Tell me if you agree: Life can be broken down into three components – time, money, and energy.
This trio of factors can define a person’s life.
If you are a young adult who just started your first job, you will have ample time, and lots of energy, but have little savings (money).
As time passes and you become a middle-aged adult with a family, you have less time but more money (increased earning power).
Your energy level, though, will not be as high as your younger days.
Finally, as you approach your retirement, you will have copious amounts of time and significantly more money.
But alas, you will not have as much energy.
The three main life stages can be summarised in the simple matrix below.
Here’s the conundrum.
For many, it’s only when you reach retirement when you find out that you only have the time and money to pursue your interests. .
During their 30s to 60s, many are driven to accumulate more wealth and devote their time and energy to work.
Some of you may also devote your time to raising kids.
If all the above sounds familiar, it’s because the description above is how society typically functions.
Many people are caught up in the grind with work consuming all their time and energy.
Coupled with family and financial commitments, it will leave them with little time to pursue what they truly desire.
Escaping the rat race
There is a way out of this quandary.
You need not wait till you are much older to have the time and money to pursue your passion.
The idea is to split up the “Late 30s to early 60s” segment into two, namely “30s to 40s” and “40s to early 60s” as shown below.
Notice something interesting?
Under the “Money” column, the “40s to early 60s” row has the word “dividends” in it.
Instead of working your butt off to climb the corporate ladder, which will leave you with less time and energy, you can rely on a steady stream of dividends to supplement your earned income.
As you progress through your 40s and 50s, this stream can grow larger so that it eventually allows you to pursue your hobbies while dialling back on your work commitments.
By doing so, you will have more time (less busy at work), still have sufficient energy (as you are not yet in your golden years), and have sufficient money to fund your pursuits.
Sounds good? Then continue reading.
Building up your passive income
It all starts when you invest some money in income stocks, defined as stocks that pay out a consistent and dependable dividend.
One category to look at is REITs, which are well-known for being reliable payers of distributions.
REITs such as Frasers Centrepoint Trust (SGX: J69U), Parkway Life REIT (SGX: C2PU) and Mapletree Logistics Trust (SGX: M44U) have been paying out regular distributions for years.
By allocating more money to such REITs as the years pass, you can slowly grow your dividend income stream.
Let’s not forget that blue-chip stocks can also provide steady dividends.
Singapore’s largest bank, DBS Group (SGX: D05), recently upped its quarterly dividend by 29% year on year to S$0.54 per share.
The bank’s annual ordinary dividend has also been increasing over the years, going from S$1.20 per share in 2021 to S$1.92 last year.
Singapore Exchange Limited (SGX: S68) is another solid candidate for a dividend portfolio.
The bourse operator pays a quarterly dividend and has seen its annual dividend per share grow steadily from S$0.28 in fiscal 2017 to an annualised S$0.34 for fiscal 2024.
By steadily parking your money in these stocks and REITs, you can start to generate a meaningful amount of dividend income that will free up your time while you still have energy.
Get Smart: Never too late to start
If you are already in your 40s and have not started investing, don’t fret.
Remember that it is never too late to begin.
All it takes is for you to set aside a sum of money every month to buy stocks of solid dividend-paying companies.
Like a farmer planting a tree, the first couple of years may not be exciting.
But as the years pass by, you will be pleasantly surprised to find that your dividend flow has increased, thereby providing you with the wealth to pursue your passions.
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Disclosure: Royston Yang owns shares of DBS Group and Singapore Exchange Limited.
