From $186,000 in debt to millionaires – One couple’s story

Sounds too good to be true, doesn’t it? Sure, who wouldn’t want this to be their story: Graduate from college with engineering degrees, get married, find jobs, pay off debt, and have your investments grow to over $1,000,000, all before you reach your 35th birthday.

Source: Tax Credits via Flickr

Source: Tax Credits via Flickr

This is the true story of a young married couple from Eastern Canada who really know how to slice up their income and make their money work for them. An anonymous couple, we’ll call the husband FrugalTrader; that’s what he calls himself on his website, million dollar journey. FrugalTrader and his wife have two young children. How can a couple with your children eliminate all their debt and simultaneously grow their net worth to over seven figures? They told their story to Lauren Gensler, a staff writer at Forbes.

Relatively Modest Wages

Mr. and Mrs. FrugalTrader are engineers by trade, but they don’t have high-paying jobs. Their combined salaries out of school totaled $85,000 per year. This is highly than the average salary in the U.S. or Canada, but it’s not that high for engineering graduates; recent engineering grades can earn considerably more than that themselves.

The couple chose to find other avenues for cash as well. They took side jobs and earned additional cash from various websites, like milliondollarjourney.com. They even tried their hands at real estate.

Unreal Estate Expectations

While the idea of passive income from real estate sounds appealing, the couple quickly realized that being a landlord is more than just collecting rent checks each month. During a four year period, they have four tenants. They determined that real estate wasn’t for them and sold their rental property.

Source: GotCredit via FLickr

Source: GotCredit via FLickr

Taking stock

FrugalTrader had been fascinated by the stock market ever since his father introduced him to investing when he was just 16 years old. All his life he has been investing. He would invest money every month, sometimes small amounts as little as $50 per month, other times more. Regardless, he was continually investing money. After college they started investing as much as they could. They were mainly investing in index funds, but started adding dividend paying stocks. He found that he likes the passive income, reliable income that he received every quarter from high-quality companies like Johnson & Johnson and Coca-cola. Companies like these have been paying out annually increasing dividends for decades.

These high-quality companies that increase their dividend payouts each year can be thought of like rental properties. With rental properties, you collect monthly rent checks and can usually increase the amount of rent that you receive every year; usually by about 3%. High-quality dividend paying stocks pay out dividends every quarter; you can think of that as a rental payment. Many of these companies also increase their dividends every year. So like rent increases, these companies increase their dividends, most will increase their payouts by a few percentage points, some increase their annual payouts by 10% or more. Dividend paying stocks can really help augment your investments; you can either reinvest the dividend payouts to buy additional shares or take the payouts as cash. The cash can be used for anything you want, even paying off your debts.

Pay off debt

While not only investing, they aggressively paid down their debt. They incredibly paid off their house in just three years. They lived simply and paid off all their debts. Their net worth grew to over $1,000,000 after just eight years. FrugalTrader provides an semi-annual update of the current accounting of the couple’s net worth on his website.

Their story is inspiring. You can read more about their story on Forbes’ website or on FrugalTrader’s website.

Index investing and dividend paying companies

FrugalTrader uses both index funds and dividend paying stocks. For most people, index funds are the safer, easier approach. With index funds you make your investment choices, usually just a handful of funds, and then adjust your allocation amongst those few funds periodically; likely just once a year or so.

Dividend paying stocks are an excellent way to invest, but selecting and monitoring such companies can be considerably more time-consuming and takes a modicum of skill. That said, there are many high-quality dividend paying stocks.

The best of the best

There is a small group of elite dividend-paying companies called Dividend Aristocrats. These are companies that are members of the S&P 500 that have increased their annual dividend payouts every year for at least 20 years. Note, these are companies that have not only paid out dividends every year for at least 20 years, but they have also increased their dividend payouts each of those years. Many of these companies have been increased their dividends for decades! Some of these companies have increased their dividends for over 50 years.

Source: 401k 2012 via Flickr

Source: 401k 2012 via Flickr

You’d like recognize most of these five-decade aristocrats:

  • Proctor & Gamble
  • Johnson & Johnson
  • Coca-cola
  • 3M
  • Colgate-Palmolive
  • Cincinnati Financial
  • Emerson
  • Genuine Parts
  • Dover
  • Illinois Toolworks
  • Lowe’s

While it’s unlikely that these companies will freeze, lower, or eliminate their dividend payouts anytime soon, it can happen. Think back to the financial crisis in 2008 – 2009. Many companies, especially those in the financial sector froze or eliminated their dividend payouts. Major banks like Citicorp and Bank of America and financial giant GE all but completely eliminated their dividend payouts.

If you had invested the majority of your money in these companies, your holdings would not only have declined, but the dividends, which you may have grown to anticipate and rely upon each quarter would have dried up. Dividend paying companies are a great way to augment your investments, but unless you are willing to closely monitor your investments, I’d suggest that index funds are a better option for most people.

Work hard. Try to earn additional income if you can. Invest as much as you can. Aggressively pay off your debts and you too might be able to amass large sums of money and be debt free. The story of Mr. & Mrs. FrugalTrader is truly inspiring.

One Response

  1. million dollor April 30, 2016

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