I’m now at a point where I am able to contribute to my investments. For now, my investments consist of the dividend stocks in my broker account and my Roth IRA which is currently invested in a TIPS fund. I have decided on a new way to track my progress towards financial independence. I will be tracking my safe withdrawal rate. The way I will be doing this is by tracking my trailing 12 months expenses divided by the amount of my investments.* For this first calculation I am going to take last months expenses time 12 to determine my trailing 12 months expenses. This is because I don’t think my expenses in the previous months accurately reflect my current spending since my living situation has changed dramatically this year. Eventually, the 12 months trailing expenses will be based on my actual expenses.
The generally accepted rule is that you need to get your safe withdrawal rate down to 4% in order to be able to safely retire. I am setting that as my goal. In order to reduce my safe withdrawal rate I can increase the amount I put in my investments and/or reduce my living expenses. The return on my investments will also be a factor, but if I am contributing 50% or more of my income each month it should not be that much of a factor.
My November 2012 safe withdrawal rate is 86.22%. That is obviously not a safe withdrawal rate at all. On the plus side, starting with such a big number should allow me to see measurable progress quickly.
*I’m not 100% sure this is the correct way to determine my safe withdrawal rate. If the calculation should be different, please let me know.
Hmm, I think that your actual dividend/interest income every month should be what you track. I would be interested in seeing a chart/graph that shows the evolution of that income over time. You might also want to check and see your portfolio holdings and maybe sell some companies that do not make sense for you.
I personally chart my dividend income, and it is slowly increasing.
http://www.dividendgrowthinvestor.com/2012/06/my-dividend-crossover-point.html
I do report my dividend income in my monthly income reports. My interest earned is minimal. If I did track my dividend income it would be pretty choppy since most of my stocks only pay once a quarter.
Andy, do you plan on sharing which dividend stocks you picked and why? – V.
I think I shared my dividend stocks a couple years ago. My picks are not that great. You would probably be better off looking DGI’s blog for stock ideas.
It’s an interesting way to track things. But it seems like it would be aiming for a moving target in a way, as expenses and investment balances fluctuate with the market conditions.
Since I have a relatively small amount of money invested right now, market swings shouldn’t affect me too much. If I save 50% or more of my income then my return isn’t that important. I will eventually be using my trailing 12 months expenses which should help smooth out any fluctuations there.