January 2016 Dividend Income And Expenses

Now that our dividend income has stabilized from the big lump-sum we received in 2015, we’ll begin regular updates on our 2016 dividend income.  We aim for a monthly income from investments of $4k.  More income is always better, but I don’t want our portfolio too optimized for short-term income.  That’s a dangerous game that can move you into poor investments.

Ideally we’re looking for a balance between growth and income.  $48k a year is 2.4% of our $2M portfolio.  I think that’s pretty achievable through dividend income alone, and should give plenty of room for growth.  Being able to live off just the dividend income is an important part of our plan:  This has an advantage in declining markets (like this year), we won’t have to sell investments “to eat” when everything is down.  Instead, we can buy at lower prices with higher returns. 

Does Not Compute

You are probably wondering why we have a budget of $48k a year, but last year our regular dividends were only $43,500.  Isn’t that a problem?

I don’t think so.  Based upon my projections we should be just fine.  Here’s why:

• Cash to Invest.  We still have significant cash from 2015 we need to invest this year.  Once we do that, we’ll be a lot closer to our goal of $48k per year.

• Long Term Plans.  This is just our first year at FI/ER.  We’re taking things slow and feeling out how it’s going to proceed.  Once we get through the first few years of our FI/ER situation we intend to sell our house in our High Cost of Living (HCOL) area, and will move to a Lower Cost of Living area (LCOL).  Once we do the “sell/move” we then reinvest the difference.  This difference will ensure our long-term success at FI/ER.  This is still a long term plan, but over half our current budget is consumed by the house.  Yikes!  With any luck we can free up close to $800/month.

• Safety Net.  We still have a safety net in place.  Mrs. Tako has not quit her job (yet), and can contribute what’s needed if we don’t meet our goal.  This affords us a lot of wiggle room while we work out little things like healthcare (yes, that’s sarcasm).

Dividends for January 2016

Our dividend numbers for January 2016 ended up like this:

As you can see, we’re only looking at the taxable accounts here.  Our plan is to let our tax-free accounts continue to grow and live off of our taxable accounts (for now).

In the table above, you can also see we had to pay foreign taxes for some of those dividends.  This is not an optional adjustment, but a mandatory one.  Fidelity automatically subtracts that amount from our account when the foreign dividend is paid.

Expenses for January 2016

In January 2016 our expenses were $3539.11.  I’m not going to give a line-by-line breakdown of every banana or cell-phone this month…mostly because I’m too lazy to do it by hand!  

Once I get my blogging-act together, I’ll have something like Personal Capital, Mint, or maybe YNAB setup to help track it all.  Automation is a fantastic thing….but that’s coming soon.

Getting there from here

Obviously $4385.35 is higher than our goal of $4k per month.  Our expenses were $3539.11 for the month of January.  This gives us a positive difference of $846.24.  Fantastic right?  Not really…it’s great only on a cash basis.  There are several reasons to be cautious:

• This is only one month.  Dividend income can be lumpy!  February might not be so good….

• Depreciation. We didn’t have any house maintenance or car maintenance expenses in January.  Long term I would calculate these to be at least $6k per year in house maintenance (1% of house value) and $2k per year for the car (6% of car value).  If I consider these amounts, our spending needs to be a couple hundred *lower* than it was this month.

• Healthcare.  We had no health care expenses this month.  That’s definitely an “elephant in the room”.  More on this in upcoming posts.

• Travel.  With our spending this high we have no room for travel.  That’s no fun!  How are we going to handle travel costs?  More on this in upcoming posts also.

That’s it for January 2016.  I think we did OK at least on a cash basis, so there’s nothing to worry about (right now).  

We still have a few questions to answer, but… Our “long term plan” should free up some additional cash flow for things like maintenance, so I’m not too worried.  We still should keep a close eye on our expenses and try to keep them in check.  No crazy parties in February!  We wouldn’t want to jeopardize our millionaire next door status.

What do you think – am I being overly conservative?

[Image Credit: Flickr]