During my 24-year military career, I never struggled to pay bills, and I never had to use credit cards to survive or pay utilities.
However, that doesn’t mean everything was golden. We used our credit cards for emergencies, which ended up biting us in the rear end later.
Although we always had food on the table, we never truly got ahead of the financial meat grinder—especially with credit card debt working against us.
Diversify Your Home Equity
So, what were we missing? What was the missing ingredient that would have made our lives that much easier? The answer is passive income.
What is passive income? Passive income is cash flow that comes from assets. You do the work to obtain the asset by building, buying, or creating it, then reap the benefits for your lifetime.
It’s tough for the average American employee to envision a world where money comes into their account without exchanging their time. It took me almost two years to believe in this magical income. But, it is possible.
In fact, how do you think the rich keep getting richer? Their assets rise in value, their passive income grows, and their tax benefits keep increasing. It’s the magical trifecta of owning assets.
Today, I want to discuss paying your bills with passive income. The goal is to start with small bills and keep going until you can pay off all of your bills without working. Once you reach that point, you can call yourself financially independent.
Pay Your Bills with Dividends
How about your auto insurance bill? My automobile insurance is sky-high; however, I am not complaining. My household has a lot going on, so we deserve our high bill.
Our bill includes three cars and an RV, plus two 18-year-old drivers. We pay $400 per month, which is about as low as I can go.
Hopefully, your auto insurance isn’t as high as ours. However, there is something you can do to lower your bill if it’s too high.
You can start by increasing your deductible, as long as you have a high-yield savings account with the same amount saved.
You can exchange your car for an older, cheaper model that costs less for insurance. You can become a good driver, and do whatever the company requires to get discounts.
Increase Your Savings Rate
You can change companies or bundle with your home and life insurance if all else fails. There is a lot going on, so it’ll be wise to investigate all options.
Once your auto insurance is as low as possible, it’s time to start building passive income streams. This is the most difficult part, while also being the most entertaining. Let’s begin.
What are business development companies? BDCs offer retail investors massive yields with reasonably safe risk/reward outcomes.
Business development companies lend money to non-public companies that are too large for small business and bank loans but too small to go public. Many are middle-America-style companies.
BDCs earn most of their cash flow through interest income from these loans, but can also take equity stakes in these companies.
BDCs can offer more flexible and unique loans and investment opportunities than banks and the Small Business Administration. But, we are here for the money.
Create a Paycheck with Income Investing
Because BDCs are pass-through corporations, they must pass most of their cash flow to investors. Depending on the BDC, investors can expect 9-14% yields.
Although BDCs pay most of their cash flow to investors through dividends, it is tough to find growth. The best way to obtain growth is to purchase BDCs when they are out of favor and offer high yields.
There are too many BDCs to list, but I will give some of my favorites. My top BDCs are Ares Capital (ARCC), Blue Owl Capital (OBDC), Capital Southwest (CSWC), and Trinity Capital (TRIN).
Another way to invest in BDCs is through an exchange-traded fund. Vaneck BDC Income Fund (BIZD) yields about 10% and includes all my favorite BDCs.
The fund does not use leverage, giving me massive exposure to BDCs while maintaining a high yield. I plan to invest heavily in individual BDCs and BIZD.
Paying your auto insurance with BDCs. Now, it’s time to start paying some bills. I will use BIZD and individual BDCs to create a schedule for this experiment.
Your Daily Routine is Your Success
We know that our auto insurance bill comes every month, so we must ensure we receive monthly payments from our BDC friends.
Most BDCs pay quarterly, so let’s put together a schedule. The schedule goes like this: January (Jan, Apr, July, Oct), February (Feb, May, Aug, Nov), and March (Mar, Jun, Sep, Dec).
In January, we can select TRIN and BIZD; in February, GAIN.I; and in March, CSWC and SAR. Let’s assume they all pay 10%.
The total amount of business development income we need annually is $4,800, which is $400 times 12 months.
To get our total investment amount, we can divide $4,800 by 0.10, which gives us $48,000. Yes, that is a lot of money.
Why Dividend Growth Investing?
We love supplemental and special dividends. I feel special when I receive special dividends. Because BDCs have the requirement to pay most of their income to shareholders, we can receive special and supplemental dividends.
This extra cash flow makes owning BDCs even more valuable over time. Over the years, I have received many supplemental dividends, and there are more to come.
You can spend your supplemental and special dividends any way you want, so have fun. Cash flow is why income investing is an essential part of my life.
Saving $48,000. Can you save and invest $48,000? Yes, you can. If I can do it, you can do it. The only thing stopping you is your mindset.
Compound Interest: You Can Pay or Earn It
Once you have your household budget under control, you must stick with it. Your BDCs generate 10% cash flow, helping you compound your investments quickly.
You may need to make some sacrifices. For example, you could get rid of one car or drive Uber at night. You could also get a roommate or move in with your parents.
The toughest part of obtaining assets is starting at zero. However, you won’t be at zero forever. My wife and I started at zero in June 2019 but overcame it to retire in 2023.
Conclusion. I got roommates, worked a second job, and traveled overseas without my family, so my wife could keep her job.
Capture the Market with Index Funds
Was it difficult? Yes. However, if you want different results, you must do things differently. Now, we earn $2,400/month in dividends.
We reinvest all of our dividends, to ensure that we continue to grow our net worth and passive income. BDCs play a massive role in our success; we love watching them grow.
If they drop in price, we purchase more. I much prefer to get my paychecks from BDCs than working for the government or a corporation.
So what’s it going to be? Do you want to work your job forever? I sure didn’t, so I did everything possible to escape early. Business development companies became great resources in my path to financial freedom. They, too, can help you escape. 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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