One of the keys to building and maintaining wealth and a wealthy lifestyle is to understand that it is not your money that makes the biggest impact, it's your money's money. Over time, investing in appreciating and cash generating assets will lead to more wealth than just a high salary. Today, I'm going to walk you through an example that puts some numbers in perspective and shows you how much financing certain activities with dividends can cost.

Let's start with something small. Think of one area of your personal spending where you spend about $60 per month. For me, it's for going out to eat or other entertainment. Generally, when you think about this type of spending, it's in the context of what should be cut from your budget to save more money. Today, we are going to look at the $60 and see how much you need to invest so you don't have to worry about it anymore.

For this example, we are going to use QYLD - an investment that pays dividends on a monthly basis (which will make it easy to find out how much is needed every month). Last month, QYLD paid a dividend of 18 cents per share, and the market price of each share hovered around $23. If we assume that the dividend and price are consistent over time for the purposes of our example, putting away that $23 today will get you 18 cents every month forever. With that information, all you need to do is figure out how many shares are needed to cover the $60. Here’s the math:

Assuming a 15% tax bracket for dividends (which is a fair assumption if you are in a position to execute this strategy), you will need 393 shares of QYLD to cover your monthly expense of $60. These 393 shares would be purchased at whatever the market price is on a given day. In this example the price of $23 is used to produce a total required investment of $9,039 to yield the $60 needed (after taxes) to cover whatever expense you were thinking of. Putting away this much money may take some time, but it is certainly doable for many people.

The reason why I’m sharing these numbers with you is to shift your perspective on spending and investing money. Now you know that saving $9,040 can get you about $60 a month based on this example. Hopefully this knowledge changes your perspective from fitting $60 into your budget to achieving $9,040 worth of investments so you don't have to worry about it. When people have this realization, they start to treat their spending and investing differently because now they know but if they invest enough, they can afford those smaller purchases without ever having to worry again.

As with all models, it's important to understand that the assumptions made in this example can change. The underlying idea of investing in assets that provide dividends will be true no matter what, but the price and yield of any given asset can change with the market. It's ultimately up to you to do your research and see what investment vehicle fits your needs the best. Good luck!

Personal Financial Strategy: Financing with Dividends