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I recently had a fun comment the other day. It just so happened to be on one of my most recent posts that came out on September 7th for my dividend stock purchases in August. A discussion between Dividend Gremlin and I struck a new fun game to play in my mind, relating to living costs and reaching financial freedom.
The fun conversation came during my August purchase article and it really sparked a thought. What is a BETTER and MORE FUN way to track your progress and journey to Financial Freedom? I have found that tool that we all need to get that extra juice to keep going.
Here is where I am coming from and you have to tell me if it sounds familiar…
Occasionally, it is hard to see the impact you are making on a $100, $500 or even a $1,500 dividend stock purchase. Heck, I deployed almost $5,000 in August and I felt like THAT wasn’t even a ding/dent into the journey. Is there a better way to keep the atmosphere upbeat, positive and to continue to motivate and truly see the impact of each and every dividend stock purchase? Yes, yes there is! Enter – The Living Cost Per Hour Calculation!
financial freedom: Living Cost Per Hour Calculation
This is SUPER easy to figure out and start tracking YOUR progress to Financial Freedom. Here are the steps that to start tracking your journey using The Living Cost Per Hour Calculation.
1.) Calculate your Annual Spending – Ours is approximately $27,000; which we will use to show in this example. However, this number will obviously fluctuate, but as individuals on the pursuit to financial freedom, we will do our best to maintain this number! (See FIVE ways to SAVE $500 TODAY)
2.) Calculate The Living Cost Per Hour – Take the total dollars spent of $27,000 and divide that by the total # of hours in a year, which is 8,760. For us, our living cost per hour is $3.08 per hour. Of course, this will change over time, with children, unfortunate events, etc.. Therefore, this number stays fluid, similar to above.
3.) Track your projected annual income on investments – If you are not currently doing so, you should start tracking your projected income on investments you own, such as dividend income stocks, high yielding savings accounts, real estate that you own, etc.. For example – you can see the Dividend Diplomat Portfolios – here. This page will show you the projected income going forward.
4.) Currently, my projected income on dividend stock investments (including my wife) is $19,594.44. This currently accomplishes 6,631 hours total! We are 76% there, but that includes retirement accounts that we would have to ladder in, of course. Though, for the purpose of this article, we are 2,075 hours to make-up. Here is the fun part.
5.) Calculate the # of hours that your recent purchase just gobbled up! For example, I invested $1,050 and purchased 29 shares of Leggett & Platt (LEG) in the first week of September, which added $46.40 to our forward income. At a Living Cost Per Hour of $3.08, this took out 15 hours baby! That immediately makes it feel that much more incredible.
You see, when your goal is 8,760 hours of coverage and you take out 15 hours from one purchase, it doesn’t feel so small. Earlier, when I added $166 in forward income in August, that took out 54 hours!
Every single purchase matters, more than ever. This is a way to see that in a different light and could be a better way to track your progress to… Financial Freedom.
Turning this into a goal or challenge. What if you could do 730 hours in a year? That is an average of approximately 60 hours to knock out each and every month. If I was able to muster up the capital and commit to adding 60 hours as my goal, freedom would happen in 12 years.
See – Benefit of Setting Lofty Goals
How? 12 months X 60 = 730 hours (approximately). 730 hours X 12 years = 8,760 hours. If you were somehow able to start this at 22-25, you are looking at retirement at 34-37 years old…Though, there are a few investing items that doesn’t consider, as a dividend investor, of course.
Another element we are forgetting is dividend increases and dividend reinvestment. This only fuels and kicks in hours for you, without you having to lift a finger. For example, we will use a portfolio that produces $1,200 in forward dividend income, yields 3.50% and the dividend growth rate is 7%. You also choose to reinvest those dividends. Your income of $1,200 is reinvested at 3.50% to produce an additional $42 in forward income. This represents 14 hours added to the meter! Then, that same $1,200 experiences an average 7% dividend increase, producing an additional $84 or another 27 hours! Therefore, your portfolio alone is taking care of 41 hours, let the meter run baby!
Financial Freedom is in your hands and calculating out your Living Cost Per Hour can help you strive to make it fun, is a smaller meter to build into and can be useful in setting goals.
Further, you can always reduce your spending and save on your monthly/annual expenses. This is why it is critical to continue to fight for every dollar and why your spending is significantly important in your Financial Freedom journey. Speaking of…
Importance in your Spending
Everyone, I hate to say this, but it is not rocket science. The numbers showcase it. Having a lower cost of living, you end up having a lower Living Cost Per Hour calculation. That is no secret. The lower your Living Cost Per Hour is the more hours you’ll eat away at with each dividend stock purchase. Obviously keep the quality of life that you’d like to have, but push hard at the expense side and make sure you make Every Dollar count!
See – Every Dollar Counts!
There are definitely times when I have negotiated my bills, checked in on all expenses and have made it fairly efficient for the next 12 months. Typically, there are 3 bills I always review – Utilities, Insurance, Internet. However, I tend to feel like I am getting the best deal I can or sometimes I find myself shrugging my shoulders at the next premium for the year. However, there are ways to thin down that bare bones budget. Ask more friends on who they use as a provider, maybe there is a cash back card that is really useful for insurance needs. Maybe there is a Utility provider that provides miles or hotel rewards for using them to supply their natural gas or electricity. GO the extra mile, always.
See – Thinning Down a Bare Bones Budget
Living cost per hour conclusion
My goal is to try to make it FUN and think of a new way to track how we look at this path to financial freedom or financial independence.
It’s quite easy for fatigue to set in, as well as the momentum of not feeling like you are not making impact by saving money or making a smaller dividend stock purchase. I am here to let you know – it ALL matters. The Living Cost Per Hour should show you that there are impacts for doing both, hands down.
I hope that you find this helpful in your journey. Even if there is one person this drives them to be more positive and increases motivation, then I am happy that this can work! I know that it made me realize that wow, I am getting closer with each purchase, dividend reinvestment or dividend increase announcement.
Thoughts? Have you done this before? Would this help make this more interesting and keep the journey to financial freedom more alive? Thank you for checking this one out, as always and please leave your comments below!
-Lanny
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