Monday, June 2, 2014

How to stay motivated on your road to financial independence

In my post related to my 2014 goals and objectives, I shared with readers my roadmap to financial independence by 2018. Currently, the goal is to have more than 2/3rds of expenses to be covered by dividends. I believe that a 100% coverage of expenses by dividends by 2018 is very doable, as long as existing companies I own manage to raise dividends by 6%-7%/year on average and I manage to reinvest distributions at 3%-4%. As I had mentioned earlier, most of my contributions are now going into tax-deferred accounts, in order to create a tax-free buffer for the excess dividend income I will be generating.

The road to financial independence is very exciting and liberating. I find it really liberating to check every quarter how much of my expenses is being covered by my dividend income. Ever since I converted to Dividend Growth Investing in late 2007 – early 2008, my dividend income has been increasing exponentially. This is a result of my plan to retire early.

So for the past 7 or so years, I have been focusing on several levers within my control, in order to achieve financial independence. The levers include saving a lot, finding ways to earn extra money, investing my hard earned money in the best values at the moment, and focusing my attention on researching companies and continuously increasing my knowledge about investing matters. The most difficult part of the journey however is the job situation, which has resulted in increased levels of stress for the past several years. The pay has been decent, but the increase in level of responsibilities has exceeded the level of income growth by a large factor. It is very difficult to keep producing and keeping up to those high expectations and stress, when you are also so close to the finish line. The problem is that the finish line is about 5 years down the road. ( 2014, 2015, 2016, 2017 and 2018). The one thing that I find difficult, is to endure the daily grind that leads to the dividend crossover point. I do not believe that it is healthy to sit in a cubicle for 60 hours on a slow week, while getting stressed out over impossible deadlines.

This means I still need to keep motivated enough, and work harder, before getting to the Promised Land. I find it tough to keep up with the daily grind, which is why I try to motivate myself to perform, because the daily grind is a major source of capital for my FI. I motivate myself by consistently trying to save a large portion every month, in order to put it to work, and have the asset base to generate more dividends. I motivate myself by searching for quality companies at bargain prices, and researching their business models in order to determine whether they can be sustainable engines of dividend growth for the foreseeable future. I also motivate myself by charting my dividend income over time, and visualizing the point in time when expenses will be more than covered by dividends by a nice factor of 1.3 - 1.5. I do want to do it the right way, and not quit in the middle of the journey. That’s why 2018 is the reasonable goal to have.

For me this is the point where my dividend income increases expenses, and technically I would never again have to work for money. That doesn’t mean I would do nothing, but would provide me with freedom of choice to pursue only projects and people I find interesting. I may still choose to work after that point, or do something else. However, having options in life is something that is extremely valuable.

The types of dividend growth stocks that will pay for my retirement, provide me with consistent raises include:

Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company has managed to increase dividends for 6 years in a row, and currently sells for 17.10 times forward earnings and yields 4.30%. Check my analysis of PMI.

PepsiCo, Inc. (PEP) operates as a food and beverage company worldwide. This dividend champion has managed to increase dividends for 42 years in a row, and over the past decade has managed to boost them by 13.70%/year.  Currently, the stock is trading at 19.40 times forward earning and yields 3%. Check my analysis of PepsiCo.

Exxon Mobil Corporation (XOM) explores and produces for crude oil and natural gas. This dividend champion has managed to increase dividends for 32 years in a row, and over the past decade has managed to boost them by 9.60%/year.  Currently, the stock is trading at 13 times forward earning and yields 2.70%. Check my analysis of Exxon Mobil.

Johnson & Johnson (JNJ), together with its subsidiaries, is engaged in the research and development, manufacture, and sale of various products in the health care field worldwide. This dividend champion has managed to increase dividends for 52 years in a row, and over the past decade has managed to boost them by 10.80%/year.  Currently, the stock is trading at 17.30 times forward earning and yields 2.80%. Check my analysis of Johnson & Johnson.

General Mills, Inc. (GIS) produces and markets branded consumer foods in the United States and internationally. This dividend achiever has managed to increase dividends for 11 years in a row, and over the past decade has managed to boost them by 9.90%/year.  Currently, the stock is trading at 19.10 times forward earning and yields 3%. Check my analysis of General Mills.

There are several lessons however, which are applicable to everyone reading, even if you really enjoy your work and never want to retire. Things change, people change, companies change, which is why it is quite possible to really start hating what you do in the future, which might be unthinkable to you today. I am very lucky that I never had much in terms of debt, other than a credit card I pay off in full every month. I am also very lucky that I have had the frugal mentality to save as much as possible from my income, and also focus on increasing it over time. The problem of course is that reaching the goal takes time, which is the one commodity we can never buy back. On the bright side of course, once you reach the point of your goals, you would only have to deal with the rest of life’s challenges.

So how do you stay motivated on your road to financial independence?

Full Disclosure: Long PM, PEP, XOM, JNJ, GIS

Relevant Articles:

How to become a successful dividend investor
My Retirement Strategy for Tax-Free Income
Dividends Provide a Tax-Efficient Form of Income
What is Dividend Growth Investing?
What are your dividend investing goals?

14 comments:

  1. I like all of the dividend paying stocks you mentioned in this article. The problem I am having is many of these are almost at their 52 wk highs. So for June I am trying to find out which is the better value at this time. We will see what happens this week. Thanks for sharing!

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  2. I'll be honest, it's been a bit hard to keep my focus on FI. After paying off my debt and securing my housing I kind of "lost my way". I'm working at refocusing my efforts and finding a balance between living the life I want today while securing the future I want for tomorrow.

    The Stoic

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  3. Just a question for you, do you own your own home? It is very difficult not to have debt when purchasing a home. Also, after reading this article, you might be happier now finding another position. Why be miserable for the next 5 years?

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  4. Mindfulness motivates me. I remember to enjoy the moment. So I don't fall victim to the advertisers tricks and traps of ... more, more, more. I avoid distraction like TV, social media, search, and trips to the mall. I practice contentment with what I have and only purchase what I need. In so doing, I'm free to live below my means and invest the difference. I take joy in sunshine, biking to work, playing with my daughter, and conversing with my wife. I find this approach very motivating.

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  5. I can relate with your frustration. DGI and early retirement are by far the best games in town, but they also takes a substantial amount of grit and determination to see the process through. One aspect that I struggle with is passing up present consumption. I'm lucky enough to have a job that pays well and I save/invest between 1/2 and 2/3 of my monthly income depending on the month. The struggle comes when I see coworkers and friends driving brand new cars and taking awesome vacations and knowing that I could be doing a lot of those things while still being financially secure. It's a good problem to have, but it does sap some of the motivation to keep my foot on the gas pedal. I'm trying to spend some time sorting out how to deal with these emotions over the next few years.

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  6. How do I stay motivated? Easy. I love what I do. I love investing. I can't imagine being alive an not investing. I love knowing that even after I'm dead, some company will still owe me a dividend each quarter. I love knowing that my money is working harder than I am every day. I think it's just who I am.

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  7. I too have somewhat lost my way. I started down the road to early retirement about 6 years ago. I found Jacob's ERE and it gave me a new perspective. I then found DGI's blog which gave me the main tool. It was really easy back in the early days. So many companies to choose from.

    Fast forward to today and I am about halfway to my goal, which is great. The downside though is that so many companies I bought into have increased to the point they no longer look attractive. I have stopped spending as much time on research and have not bought much this year.

    Time to go do some more research...
    Thanks DGI. Always good to read your blog.

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  8. I will be retired May 1st next year, and I can relate to how hard it is to stay motivated as you get close to the end. I'm lucky that my boss let's me do my job without much interference, but she is leaving and a new boss is coming in next week. I could always retire earlier if things get bad since I already qualify for a pension, but it maxes out May 1st next year. Plus, my youngest graduates from college in April next year, and there is still about $15K worth of tuition and books to pay for.

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  9. Hi DGI!
    I am from Chile and I really enjoy reading your blog. I like your approach of investing. Since people here in Chile and elsewhere in Latin America do not have a lot of knowledge of how to save and invest money, I recently started my own blog and website (http://librerico.com) to teach them and to be an example on the road to Financial Independence. My dream is to be financial independent within 9 year at the latest. Observing my freedom fund growing every month keeps me motivated to stay on the path and to sacrifice what I am today for what I will become tomorrow. Keep on writing!! Best regards, LibreRico

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  10. Well I am turning 30 this year. As a father of two children it is important to have a safety net. My goal is to have enough money when I am 40 that the dividends will provide me with an ordinary "extra" salery. In case something happens to me or if I can't work anymore my family will be provided for. Safety is the name of the game.

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  11. I'm not sure it's possible to be 100% motivated for the entire journey to financial independence; life is too "messy". Looking back, my journey started 20 years ago, although I didn't know it at the time. Over that span, there have been periods of great bottom line performance, periods of development for methods/techniques/strategies, and also periods where everything seems to be in a holding pattern.

    Sometimes, those periods of little to no progress with my investments are the hardest. For example, lately I've been trying to avoid chasing yield, which feels like it is taking extra time and energy. So I shifted my goals from increasing my monthly paper income stream to creating a monthly passive income stream. And there have been times in the past that focusing on reducing my expenses has been the best use of my time. One good thing about DGI is that you can take a break, and the dividends still roll in...so there's no penalty for getting some R&R.

    The one constant has been measurable progress in some area of personal finance. I keep excel charts (some going back 20 years) showing my goals and my performance, and make a game of beating the previous month.

    The second aspect to maintaining motivation is rewarding yourself for hitting your goals. I am TERRIBLE at this, and it is one reason my lulls in progress were longer than I would have liked...you can only delay gratification so long.







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  12. The road to FI is definitely a very long one for pretty much all of us. I can see how many people give up before their dividend snowball really gains serious traction. For me, collecting dividends every month makes the journey easier and watching the gains year over year keeps me going. Thanks for sharing this article.

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  13. Blogging about our family journey and being 100% accountable to readers and followers keeps me motivated. I've notice that since I've started blogging, I invest and save with more purpose and intensity. Wanting to succeed in life and in blogging, my motivation to succeed has never been greater! AFFJ

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  14. DGI,
    as I read from your lines your job must be very stressfull (The most difficult part of the journey however is the job situation, which has resulted in increased levels of stress for the past several years) and you want do it for five further years to reach your goal: 100% coverage of expenses by dividends
    But what does your body say about this situaton? Can he do this job for five more years?
    My thesis is: Stress reduces years of life. What use you to reach your goal if you are dying on a heart attack or loosing many years of your life?
    Why don't you reduce your expenditures and get rid of a stressful job?

    Regards
    ZaVodou (from Germany)

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Questions or comments? You can reach out to me at my website address name at gmail dot com.

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