Friday, March 29, 2013

Help! I have a serious spending addiction

I have a serious spending addiction – any time I find myself with some extra cash on hand, I end up spending it. This is particularly troublesome, as I tend to salivate when I see an item that I really want.

Anytime there is a big sale, especially one with large markdowns, my spending problem comes out on the surface and I sometimes go through all of my cash on hand and sometimes even borrow money to spend. The exhilarating feeling of spending my cash is similar to probably what a drug addict feels when they get their daily dose. I look at the list of items I spent my money on, and it provides me with an internal sense of happiness and accomplishment. Sometimes, I even look for ways to save money from recurring expenses in order to have more money to spend. I am often scrambling to find enough cash, as I always have at least 15 – 20 deals on my radar, just waiting to be purchased.

I spend a large portion of my monthly income on dividend paying stocks. I willingly spend my money on dividend stocks because I know that I am contributing towards my retirement goals. I view every dollar that I can invest in a quality dividend stock at attractive valuation such as McDonald’s (MCD), Phillip Morris International (PM) or Johnson & Johnson (JNJ), will work hard for me and produce several more dollars over their lifetime for me.

Over the past month however, I have curtailed my spending problem. No the reason is not because the market has risen to all-time-highs. Even during the late 1990’s and the 2006 – 2007 periods, one could find attractive pockets of dividends that were cheap. My fingers are itching on my trigger, as I see so many quality firms which are trading at promising entry prices. The reason why I have not purchased any stock over the past month, and would likely not purchase any new stock in April is due to taxes. Once your income from non-salary sources becomes noticeable, you end up having to pay estimated quarterly taxes. Fortunately or unfortunately, my estimated payments were not sufficient to cover the remainder of taxes due. This is fortunate, because I had been able to deploy the funds at prices that were much lower than prices today. I would much rather invest the funds and get the chance of earning a return on them, rather than provide a zero interest loan to the government. The only investment I made recently was part of spring cleaning my portfolio, used cash from an existing position that I sold to purchase two new stocks.

Luckily, by the end of April, I should be able to redirect my cash flows toward growing my dividend positions. Hopefully, the market is not going to increase too much by that time.

Full Disclosure: Long JNJ, PM, MCD

Relevant Articles:

Three stages of dividend growth
Spring Cleaning My Income Portfolio, Part II
S&P 8000 – The power of reinvested dividends in action
Dividend Investors Should Focus on Valuation, not just Yield
Warren Buffett on Dividends: Ideas from his 2013 Letter to Shareholders

4 comments:

  1. That is, if the markets keep rising at all. Economy in US and Europe is uncertain and many sources expect the stock market correction to be expected sooner rather than later.

    This is the thing that keeps puzzling me: what would be the sensible thing to do? To invest or not to invest? If I choose to invest now, I might loose a lot if stocks take turn to the south. However, if I don't, I might loose good value.

    Which is why dividend stocks are nice in this situation, they always pay out regardless of the price of the day.

    However, here in Finland, our dear politicians just decided to increase taxing of dividends big time (now 21%, next year 30% on dividends from listed companies), starting next year, which kind of makes value investing a bit more interesting play and which probably guides companies to buying their stocks back rather than paying dividends. However, the tax thing is a bit more complicated than that and is still under a heavy debate due to some loopholes and being generally unfair for a small investors.

    That being said, right now I'm happy to just save my money, see what news the summer brings and hit the stock market if I get a clear shot. Uncertainty in economy and all time highs in the stock market are not a promising combination.

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  2. Very nice, and a bit funny post DGI. It gave me a chuckle. Generally, I try to have more money than necessary taken from my paycheck to cover the issue you described. Yes, I pay in too much, but don't have the problem you encountered. It's a trade-off I prefer. When receiving pay raises, the amount of the raise is saved, directly from the paycheck. A employee credit union. This keeps the money out of my hands. When it reaches a specified level, it is invested. I continue to consider PH as a investment but am holding off. PH says they have been experiencing slowing of the global economy. Hopefully, I will get it at a better price, but it's a gamble, it's already sporting a nice PE ratio and seems a solid outfit. Have a nice weekend.

    A

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  3. I share your same addiction! But at least it's a healthy and productive one. I was wondering how my taxes would end up being effected once my dividend income becomes a pretty significant amount. Is there a certain level where the quarterly payments kicks in or is it based on a ratio to W-2 income?

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  4. Thank you everyone for commenting. I have taxable liabilities because I have non-employee income that combined with my employee income increased in 2012 in comparison to 2011. I only paid estimated taxes at my 2011 income during 2012. That way I avoided giving the government interest free loans for the increase.

    That is my interpretation of the tax law, and should not be considered individual tax advice. Contact your tax adviser for issues on taxation.

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