Dividends in funds

Q: When a stock in a mutual fund pays out a dividend, where does it go? — E.P., Spokane, Washington

A: The stock dividend goes first to the mutual fund, which holds onto it temporarily.

The fund then typically pays the total dividends received per share in a distribution to shareholders, generally quarterly or annually.

You’ll often be asked, when you first invest in a mutual fund, whether you want to receive dividend payments in cash or to have them reinvested in additional shares — or fractions of shares — of the fund. Reinvesting dividends is a great way to grow value faster.

Earning more; spending less

Most of us work hard for our income, and increasing it can be a challenge. Fortunately, there are ways to generate income with relatively little work, and certain strategic actions can reduce your spending, leaving more money in your pocket. For example:

Earn interest on your bank account or from bonds. It may not be all that significant these days, but it can be, once interest rates are higher.

Buy shares of healthy and growing dividend-paying stocks, and you’ll receive regular infusions of cash. Those payouts tend to be increased periodically, too. And, ideally, the share prices themselves will also rise over time.

Pay off high-interest-rate debt, such as that from credit cards. This won’t result in checks arriving in the mail, but it means you’ll be able to hold on to more of your money, as you won’t be making regular interest payments.

Refinance your mortgage to lower your payments, which can free hundreds of dollars each month to be deployed into savings or investments.

Own rental property, if you can. This income isn’t always as easy to earn as many people imagine, though; you may have to take care of maintenance and tenant issues, unless you pay a management company to do so for you.

Try to make something that can be sold over and over, such as an e-book, an app, stock photos, or a design that people can order printed on T-shirts or mugs.

If you’re retired, you might invest in fixed annuities, which can be a terrific source of dependable income. You do fork over a hefty sum to an insurance company first, but then checks can arrive regularly, even for the rest of your life. Taking out a reverse mortgage — a loan secured by your home — can also bring in regular payments.