You don't hear much about the rentier class any more. Perhaps that's because we all expect to be members by retirement age. Perhaps it's because even the very wealthy now all seem to work at something, if only at being a celebrity for our entertainment. Whatever the reason, I recommend that you take advantage of its modern social acceptability, and join the rentier class sooner, rather than later.

The rentier class, if you're not familiar with the term, are the people who live off capital: stockholders, bondholders, landowners. If you receive any income in the form of interest or dividends, then you're already on your way.

Invest for income! A money fund or an internet savings account is a good place to start, but once you have enough cash set aside in your emergency fund and you're fully funding your 401(k), start investing in bonds and in dividend-paying stocks.

Investing for income hasn't been popular these last few decades; investing for growth was the way to go. There are a couple of reasons for that. Tax policy long discouraged investing for income--you have to pay taxes on income every year, but you don't have to pay taxes on growth until you sell (and then at a lower rate). The tax rules were really just an excuse, though. The real reason that investing for income was unpopular was that it's not a way to get rich quick. That made investing for growth much sexier.

Tax policy has changed, at least for the moment. Since 2003 you've been able to get low rates for dividends. But, since tax policy was really only an excuse to prefer sexy, sexy growth over dividends, there hasn't been a huge shift in how people invest. Personally, I've always trusted income over growth. Growth seemed somehow imaginary. Income showed up in my checking account.

The reason income has alway seemed so dull is that it doesn't offer the short-cut that growth seems to (and actually does, but only to a tiny fraction of investors). If your goal is enough income that you don't need to work any more, it takes years and years of living frugally, saving, and investing for income before you reach your goal. But that's the wrong way to look at it. Long before you have enough income that you don't need to work, you have enough income to make your life better.

I think a lot of people look at investing for income, and quickly decide that the income is simply too small to matter. Buy a $1000 treasury bond at current rates and your interest payments will amount to something like $20 every six months. What's the point in that? The average stock in the S&P 500 pays a dividend rate that's even lower--you'd have to invest a couple thousand dollars just to get $10 a quarter.

The thing is, though, those $10 and $20 quarterly and semi-annual payments add up quickly. More important, they don't depend on you actually doing anything to get the money.

Just a few years of investing is enough to build up a tidy little portfolio of bonds and dividend-paying stocks. Plenty of stocks pay higher dividends than the average of the S&P 500. Pick a few that seem to be well-managed and profitable; invest in those. Interest rates on treasury paper are down near multi-year lows, but several times in the last two years it has been possible to get 5% on treasury bonds. (For how to buy treasury paper, see Treasury bills for ordinary folks.)

It may take your entire career to save and invest enough money that your investment income can entirely replace the earnings from your career. (In fact, if you don't save and invest pretty diligently, it may take more than your entire career.) But income that isn't enough to live on is still worth having. At different times in your life it can provide additional money to invest, a boost to your standard of living, or a supplement to your emergency fund if your regular income is lost.

Invest for income. Join the rentier class.