When most of us hear the word dividends, we think about the easy life, of lying around on the beach while earning an insane amount of money. The cold hard truth is a lot less pretty. Dividends can pay, but unless you’ve got a lot of money invested, your returns are going to be pretty small. Let’s take a cold hard look at dividends as well as some alternatives that can help you achieve your goals in less time.
First off, dividends are a very nice little income. But, it’s important to emphasize that “little.” If you’re planning to retire and live off them, you’re going to need to have a very large fund or you’re going to have to really cut costs. Look at this way. Let’s say you have a divided that returns 2% interest. In order to make a measly $12k a year, you’re going to have to invest more than $500k. Not many people can live on $12k a year, no matter where they are from.
While it certainly is possible to find higher paying dividends, the vast majority are in this range. So, unless you’re sitting on a $500k nest egg, you’re going to need to come up with another way to secure your financial future. One of the best ways to do this is to leverage your debt.
But wait, isn’t debt a hideous thing that should be avoided at all costs? Well, in the strictest sense of the term, and using the traditional logic, yes, debt is not a good thing at all. But, let’s look at it in a different light. There is such a thing as good debt, debt that actually works for you instead of running you into the ground. It’s time to rethink what you already know about debt and get ready to change your perceptions.
Bad debt is debt that you rack up buying inconsequential things. You get used to having nice things and you keep buying, even if you don’t really need anything. Before long, you’re in over your head and you’ve got nothing to show for all of that debt. This is the most common kind of debt and the reason that it has earned such a bad reputation.
Now, let’s look at good debt. Good debt is money that you spend that will create returns for you. By using debt to make smart investments instead of silly purchases, you can start creating multiple streams of income. This is a lot better than buying stuff that you don’t even need. One of the most common types of good debt is a mortgage. Most of us don’t have the resources to go out and buy a house with cash, we need to go into debt to get it. But, it’s incredibly worthwhile and usually necessary.
Good debt can be leveraged in many different ways. You can use it to purchase investments and bonds that will help you secure your current income. You can use it to take advantage of new opportunities that will create solid streams of income. In a nutshell, good debt works for you by allowing you to start investing in your future.
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