'Time is money', as the old saying goes. Unfortunately, additional time cannot be manufactured or printed, like money can be. It is a finite resource. However, we can free up more of our time by building a dividend machine with the help of exchange-traded funds (ETFs) listed on the ASX.
In my view, money is simply a tool… it's a means to an end, and not an end itself. For some, money is the conduit to starting their own business. For others, it is the financial firepower to land their dream home.
Me?… I believe there is no better use for money than unlocking more spare time — the freedom to live more of life on my own terms. The ability to catch up more often with loved ones, explore more of the world, and devote more time to giving back — more, more, more!
Given the appeal, I thought I'd find out how much money someone would need in an ASX ETF to cover a month's worth of pay.
Which ASX ETF I'd buy for more spare time
It is tempting to seek out the highest-yielding ETF when trying to shore up a generous stream of dividends. In my opinion, focusing too much on yield can be detrimental rather than beneficial.
If an ASX ETF were to offer a 10% dividend yield but is invested in low-quality companies with declining earnings, those plentiful payouts may not last.
Conversely, good companies may not offer the best yields in the present. However, the higher rate of earnings growth could result in more dividends over the life of the investment.
For example, the Vanguard Australian Shares High Yield ETF (ASX: VHY) currently offers a 5% dividend yield. This ETF allocates a more significant weighting toward the big dividend payers, such as the big banks and mining giants.
Comparatively, the Vanguard Australian Shares Index ETF (ASX: VAS) is yielding a lesser 4.03%, targeting the S&P/ASX 300 Index (ASX: XKO) without an active skew towards high yielders in an attempt to derive more dividends.
Since May 2011, the VAS ETF has returned 44.3% before dividends compared to VHY's 34.5%.
For this reason, I would personally dollar-cost average into the Vanguard Australian Shares Index ETF to balance dividends with capital growth.
Assuming I earn the median salary in Australia of $65,000, I would need to replace $5,417 worth of pre-tax income if I took an extra month off work each year. Based on the trailing yield of the VAS ETF, I would need $134,409 invested to generate the additional income.
How much do I need if I earn more (or less)?
What if I didn't earn the median income?
I whipped up a table to quickly establish how much money someone would need to invest in the Vanguard Australian Shares Index ETF, depending on their pre-tax annual income, as shown below.
| Annual income | Unpaid leave for a month would cost | Invested amount required |
| $40,000 | $3,333 | $82,713 |
| $65,000 | $5,417 | $134,409 |
| $90,000 | $7,500 | $186,104 |
| $115,000 | $9,583 | $237,800 |
| $140,000 | $11,667 | $289,495 |
| $165,000 | $13,750 | $341,191 |
| $190,000 | $15,833 | $392,887 |
At a yield of 4.03%, a quick rule of thumb is a little more than twice your annual income would be needed.
This might look completely unachievable initially, but the trick is thinking long-term.
For example, suppose you have $10,000 already invested in the Australian share market compounding at 8%. If you earned the median Australian salary and invested 15% of your pre-tax income, you would reach the required amount in 10 years.
If you can stash away a larger percentage of your salary into an ASX ETF, the goal would arrive even sooner, all else remaining equal.
