Living off of dividends. Isn’t that the dream? I think so. I have a framed chance card from the board game Monopoly on my desk.
This is the chance card where you get paid a $50 dividend from the bank. The idea of getting paid a dividend made a huge impression on me, even as a kid.
And now, I actually do get paid dividends. Lots and lots of dividends. In fact, I’m invested in over 100 different world-class companies. I collect dozens of dividends every single month.
Not only that, these dividends are regularly growing, year in and year out, all by themselves. That’s because I invest in high-quality dividend growth stocks that pay reliable, rising dividends to shareholders.
As someone who’s done both the paycheck thing and living off of dividends, my choice between the two is easy. Today, I want to give you five reasons why living off of dividends is way better than living off of a paycheck. Ready? Let’s dig in.
The first reason why living off of dividends is way better than living off of a paycheck is because dividend income is passive.
That’s right. A paycheck is active income. Dividend income is completely passive income.
Huge difference here. They say time is money. Well, I’d argue that time is worth way, way, way more than money. In fact, I’d argue it can’t really be even valued in financial terms. Equating time to money belittles time.
You can always make more money. You cannot make more time.
And so being able to make money without spending time on that acquisition process frees up your most valuable resource. It completely uncouples time and money. And you’re then able to live life on your terms, so that you can do what you want, when you want. That’s priceless.
The second reason why living off of dividends is way better than living off of a paycheck is that dividend income is much more reliable.
You can be fired as an employee. But you cannot be fired as a shareholder.
That’s right. We’re kind of in this age of cancel culture, people having to watch what they say, and all of this weirdness regarding the employer/employee dynamics, but shareholders have none of that. You’re free to be you. You don’t need to watch your back or worry about a tweet or a comment endangering your income.
Jobs are fickle. When the pandemic struck, a lot of employees found that out the hard way.
How many people lost their jobs during 2020? Millions. Meanwhile, the dividend income from my portfolio kept on flowing and growing. My finances barely skipped a beat. In fact, my dividend income in the summer of 2020 – during the thick of the pandemic – was actually up YOY. Being fired from my day job during the depths of the financial crisis is actually the motivation for my journey to financial independence in the first place. Being on both sides of the fence, I can say with 100% confidence that dividend income is significantly more reliable than paycheck income.
The third reason? Dividend income is completely mobile.
A paycheck is typically fixed to the location of a job. But you can collect dividends from anywhere.
My situation is a perfect example of this. I used to work in the auto industry at a car dealership as a service advisor. I had to show up to a fixed location 5-6 days per week. And I’d have to spend 50-60 hours per week at that location. I was tied to that place, whether I liked it or not.
But I now collect dividend income no matter where in the world I live.
In fact, I’ve been living in Thailand for more than four years now. And guess what? The dividends continue to roll in. They spend all the same as if I were in the United States, Europe, or anywhere else. A company doesn’t care where its shareholders live. Those dividends get paid regardless. Dividend income is location independent. And that means if you’re financially independent, you’re also geographically independent. You can live out your life pretty much anywhere on the planet at that point. Isn’t that awesome?
My fourth reason why living off of dividends is way better than living off of a paycheck is because it grows all by itself.
How difficult is it to get a pay raise at work? Super difficult, right?
You have to show up early, stay late, work hard, chummy it up. Then, almost always, you have to go in and actually ask for the raise. Prove your worth. Go through the process. But what about shareholders living off of their dividends? What do they have to do in order to get a pay raise?
Absolutely nothing at all. They get “pay raises” without lifting a finger.
High-quality dividend growth stocks increase their dividends, year in and year out, like clockwork, without demanding anything from their shareholders. They just pay more dividends. There are many stocks, which I’ve featured here on the channel, that have been doing this for decades. I’m talking 40, 50, 60 years in a row. And these dividend increases are often well in excess of inflation. Try getting all of that out of a paycheck. It ain’t gonna happen.
My fifth and final reason why living off of dividends is way better than living off of a paycheck is because of tax considerations.
A paycheck with a W-2 is pretty much the worst possible way to make money.
That’s because of the unfavorable way in which this income is taxed. First, you’re exposed to the full fury of the federal and state income tax brackets. Then you’ve got FICA to worry about – that’s the Social Security and Medicare tax.
Dividends, on the other hand, are tax-advantaged.
As if you need another incentive to skip the paycheck in favor of dividends, you’re given taxation motivation. First, qualified dividends are taxed at a lower rate with different brackets than ordinary earned W-2 income. A single US filer, for instance, can make $40,000/year in qualified dividends and pay $0 – I repeat, $0 – in federal income tax. Plus, there’s typically no FICA tax to worry about. So for most investors making, let’s say a middle-class salary equivalent in pure dividend income, they could be paying zero dollars in taxes to the federal government. If you move to a state with no income tax, you eliminate that, too. It’s good to be a dividend growth investor, so skip the paycheck and start putting yourself in the position to live off of safe, growing dividend income.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.
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