Friday, August 26, 2011


An example of a cheque.Image via Wikipedia
I think this is one the more simple decisions to make.  You need to know how much you spend every month and how much monthly income, if any.

When I was advising people, I required them to fill out a budget as part of their income-investing plan.  This is not that hard.  Just make a list of your monthly bills, your quarterly, bills, and you annual bills.  Add them up and divide by 12 and you know how much you spend on a monthly basis. At this point, you should not get fancy.  Do not say the cleaning expenses for your rental property is separate.  If you write a check or have an automatic withdrawal, include that expense in this list.  Keep it very simple.

Sources of income include social security, pension income, rental property income, and trust income like an annuity or Uncle Henry’s inheritance.  Add up all this income and divide the total by 12 and you have your monthly income.  Keep this equally simple.  You are not creating a tax filing.  Simply add up all the money deposited into your accounts and the amount cashed for spending money.

Now to the question at hand: what percent of my savings should I invest just for income?  Your savings includes personal money and qualified retirement money.  It does not include the value of your pension or the value of your annuity.   Using my simple income investing strategy, I can tell you that you can easily generate between five and six percent in routine cash flow just from interest and companies I call dividend machines. 

If you need your savings to create an additional $1,000 per month, you need between $200,000 and $250,000 of interest and dividends from dividend machines. If you need an extra $5,000 per month, you need $1,000,000 - $1,250,000 in interest and dividends.

I hope that this is not all your savings.  You can have a lot of fun with the extra cash flow by adding additional income from covered call options on dividend producing companies.  A portfolio of $250,000 could general as much as $27,500 per year or $2,291 a month.  A portfolio of $1,250,000 could generate $137,500 per year or almost $11,500 per month.

Calculate your need first then determine the asset value you need to create the income then begin a simple income investing strategy to meet your minimal needs.  If you do not have enough money to meet your needs, you will have to cut expenses.  That is not the point of this post.  In this post, I want you to be motivated to write down how much money you spend, your income, and the value of the assets you will use to create the extra income you need. Even if you are young, try to do this now and revise your data as you age and create wealth. 
Very Truly Yours,
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