I started dividend investing in earnest back in 2010. At the time, I was making about $40,000 per year as a service advisor for a car dealership. I was determined to save and invest as much as I possibly could. Because I had a dream. A dream to retire early and live off of dividends by the time I turned 40 years old.

And now here I am, more than 10 years later, living off of my dividend stocks income. A dream come true. Better yet, I actually quit my job at only 32 years old. I decided at that age to concentrate on my online ventures and use the invested savings from these endeavors to get me the rest of the way there. And by 33, my passive income was enough to cover my bills. All well and good, but this does beg a question. How much money do you need to live off of dividends?

People are different, portfolios are different, life situations are different, etc. Most importantly, how much money you need depends on how much money you spend. In order to achieve financial independence and retire early - also known as FIRE - I had to live super frugally. This was in part due to the fact that I simply wasn't making that much money at my day job. Spending less money does two things for you. This helps you to compound your wealth snowball at a faster rate. But there's a hidden benefit to spending less. One you might not initially realize.

Ask someone exactly how much money they make. I'll guarantee you they could answer in a nanosecond. Now ask them exactly how much they spend. Watch as a blank stare washes over their face. Because I started tracking every cent, I was able to quickly cut out a lot of fat from my budget.

And I think you'll find the same thing when you track your spending. You'll see the fat, cut it, and then get to your goal so much faster because of the increased savings and the lower threshold. Once you know spending, you can match dividend income to it. From there, it's just a matter of doing some math to arrive at an ending portfolio value, which can vary depending on its yield.

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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