at the time I’m writing this. After 5 years you’d have over $7,100, after 10 years you’d have about $16,500 and after 20 years it would be almost $45,300! (For this calculation we did not increase your contribution for inflation. If we had, you’d have even more money.)

Now, I’m not suggesting you give up coffee and going out for lunch. If you enjoy those – great! Pick any small, regular expense you have – cable bill, cell phone package extras, whatever. The point is we all have little expenses that add up without our realizing. We could cut out some of those as a small sacrifice andmake a big difference to our retirement savings.

Ever Wish You Had More Money?

“If only I had more money…” Ever heard yourself utter those words? If you only had more money you’d… Travel more? Save more for the kids’ education? Invest more? The trouble is, most of us can’t just demand a raise every time we want more money. Well, what if I told you there is a way you could make more money without asking for a raise and didn’t require getting a second job? Would you be interested?

Let’s do some math. Let’s say you live in Ontario and your taxable income is $60,000. That would make your marginal tax rate (the amount of tax you would pay on an additional dollar of income) 31%. That means you would need to earn an extra $1.45 for each additional $1 you want to take home (1.45 x 31% = 0.45). Now let’s turn that around. If you could save $1 it would be like earning an extra $1.45! Get it? You buy things with after-tax dollars which means if you buy something for $100, you had to earn $145 in order to make that purchase. If you can buy things on sale, it’s like earning more money. When you consider your marginal tax rate, it makes waiting for a sale price really appealing. Of course we all know you have more money in your pocket when you spend less, but we rarely stop to consider how much we actually had to earn in order to have that money in our pockets. When you do, it makes your money seem much more valuable.

Now let’s really make things interesting. Let’s see what happens if you take the money you saved and invest it in a tax-sheltered vehicle such as a RRSP. Like lots of men, I love a big screen TV. Basically, the bigger the better. If I’m considering a new TV that retails for $1000 but I wait for a 20% off sale, I save $200. Remember, I had to earn $1630 in order to spend $1000 in after-tax dollars (my marginal rate is 38.5%). The $200 I save during the 20% off sale represents $325 in additional earning.

Ok. If I then invest that $200 in my RRSP, I save $77 in income tax. In other words, I save $200 on the TV but the government gives me a tax refund of $77 which means my actual savings on the TV is $277 and the $200 contribution really only costs me $123! Oh yeah, and that $200 will continue to grow tax-free! Let’s not forget I also have a new TV! If you commit to saving 20% – or more – on everything you buy, it’s not hard to see how it can be an important pillar in your retirement strategy.

Trading time for money

A few years ago we realized the wealth we could create would always be limited if we continued trying to build it in the traditional way. By ‘traditional,’ we mean the way our parents taught us and their parents taught them. There’s a good chance it’s the way your parents taught you, too: trading time for money. Essentially, trading time for money means you go to work for several hours most days and  someone pays you for the time you spend there. Because we all have only 24 hours every day, we’re all limited in the amount of money we can earn using that model.

We wanted more.

Trading time for moneyWe began to talk about ways to build wealth while on vacation, or watching a movie, or hanging out with friends, or… asleep. Early on in this journey (and it really is a journey), we learned there was a term for what we were looking for – “passive income.” While there are lots of ways to earn passive income, the one that appealed to us most was buying stocks that pay dividends. To be honest, some of the early appeal was that we both had experience investing in the stock market so it didn’t seem scary to us. In this blog, we hope to narrate our journey to share what we’ve learned with anyone who might want to do the same. Remember, writing a book, selling a product online, affiliate marketing, real estate (though that one isn’t completely passive), and lots of others are all ways to earn passive income. We would never claim that investing in dividend-paying stocks is the best method, it’s just the option we chose. We happen to think they’re the most passive as well.

A dividend is a payment a company makes to shareholders as a way to distribute a portion of its earnings. Dividends can be paid as cash payments or in additional shares of stock. Start-ups and other companies that want to grow quickly rarely offer dividends because they reinvest their profits to finance their growth. Larger, established companies tend to pay regular dividends as a way to attract and keep shareholders. These are the companies we want to own.

You would be forgiven for asking how a company’s decision to pay a dividend can affect the share price. Basically, shareholders are less certain of receiving the benefits of future growth that might result from reinvesting profits than they are of receiving current dividend payments. Investors place a higher value on having a dollar in their pocket today than on a dollar which may (or may not) be paid some time in the future. It stands to reason, then, that they are willing to pay more for a share of the company.

When you combine the stability of large, blue chip companies with the near-certain income stream of regular dividends, you get a recipe for a money-making machine you can use to build your financial independence. If building a stream of dividend income is something that interests you, we hope you’ll find our blog helpful.

Building a money-making machine

The Passive Dividend Income Blog is our way of sharing our interest in investing (pardon the pun). Investing is really a hobby for us, but more than that, successful investing transcends the need or want for money, and really gets to our core value of having more choices in life and creating multi-generational wealth. For us, wealth is freedom. Freedom to have more leisure time, freedom from worry about bills, freedom to enjoy hobbies.

Money-making machine

In this blog, you will hear two “voices.”  We aren’t Chartered Financial Analysts; we’re not licensed to sell investment products. All we offer are our investment ideas in a 100% transparent way. We are two high school teachers excited about the possibility investing offers, who exchange ideas during our once-per-week corridor duty at our school. We thought we’d share our ideas with the world and see where it takes us.

Let’s talk about building a money-making machine. If a machine existed that could produce the income you want or need, would you build or buy one? We would! Luckily, such a machine exists and the blueprint is very simple: invest money. If you invest $1000, and it earns 5% annually, that $1000 is a money-making machine that produces $50 of income every year. FOREVER!  Talk about multi-generational wealth!  It really is that simple.

Many investment blogs and ‘gurus’ will tell you how to realize growth by talking about risk and capital appreciation. They’ll have hot stock tips and ‘guaranteed’ spectacular returns if you act right away! Nearly all of them offer their “insiders” newsletter for a modest price (how can you afford to say no?). While there is some truth to some of these claims (unless they use words like ‘guarantee’), the bottom line is that money needs to be invested to grow and you don’t need to pay a broker to do it. We hope by reading our blog you’ll learn that you can invest money on your own.

For us, dividend income is a great way to build a money-making machine. By investing in the stock market, we are giving money to businesses that earn money. If we choose companies that are profitable and pay dividends, then we are sharing in their profits. These companies will give us a portion of their profits every single quarter. The potential capital appreciation of the stock is not the only consideration for investing in a company, although companies that are profitable will also appreciate in value. What we look for is a strong company that pays reliable dividends.

Our plan is to share our progress as well as everything we’ve learned along the way so that you, too, can build your own money-making machine. Welcome to the PDI (Passive Dividend Income) Blog. Thanks for reading and happy investing!