The Importance Of Limiting Discretionary Spending In Building Wealth

While contemplating the financial progress that I have made over the past several years and writing my previous blog post outlining the potent combo of dividend growth investing and frugality, it occurred to me that what has really allowed my investment portfolio to make it to this point in a relatively short period of time is my natural tendency to limit my discretionary spending.

Fortunately, I have been able to live on just over $100-$125/month in discretionary spending for virtually all of my adult life. 

This is a stark contrast to the nearly $1,500/month that the average American adult spends on non-discretionary items (i.e. drinks, takeout delivery, gym memberships). That's damn near enough to fully max a 401(k) each year, which is why I believe it is incredibly important to make sure your discretionary spending is providing you with enough value to justify it. 

Image Source: Pexels (nothing against Starbucks, but this was the best free stock photo discretionary spending item I could find)

Total Monthly Discretionary Spending: $107-$122/month

Quick Serve Restaurant purchases: $50-$60/month

For the past several years, my parents and I have had an agreement that we would rotate every other week paying for the cost of eating out each Friday night.

Given that we typically spend around $25 each visit at businesses, such as McDonald's, Burger King, Culver's, and so on, and there are typically two visits each month that I am responsible for covering, my typical month of spending is $50-$60.

Since my family and I generally eat home made meals the other 6 days a week, I believe this spending item can be justified as it provides a nice respite from meal prep and something to look forward to at the end of each week.

Cricket smartphone service: $20/month

While a smartphone is practically an extra appendage for most these days (including yours truly), countless generations lived without smartphones in the past, so I must confess that this is a discretionary spending item.

Fortunately, my family is on a 5 line plan with Cricket Wireless for $20 a line/month (which is owned by AT&T, so I see a small kickback on my costs every month). Given that I receive 5 GB of data and unlimited talk and text for just $20/month, I am entirely comfortable keeping this as a recurring expense.

Clash of Clans Gold Pass/Other Purchases: $10-15/month

I'm not too much of a gamer, with the exception of the freemium mobile strategy smash hit game Clash of Clans. If there has ever been any game that revolutionized the mobile gaming world as much as Clash of Clans, I have yet to hear about it. 

Clash of Clans developer Supercell has arguably been the most community friendly developer in the industry as Chief Pat noted in a recent video, where he ranked Clash of Clans as his favorite Supercell game.

The Gold Pass offers a great value at just $5/month as it helps to dramatically lower the cost of troops to attack enemy bases, lower the cost of troop upgrades in the laboratory, lower wall/building upgrades, as well as hero upgrades. 

On a near monthly basis, Clash of Clans also offers solid values, such as Book of Building/Book of Everything items (which instantly finish upgrades and can save over two weeks of time), and so forth.

Since I began playing CoC in late 2013, I have played it much more on than off, quitting on two occasions for roughly 2 and a half years combined (primarily d/t school and work obligations). The gameplay rarely gets stale and I envision myself playing this game several hours a week for many more years.

GoDaddy Shared webhosting: $10/month (annual subscription)

The annual expense of hosting this blog works out to roughly a $10/month average, which isn't too steep of a price to pay for a hobby that consumes a couple hours of my time each week.

Patreon: $8/month

I use this service to subscribe to Jason Fieber's exclusive content, in which he details the activity in his portfolio, and updates his portfolio accordingly at the beginning of each month. I have followed Jason since probably around 2015. He and I think quite a bit alike in terms of our investing strategy, so I think $8/month to get his insights into what sectors and stocks are undervalued to the point that he is investing his own money in said sectors and stocks is worth every penny.

Peacock Streaming: $5/month

In the age of streaming, Peacock offers a decent value at $5/month when considering that tons of WWE Network content and live PPVs come with the service, which is great considering that I have followed the WWE since I was a kid in the early 2000s.

Avast SecureLine VPN/Avast Driver Updater: $4/month (annual subscription)

Let's face it, in a world that is as dependent on technology as it is, Avast's SecureLine VPN and Driver Updater programs for $2/month each on an annual subscription are lifesavers. I can go about my business in public checking my accounts without worry that a hacker is going to potentially have access to my sensitive information. The Driver Updater program helps my laptop to stay up to date and run as smoothly as possible, which is of the utmost importance for a device that I use upwards of 10 hours a week.

Concluding Thoughts:

I am fortunate to live with my parents as my discretionary spending would be probably double or triple if I were required to pay for my own internet and cook my own meals each night (I'd admittedly probably eat out more frequently than I am now if that were the case, which is why I should really learn the valuable skill of cooking in the next few years to be honest). 

Overall, I'm very satisfied with my discretionary spending in the ballpark of $100-$125/month, as I feel it strikes a nice balance between "treating myself" in the present and saving for my future.

This minimal discretionary spending has allowed me to achieve a savings rate in excess of 60%, and as a result, I anticipate I will hit $100k in investments probably in the next 2 years, assuming a relatively flat market.

Discussion:

Are there any discretionary spending items in your budget that you are considering dropping? Or do you feel fairly justified in each item as I do?

Thanks for reading and I look forward to your comments in the comment section below!

A Reflection On The Power Of Dividend Growth Investing & Frugality

Over the past couple days, I have been thinking about just how far I have come since I began my investing journey in September 2017. As I'm just a couple years away from approaching the milestone of my net annual forward dividends matching the income that I earned at my first job as a part-time cashier at Shopko in my first two years of undergrad, I thought it was an apt time to examine the power of dividend growth investing and frugality in real time.

Image Source: Pexels

As I alluded to in a post a couple years ago comparing my income writing for Seeking Alpha and working as a cashier at Shopko, I made an average of around $4-5k annually over my two years at Shopko.

At the present moment, my net annual forward dividend income is $1,602, which is despite the fact that my portfolio has sustained numerous dividend cuts over the past year, and that I didn't start investing meaningful capital of more than a few hundred dollars a month until I completed my Bachelor's degree in August 2019 as I noted in my post of lessons that I learned after two years of investing.

Assuming that I invest $15k from May to December of this year, and that I invest $20k in 2022 and another $20k in 2023 at a 4.0% net yield (which I believe will ultimately prove conservative as it factors in no increase in earnings over the next couple years), my net annual forward dividends will be within my range of average annual earnings while I was a part-time cashier in college.

If you had told me just 6 years ago when I began my first job in college that in less than a decade, my net annual forward dividends would match that of my earnings at my first job, I really wouldn't have believed you.

It's breathtaking to think that in the span of just 6 years since my first job, I have paid nearly $40k in tuition/books and accumulated a dividend portfolio worth nearly $50k while never even cracking $40k in annual earnings.

A 60%+ savings rate combined with the power of dividend growth investing is capable of almost literally moving mountains and parting the Red Sea in financial terms, which is what makes me so damn excited for the next 6 years of this journey!

Concluding Thoughts:

I hope that my short story outlined in this post. the story of a guy that has been extraordinarily ordinary in virtually every respect of his life, serves as motivation to those that are in the very beginning stages of their journey, and as a reminder to those that are further along, that dividend growth and frugality are arguably the most potent one-two punch to the financial promised land.

If I'm capable of making such tremendous progress in a relatively short amount of time adhering to the principles of dividend growth investing and frugality, I truly believe everyone is capable of doing so!

Discussion:

Are there any milestones within your DG portfolio that you have thought about lately?

As always, thanks for reading and I look forward to your comments in the comment section below!

March 2021 Dividend Income

As I'm writing this blog post, it's early April in Central Wisconsin and 99.9% of the snow/ice has melted away. The next couple weeks are forecasted to bring highs in the 50s to 60s and lows in the 40s to 50s Fahrenheit, which is a bit above average for the area.

After being largely forced to exercise indoors in January and February, I'm looking forward to really enjoying the outdoors, especially over the next couple months before temperatures start to really heat up.

With that aside, I'll delve into the crux of this post, which is to discuss my dividend income for March 2021.

Analysis:

During the month of March 2021, I received $165.45 in net dividends against the $165.60 in net dividends that were received in December 2020, which represents a 0.1% quarterly decline.

On a year over year basis, the $165.45 in net dividends received in March 2021 equates to an 83.2% growth rate compared to the $90.31 in net dividends received in March 2020.

Digging deeper into the net dividends that I received in March 2021, I collected $90.83 in net dividends from 24 companies in my Robinhood account, $12.04 in net dividends from 6 companies in my Webull account, $62.07 in net dividends from the Capital Income Builder (CAIBX) holding in my retirement account, and $0.51 in net dividends from 25 companies in my M1 Finance account.

The $0.15 decline in my net dividends received from December 2020 to March 2021 was a result of the following activity within my portfolios:

Due to CAIBX's cut to its quarterly dividend in the first quarter from $0.50/share to $0.40/share and the special dividend that was paid in December 2020, but not in March 2021, my net dividends received from my CAIBX holdings declined $27.60 on a quarterly basis.

Another headwind to my portfolio during March 2021, was the $2.53 in Robinhood margin expenses that I didn't have in December due to my recent reuse of Robinhood margin, which lowered my net dividends by as much in March.

My net dividends advanced $3.48 in my Robinhood account as a result of the timing of Digital Realty Trust's (DLR) dividend payment and recent dividend increase.

The net dividends collected from PepsiCo (PEP) within my Robinhood and M1 Finance accounts were boosted by $3.09 due to my recent addition of 1 share to my portfolio, as well as the timing of the dividend payment.

My net dividends received from L3Harris Technologies (LHX) in my Robinhood account were $1.36 higher as a result of LHX's dividend increase and my recent purchase of another share of the stock.

The net dividends collected from Lockheed Martin (LMT) within my Robinhood account were boosted by $2.60 due to my recent purchase of an additional share of the stock.

My net dividends received from Home Depot (HD) in my Robinhood account were $0.30 higher as a result of HD's recent dividend increase.

The net dividends collected from Realty Income (O) within my Robinhood account were boosted by $0.47 due to my recent purchase of an additional 2 shares of the stock.

My net dividends received from Prudential Financial (PRU) in my Robinhood and Webull accounts were $0.45 higher as a result of PRU's recent dividend increase.

The net dividends collected from American Electric Power (AEP) within my Robinhood account were boosted by $5.18 due to my recent addition of AEP to my portfolio.

My net dividends received from United Parcel Service (UPS) in my Robinhood account were $0.04 higher as a result of UPS's recent dividend increase.

The net dividends collected from Johnson & Johnson (JNJ) within my Robinhood account were boosted by $1.01 due to my recent purchase of an additional share of the stock.

My net dividends received from Amgen (AMGN) in my Robinhood account were $3.68 higher as a result of my purchase of an additional 2 shares and AMGN's dividend increase last December.

The net dividends collected from Pfizer (PFE) within my Robinhood account were boosted by $1.29 due to my purchase of additional shares of the stock, as well as PFE's dividend increase last December.

My net dividends received from WEC Energy Group (WEC) in my Robinhood account were $3.39 higher due to my purchases of the stock over the past few months.

Finally, the net dividends collected from Aflac (AFL) within my Robinhood and M1 Finance accounts were boosted by $3.64 as a result of AFL's recent dividend increase and my purchase of whole shares.

Concluding Thoughts:

While my dividend income was essentially flat from December 2020, this was due to the annual special dividend in December within my CAIBX mutual fund and a 20% cut to the quarterly regular dividend from $0.50/share to $0.40/share.

Backing out the CAIBX special dividends in December 2020, my non-special net dividends would have increased 12.5% from $147.10 in December 2020 to $165.45 in March 2021.

When taking into consideration the elimination of my $5/monthly Robinhood Gold fee, the reduction of margin expenses to zero, anticipated capital deployment, and dividend increases, I am confident that June's dividend income will be within $10 of the $200 mark.

Discussion:

How was your March in terms of dividend income? 

Did you receive any first time dividends from stocks as I did with AEP and WEC?

As always, thanks for reading and I look forward to your comments in the comment section below!

March 2021 Dividend Stock Purchases

As I'm writing this blog post, we're just a few days away from April, which could either mean that we are out of the woods here in Central Wisconsin as it relates to snowfall or it could also mean that we're just days away from one or two major snowfalls.

Given that there have been major snowfalls in two of the past three Aprils where I live, it will be interesting to see how April plays out.

With that aside, I will be discussing my capital deployment during March 2021.

Beginning with my retirement account, I deployed $315.65 in capital between my 7% contribution to my Capital Income Builder (CAIBX) position, my employer's 3% contribution, and the $62.07 in dividends that were received from my position during the month.

Adjusting for the 3.5% sales charge on the contributions of myself and my employer, I deployed $306.76 in capital during March 2021.

The capital contributions and dividend reinvestment made during March helped my CAIBX position to grow from 153.282 shares entering March to 157.983 shares heading into April.

Factoring in $2.13 in net annual dividends/share (which was the net annual dividends/share paid out by CAIBX last year), my net annual forward dividends were boosted by $10.01 as a result of my capital deployment.

Moving to my taxable accounts, I reduced my Robinhood margin from $2,627.50 at the beginning of the month to $686.87 at the end of the month as a result of $1,850 in fresh capital contributions and $90.83 in dividends received in my account that were allocated to margin reduction.

Due to my commitment to reducing my Robinhood margin to zero in an effort to initiate the transfer of my brokerage account to Fidelity, the only purchasing activity during March was the CAIBX mutual fund in my retirement account.

The elimination of my interest bearing margin helped to increase my net annual forward dividends by $40.69.

Concluding Thoughts:

While March was a strong capital deployment month with $2,247.59 being deployed between retirement contributions, dividend reinvestment, and brokerage account contributions, this was largely because of the $1,400 stimulus payment that I received during the month. 

Due to the $2,247.59 that I deployed during March, my net annual forward dividends surged $50.70, which works out to a 2.26% net yield. 

My net annual forward dividends also increased $3.35 as a result of the 4 dividend increases that I received in March.

This activity helped my net annual forward dividends to surge from just under $1,500 heading into March to just over $1,550 heading into April.

Looking ahead to April and May, I am anticipating that I will deploy close to $3,000 and $1,700, respectively, which is primarily due to a 3 paycheck April (as well as a small tax refund).

I am therefore anticipating that my net annual forward dividends will spike from just over $1,550 at the end of March to $1,725 at the end of May (which will be helped by not only capital deployment into quality dividend stocks, but by the elimination of my $5 monthly Robinhood Gold fee by early April).

Discussion:

How was your March in terms of capital deployment?

What are you forecasting your April and May to look like on the capital deployment front?

As always, thanks for reading and I look forward to your comments in the comment section below!