Trader Story: How Much Money Do You Need To Live Off Of Dividends?

As it happens, this was the initial target number I had in mind for myself when I first started investing in 2010. But I later figured out that I could make do on less and still be incredibly happy because I didn't have to spend most of my waking hours at a day job I didn't like. Just getting rid of the job made me a lot happier. It was addition through subtraction.

First, like I said, you'll get used to living below your means. When I started to do this, I realized it wasn't that bad. There's a lot of stuff people are spending their money on that simply does not improve quality of life or add to happiness. It's just a lot of waste. Once you cut the waste out and get to the things that matter, you'll find that life isn't that expensive.

Qualified dividends are tax-free at the federal level up through the 15% tax bracket. So you can make $20,000 per year in qualified dividends and pay $0 in federal income tax. Also, no FICA tax. This makes $20,000/year in dividend income equivalent to much, much more W-2 day job income.

After factoring out federal income taxes, FICA, savings, and the costs associated with having a job, $20,000/year in pure dividend income can be a lot like someone else making $50,000 per year in disadvantageous W-2 income and still saving toward financial independence. That goes pretty far for someone who's creative and open-minded with spending.

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