Make Money While You Sleep

Passive income is my favourite kind. If there’s an easier way to increase my cash flow, then I haven’t found it yet. Generating passive income takes a modicum of effort on the front end, then time does the rest. You will make money while you sleep. It can’t get any easier than that!

When I first started investing in dividend-generating securities, my monthly dividends were roughly enough to buy a pack of gum. It wasn’t exciting and I didn’t tell anyone about them. Instead, I went about the business of setting up a dividend re-investment plan, aka: a DRIP, so that all those little amounts of money could compound as fast as possible. In the meantime, I sliced off a chunk of my paycheque every two weeks and sent it to my investment account. Over time, the monthly amount of dividends steadily increased. The first time I earned $1K in a single month was pretty exciting! My plan was finally working and I could envision living off my dividends in retirement. Woohoo!!!

What I love most about dividends is that they’re the easiest money I’ve ever earned. The money that I invested 30 years ago is still working for me. That fact still blows my mind. Yes – I had to go to work to earn a paycheque. And I had to live below my means, which is just another way of saying that I had to choose to invest-for-tomorrow rather than spend-every-nickel. Finally, I had to leave it the hell alone for a very long time so the DRIP could work its magic.

The beauty of a DRIP is that it compounds the dividends automatically. I don’t need to re-invest the same earned dollar over and over and over in order to see the dividend amount grow. The compound growth from that first contribution will continue indefinitely until such time as I sell the underlying investment. So every time I invest new dollars, I’m increasing the assets that will work for me 24/7/365. Those assets grow for me in two ways. First, each subsequent contribution makes my asset base larger. Second, companies increase their dividend payments. This is known as organic dividend growth, and I love it.

The invested dollars are the ones that are buying me my financial freedom, one paycheque at a time. I can’t deny that the size of my paycheque mattered too. After all, one can’t invest if one has barely enough to cover the bare necessities from one paycheque to the next. Thankfully, I wasn’t in that position. I was fortunate enough to be in a position where I had plenty leftover to splurge on the wants. Instead, I curbed that impulse and chose to invest a good chunk of my disposable income.

(Lest you think that I lived like a miser, rest assured that I did not. I’ve travelled to Europe 3 times in the space of 5 years, visited the US more times that I can remember, attended 3 destination weddings in not-inexpensive locations, maintained seasons tickets to Broadway Across Canada, gone to many concerts at home and abroad, and socialized atleast twice per week with friends. The pandemic slowed me down, but only because everything was closed for a bit. I’ve had many great experiences with family and friends, while avoiding the relentless marketing & exhortations to spend everything I earn.)

Looking back, I credit those three steps – earn, invest, DRIP – with putting me in the position that I am today. If it becomes necessary, I could live on my dividend income. It would be tight, but I could do it. Do you know how comforting that feeling is? I’ve reached Lean FIRE, as the kids call it.

One of my favourite YouTubers talks about how she set up an investment account for the sole purpose of paying for her home’s mortgage. At the time of her video, Dividend Dream had an investment account that generated enough cash every year to pay for her mortgage. Watch her video. After giving it considerable thought, she decided that it made little sense to liquidate her account to pay off her mortgage. I’m convinced that she’s right. When you have a cash machine steadily paying for some, if not all, of your expenses, there is no good reason to destroy it. It makes more sense to keep the cash machine running smoothly so you can live off the income it generates.

Speaking from personal experience, Dividend Dream’s method works. As I said early, my first few dividend payments were enough to buy a pack of gum. Then they grew to be enough to cover my monthly Netflix subscription. Soon after that, they were enough to put one tank of gas in my vehicle. The next big step was paying for half a mortgage payment, then a full mortgage payment. Today, my monthly dividend cheque is enough to cover 90% of my regular monthly expenses – both needs and wants. That’s pretty good, if I do say so myself.

Invested money works non-stop. It doesn’t get sick, need time off, or otherwise stop working for you. Once you get the ball rolling, there’s little else that you need to do. Earn the money then invest it in dividend-producing assets. Time will do the rest. You can sleep without worry, comfortable in the knowledge that you’re earning money through passive income. Unless you’re paid to sleep, I can’t think of a better or easier way to earn money.

Procrastination is the Thief of Time.

Truer words have never been spoken. When it comes to investing your money, procrastination is also robbing your wallet.

See – it’s like this. If you invest $0 today, then you’ll definitely have $0 tomorrow.

On the other hand, if you invest something, then you’ll have way more than $0. The more you invest, the more you’ll have. It’s a simple, direct relationship between the choices you make today and the outcomes that you’ll have tomorrow.

First lesson – invest your money. Start with what you can and work your way up. I suggest increasing your investment contribution by 1% every year. When you get paid capital gains and dividends, re-invest them.

Keep an eyes on your management expense ratios. The MER is the amount of money that is fleeced from your account. I look at it this way. The businesses that offer the investment products need to get paid too. That’s fair. What is not fair is me paying 2% per year instead of 0.35% (or less) for the same product from someone else.

Play around with this investing fees calculator for a little bit. It shows you the impact of MERs on your investment account. The longer you keep your account, the more money is siphoned away to someone else. By choosing good investments with lower MERs, you’ll be keeping more of your returns in your own pocket.

Second lesson – understand the impact of fees. Canada has a reputation for having some of the highest MERs in the world. The longer you pay higher MERs, the less money you’ll have for Future You when you really need it. Try to pick investment products with low MERs.

Don’t be afraid to make mistakes. You’ll always learn more from your mistakes than you will from your successes. Make your mistakes. Learn from them. Don’t make the same one over and over again. Your goal should be to earn-save-invest-learn-repeat. It’s a pattern that should never stop. As you learn better, you’ll do better.

Trust me. I started out investing in mutual funds with one of the Big Six banks. I wasn’t paying a 2% MER, but it was around 1.75%. I didn’t know any better. The Big Six bank didn’t even have a way for me to automatically deposit to my mutual funds every month. I did it in person, which got weird very quickly. So I went to an investment firm. I loved that investment firm, and I got wonderful service every time I called. Unfortunately, while the MERs were lower, they were still pretty high. But I didn’t know any better so I stayed with them.

Eventually, I started hearing about something called exchange-traded funds, or ETFs for short. They offered the same diversification as mutual funds but with MERs that were much, much lower. By the time Vanguard came to Canada, I couldn’t move my accounts fast enough.

Third lesson – make your mistakes fast so you can learn fast. No one is perfect at investing, and everyone makes mistakes sometimes. The key is to learn from your mistakes so you don’t repeat them. The biggest mistake that you can make when it comes to investing is to never start.

If you’re not yet investing, start today. If you’ve started and your MERs are too high, then move your accounts to equally good and less expensive options. If your MERs are low already, then work on increasing your contribution amount by 1%. Make sure you’ve turned on the dividend re-investment plan feature on all your investments. If your brokerage doesn’t allow for a DRIP feature, then move your accounts to one that does. Trust me on this. You most certainly want to have the DRIP in place so that your investment returns compound as fast as possible.

You’re smart enough to learn how to do this. The fact that you’re here, reading my blog, means that you have an interest in attaining financial security at some point. That’s the seed that’s needed to plant your Money Tree. By starting today, you’re preventing procrastination from stealing any more time from you.