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Dividend and Expense Review – February 2020 – Bonus Paycheck
I somewhat like February, key word being somewhat. After all, it still mainly sucks cause it’s winter. However, February for me, means it’s time for my bonus paycheck and that’s nice.
That’s always good news because more money = more savings. It’s not a huge bonus, I’m not in finance or anything like that but every bit of extra cash is nice. One thing that I like to do when I get my bonus paycheck is to take up my 401k contributions quite a bit just for that month. That way, I capture a ton of that bonus in my 401k early in the year and avoid the higher tax withholding that often come with bonus paychecks.
It’s the best of both worlds. I save more money and give the government less of a loan!
The saving part is exciting because February almost always ends up being my biggest month of the year. I’ve hit a 70%+ savings rate two years running and hope to continue that this year. It’s easy to do that when I’m throwing 30-40% of a much bigger paycheck into my 401k! Plus, there’s extra cash left over after that which can be used to save even more.
It’s always good to have extra cash to invest and having it during February was much appreciated. I’m sure you all know that there’s been some turbulence in the market. It’s a very scary time for a everyone as there’s a very real worry about the health of ones friends, family and others. Those healthcare concerns and a variety of other unknowns definitely carried over into the market.
To me, this seemed like a good time to be a bit strategic and hold off on rushing into the market right away. I’ve lived through a recession and would rather play it defensively if I can in case my wife or I lose our jobs or have some health issues. In situations like this, cash can be king. You don’t want to be forced to sell at the wrong time.
It’s important to have a good emergency fund and some cash on the side in case your situation changes.
However, I also don’t want to panic and as always want to stay mostly in the market. Time in the market beats timing the market after all.
I’ve already invested a bit of my outstanding cash and will continue to deploy capital in the next few weeks. I do think there’s more pain to come and am ready to deploy quite a bit more if that occurs. I’m hoping that’s not the case and even if better deals don’t materialize, I’ll still be glad to continue to deploy regular capital into the market at a faster pace.
That’ll certainly help things on the dividend side. One negative impact of the recent market turmoil when it comes to dividends was the fed rate cut that happened this week. That’s going to negatively impact some of my bond and money market yields. That’ll mean bad things for these smaller months in the future. It won’t impact February as the month was done before it happened.
Given the continued market turmoil, it seems like we may be looking at another fed adjustment soon too which will further lower certain yields.
Because of all that, I’m sure to see lower growth and lower income coming up in months like this where a lot of the payments come from bonds.
On the other side of that coin, the lower bond yields can also serve to make dividend paying securities more valuable in the long run. I’m already seeing high quality business and ETFs get back into the 3%+ yield range. That looks a lot more attractive in an environment when the 10-yr rate is below 1% especially if prices keep dropping.
That means that even if bond payments fall, I’ll make sure to keep pushing money into my M1 account which has become a bigger portion of these smaller months and should help growth continue. I’ve been putting a lot of that money into my dividend aristocrat portfolio as I think that’s a good place to be if we’re headed for a recession. Even if not, I still expect that to do very well as some of those companies are now attractively priced.
Times like this make it hard to know what will happen but since I’m a long term investor, I try not to worry about it. There might be some short term pain ahead but long term, my portfolio should do well.
Hopefully dividends can keep growing too. These dividends make it easier to stomach some of these drops since I know I’m always getting some extra cash I can throw back into the market at lower prices. In the long run, that’s a winning strategy.
Historically, February isn’t a huge month for me so let’s see where I stood this month. Last year, I collected $211.59 in dividends in February.
February comes in at $293.67! That’s a 38.8% bump over 2019.
That’s two month of 30%+ growth in a row and just a hair shy of $300. The reason for the growth is two fold. One is that my added cash generated a bit more money as it sat in my money market yields.
I did make a sale of some individual stock I owned right before the market tanked(fortuitous timing) and am now re-deploying that cash into ETFs. The reason for the sale is that it was in an industry I wasn’t overly comfortable with anymore(Healthcare) and I wanted to just transition it into simple ETFs(or my M1 finance account).
The second reason for that growth is the M1 account. My dividends there this month were $23.32, a big jump over the $4.23 I had last year. It’s still a small percentage of my overall dividends but growing quickly. That should grow even faster now as I plan to deploy more funds into my dividend portfolio there. Hopefully that’s enough to offset the smaller cash yields we’ll get soon and keep these small months growing.
The trend in the graph is clear and really speaks to the power of compound growth. In 2016, I had $79 in dividends this month and have more than tripled it since then. The growth will slow down on a percentage basis as the starting numbers grow. However, any upward trend is still good news!
The $293.67 will get re-invested at my average yield and generate $6.75 in annual income going forward. It’s not a ton but it adds up in the long run.
Steve, my trust dividend employee took it easy in February while he got ready for his bigger months. His monthly wage was $1.76/hr. That brings his annual wage so far to $1.52/hr.
That’s not a lot but Steve’s biggest months are still ahead. He starts slow but he really gets going. Last year’s annual wage was $6.47/hr and I hope to grow that this year.
You can see in the graph below that the big months are still ahead starting with March!
March was over $2,000 last year so it’d be nice to be able to beat that and re-invest it all while market prices are lower.
Overall, February was a good growth month and gets me eager to see how I’ll do in March. I’m sure growth will slow on a % basis but I’m hopeful I can beat what I saw last year with the additional dollars that have flown into the market since then.
Prices may be lower today but hopefully the dividends still keep coming. I’m sure some companies will cut their payments in the months to come but that’s why I invest in a varied basket of ETFs and securities. Hopefully any impact of future cuts is muted and limited.
February Total : $293.67
2020 Total : $505.15
Portfolio monthly hourly wage : $1.76/hr
Portfolio annual hourly wage : $1.52/hr
February Savings Rate – Bonus Paycheck
It’s time to see if the bonus paycheck did its job in boosting my savings rate through the roof.
Last year’s savings rate was 77.05%, the highest ever so the comparison is tough.
One of my financial goals for 2020 is to hit a savings rate of 50%+ in at least 8 months. I did it in January so I hope to continue that streak here.
Let’s see how I did in February 2020.
My savings rate for February was 76.16%! That number jumps to 82.48% when I include employer contributions.
On a gross income basis, I saved 57.7% or 62.47% after employer contributions.
Thanks bonus paycheck!
Those are some awesome results and really show the power of extra income combined with efficient spending. As I’ve mentioned before, we’re not big winter spenders and that continued this month.
However, this month would have been even bigger if we didn’t book our tickets for our Spain trip in May.
We booked that early in the month before the coronavirus became as big as it has and will likely have to cancel how. I’m hopeful we can get our money back. However, that won’t happen for a while so at this point, I’ll leave it here as an expense and just track it back as income when and if we get our refund.
It’s a bit of a bummer that we can’t make it out there. However, it’s likely safer to cancel instead of moving forward and booking all of our other items. It’s easier to take the sunk cost now instead of moving forward with a vacation that may be dangerous and less enjoyable(as stuff in Spain will likely start to close).
If that trip doesn’t happen then the real savings rate for this month would be over 80% and that’s pretty pretty good.
On the expense side, you’ve got the regular suspects.
Travel was #1 as mentioned above then came rent! The car category jumped up this month due to my car insurance bill coming due(yay) and then groceries were next as we stayed in more and rarely ate out.
Health insurance is next. Hopefully we don’t have to spend a ton this year due to health concerns as we have a high deductible plan. However, that’s another good reason to have an emergency fund and some extra cash. I’m not a huge fan of our insurance. It sucks and it costs a lot. The great american healthcare system!
We did eat out a few times but it was mostly inexpensive lunches. However, there was one nice dinner for valentine’s day. Valentine’s day also brought with it some gift expenses.
Just like in January, February was an easy month to not spend a lot. It’s just so easy to stay in and hang out at home when it’s freezing outside. Who the hell wants to go out there and spend money in those conditions?
We’ll catch up on the expense side once it gets warmer and day trips(and nice lunches or dinners) become the norm on weekends. That’s why it’s important to get a head start in these early months and I’m certainly doing that.
You can see in the graph above that some more expensive months are ahead especially during the summer months. I’m looking at you August!
May would have likely been an expensive month for us given our trip to Spain. However, now that may change so we’ll see how these summer months emerge. We’re still planning some sort of vacation but it may be in the states and may end up being cheaper. Hopefully, we can get the airfare refunded for Spain as well which would be a nice boost to another month.
It’s quite possible that the Covid-19 spread keeps more people inside this year which may include us. The risk with that is that leads to a slowing economy and a recession which would be bad for a lot of people.
However, it’s hard to predict those sorts of things this early in the process.
Overall, I’m pretty satisfied about this month from a savings rate perspective. It’s hard to complain about the 3rd straight 70%+ savings rate February. Those bonus paychecks really do help. I’m also glad to get the extra cash infusion at an opportune time.
Dividends grew well this year but are a bit more uncertain this year than they were in other years. I could see this situation turn into a recession and that’s never good news for companies and dividend growth. However, who knows what will happen and I hope to keep investing through thick and thin and come out all the better for it on the other side.
The main worry isn’t about stock prices falling or dividends getting cut in a recession. It’s about losing one’s source of income.
The current situation sucks and the impact it has on people and the economy is worrisome. However, it’s important to realize that it’s likely a short term problem and will eventually get better. It’s hard to tell when or how long it will last but I’m glad to have some extra cash on the side to weather any storms that may come.
Hopefully everyone out there is safe and getting ready for a potentially turbulent ride. Let’s hope the year turns out to be better than we expect at this point and best wishes to anyone impacted negatively due to the current situation.