You become financially free when you can pay all of your bills with passive income. Once you reach this point, you become work-optional.
My wife and I achieved financial freedom in October 2023, when I retired from the US Marine Corps. At that moment, I had passive income from a pension, dividends, royalties, and rents.
The first step to financial freedom consists of paying your individual bills with passive income, in this case, dividends.
Happy Cash Flow Retirement 9
The idea is to pay the smallest bills first and slowly move toward the larger ones. Eventually, you can pay for everything with passive income—wondering why you ever worked at all.
The smallest bills. Today, I want to start with my smallest expense: my water bill. My water bill is $30/month, so I will also include my sewage/trash bills as well ($40).
Therefore, my goal is to pay this $70 with dividends. Before jumping into the passive income side, we must stay on the expense side for a second.
Always ensure you optimize your bills. Start documenting every single monthly bill on a spreadsheet that scrolls from left to right.
I always compare my current bill with the last few ones. My water company has pulled some shady things over the years.
Becoming an Entrepreneur #2
When new construction occurs, water is siphoned from the area, and current residents are made to pay for it. In July 2021, our water bill went from $33 to $176.
We called them out, along with other residents, and magically, our bill was $28 in August 2021. It’s funny because we could see the new apartment buildings (that used the water) on the way to Walmart.
I tell this story to help you understand the magnitude of tracking your bills. Every company will do everything in its power to get a jump on you.
Learning about dividends is pointless if you let money slip through your fingers. Managing all of your resources is part of the passive income experience, especially when paying bills.
Annuities vs. Income Investing
I prefer preferred shares. We will use preferred shares to pay our $70 water and trash bill. I love preferred shares because they give you an unlimited amount of options.
Preferred shares combine fixed income (debt) and shares (equity). They sit between debt (secured loans) and equity (shares) in the middle of a company capital stack.
We can find preferred shares in all types of industries, but mainly banking, real estate, and business development.
Therefore, our first decision is to determine how much yield we seek. Lower-yielding preferred shares can be found in S&P 500 companies like Bank of America (BAC), AT&T (T), and Public Storage (PSA).
The preferred shares currently yield about 5.5%, which is impressive for these solid companies. However, we can also seek much higher yields in the debt markets.
I Love Paying Bills Because I Mastered the Process
My favorite preferred shares (equity) and baby bonds (debt) are Gladstone Investment preferred I (GAIN.I) and Harrow Inc. preferred L (HROW.L). Both yield over 8%.
Ideally, you would have a mix of higher and lower yields. The best part is you can purchase preferred shares at a discount, and earn capital gains when the company recalls them.
For example, JP Morgan preferred K (JPM.K) currently sells for $20.49. When the company closes this position, owners will receive the par value of $25.
Setting up a preferred schedule. The best part of your water bill is that it comes every single month, making it easy to predict. Unfortunately, the majority of preferred shares pay quarterly; therefore, we must make a schedule.
Financial Freedom is a Mindset
The monthly groups are January (Jan, April, Jul, Oct), February (Feb, May, Aug, Nov), and March (Mar, Jun, Sep, Dec).
Our mission is to find preferred shares that pay in each group and ensure we generate $70 of income from them. Let’s begin.
To keep it simple, we will use HROW.L for January, GAIN.I for February, and GLOP.C for March. You can mix and match as many others as you want to generate $70/month.
Now, it’s time to break out our calculators. Since each preferred share yields roughly 8%, we will use that number to simplify things.
Each preferred share must generate $280 annually ($70 x 4), which means we must invest $3,500 in each to arrive at our quarterly numbers.
Series “I” Bonds for Life
To earn $70/month in preferred share income, we would need to invest $10,500. Is that too much money?
Is it difficult to save $10,500? How do you plan to save and invest $10,500? For many people, this can present quite a dilemma.
However, just take it one month at a time. The most crucial part of building great wealth is learning how to budget effectively.
The education system teaches us all types of random things (I know because I am currently taking college business courses).
Achieve F.I.R.E. via Income Investing
However, they do not want us to learn to create an individualized budget. Therefore, it is incumbent on us to create a budget and build wealth. We must fix our food and entertainment allowances—or lack thereof.
Let’s take your Starbucks habit, for example. People go crazy when you tell them to cut back on going out for coffee; however, going to Starbucks isn’t the problem.
Instead, give yourself $300 to spend on eating and drinking out. Having this budget will force you to make decisions that will allow you to build wealth.
For example, you may need to take your lunch to afford your coffee. You may also only get coffee on workdays and drink it at home on weekends.
These simple decisions will yield massive ramifications throughout your wealth-building journey. Eventually, your preferred shares will fund as many coffees as you desire.
Becoming an Entrepreneur #1
Conclusion. My wife and I went from flat broke and negative broke (in debt) to living on a passive income. Now, we can afford to eat at steak restaurants every weekend just from our dividend income ($2,400/month).
As we traveled on our debt payoff journey and became financially free, we learned that we don’t need all the fluff.
The best thing we can do is save, invest, and ensure we give our children the best opportunities possible.
The first step in your journey is paying your water bill with preferred shares. The amount of knowledge you will gain from this path is incalculable.
Position Yourself for the Next Bull Market
Understanding passive income puts you in the driver’s seat. You dictate the terms; no one can stop you because you know the game.
The ultimate game is to make money while you sleep. Once you receive passive income, use a pinpoint budget to ensure you allocate resources effectively.
The more money you invest, the more money you receive. It’s a never-ending cycle of goodness. But it starts with your water bill. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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