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3 months / 6 Months – Dividends Help27 11 06 16  12
-------- Help a LotMany financial planers, including myself, recommend having cash reserves that would cover 3 to 6 months of expenses, in case you loose your primary source of income: the job. It is also a very good cushion for all of those emergencies that life brings us and that would otherwise make us fall into debt – that is the main reason that sometimes I have less than the recommended level of expenses, and today is one of those times. From the income replacement perspective, I need enough reserves to cover my expenses, less any extra income I get on the side: dividends, for example.My emergency savings account has little more than $10,000 on it. My monthly expenses reach close to $4,000. Having 3 months would mean I need $12,000 on my emergency account. But then I just thought today that I do have another source of income that I never touch (just re-invest): dividends. I have put a lot of work towards building a dividend paying stock portfolio as well as a parallel growth stock portfolio. My plan is to gradually convert my stock portfolio into a completely dividend oriented portfolio as I grow old. Right now I can extract every month a little more than $500. What I just realized today is that 3 months salary reserves is really $10,500, not $12,000. And six months is $21,000, not $24,000. This is a great motivation to keep building a dividend paying portfolio. The more I put into such a portfolio, the less reserves I am forced to keep. Still, emergency savings have to be there, even if I can eventually replace absolutely all of my current income/expenses with dividends. Emergencies will occur, and the only way that we can avoid falling into debt is by having emergency savings to cover them and more income than expenses to replenish the emergency account. Just thought it was a nice idea to share: Build a dividend paying portfolio. |