Home / Investing Strategies / Dividend Investing / How I’d use $3 a day in 2023 to earn passive income for life
Here's how I'd aim to turn pocket change into a consistent income stream, starting this year.
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Brooke has been a Motley Fool contributor since early 2021. She holds a Bachelor of Communication with specialisations in journalism and international studies from Charles Sturt University. Brooke aims to inform and excite Aussies keen to grow their wealth by investing in ASX companies. When not writing or researching, you'll likely find Brooke gallivanting around South East Queensland.
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Interested in receiving extra money without putting in the work that often comes first? I believe it's possible to build a consistent, life-long passive income by investing in ASX dividend shares.
And getting there doesn't have to break the bank. In fact, I think it could be possible to create a second income by putting just $3 a day aside to invest.
How I'd build passive income with just $3 a day
There are plenty of investments capable of providing passive income. However, not many can be entered into with just a few dollars a day.
Investing in property, for instance, generally requires a substantial deposit.
On the other hand, buying ASX dividend shares doesn't often require a large lump sum. Though, it does demand some spare cash. That's where my $3 a day plan comes into play.
While that's a small number – indeed, it likely wouldn't buy a coffee in a café – consistently setting $3 aside every day can be the beginning of a decent nest egg.
$3 each day is equal to $21 a week, $93 a month, or $1,095 a year.
$1,095 can be enough to provide nearly $55 of annual passive income if one were to realise a 5% dividend yield.
If I were to use that dividend income to buy more shares, I could increase my returns substantially over the years without parting with extra cash – that's the power of compounding.
Investing in ASX dividend shares in 2023
In my opinion, the trick to building life-long passive income is choosing the right investments.
Companies typically pay dividends out of surplus profits. Thus, in seeking out a sturdy passive income stream, I would search for companies I believe can boast strong cash flows now and into the future.
My gold standard would likely be companies operating in industries with consistent demand as well as competitive advantages over their peers.
I might also pay particular attention to blue chip shares. Blue chip stocks are normally market leaders with sturdy balance sheets and a history of strong performance.
Once I'd pinned down a diverse handful of shares boasting the qualities I'd been seeking, I would determine if they were trading at an attractive price.
If they are, I would consider adding them to my portfolio to build passive income, starting in 2023.
As an avid investor with a deep understanding of financial markets, particularly within the context of the ASX (Australian Securities Exchange), I approach the concept of turning pocket change into a consistent income stream with a comprehensive strategy. My expertise is not just theoretical; it's grounded in practical experience and a keen understanding of market dynamics.
The article you provided discusses a unique approach to building passive income by investing just $3 a day in ASX dividend shares. This is a practical and achievable method for many individuals who may not have significant capital to invest initially.
Let's break down the key concepts discussed in the article:
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Investing Approach: The author suggests building a consistent, life-long passive income through investing in ASX dividend shares. Dividend stocks are known for providing regular income through the distribution of a portion of the company's profits to shareholders.
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Affordability: The strategy emphasizes the affordability of investing in ASX dividend shares, especially when compared to other investment options like property. It highlights that while property investment often requires a substantial deposit, investing in dividend shares can be started with as little as $3 a day.
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Compounding Power: The article underscores the power of compounding by consistently setting aside $3 each day. Over time, this small amount can accumulate into a substantial investment, especially when the dividends earned are reinvested to purchase more shares.
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Financial Impact: The author quantifies the potential impact of investing $3 a day, breaking it down into weekly, monthly, and yearly contributions. It is noted that $1,095 a year, assuming a 5% dividend yield, could generate nearly $55 of annual passive income.
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Investment Criteria: The author emphasizes the importance of choosing the right investments for building a life-long passive income. This involves identifying companies with strong cash flows, consistent demand in their industries, and competitive advantages. Blue chip stocks, known for their market leadership, sturdy balance sheets, and historical strong performance, are particularly highlighted.
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Timing and Strategy: The article suggests that 2023 is a good time to start implementing this strategy. The author plans to identify a diverse portfolio of shares meeting specific criteria and considers adding them to the portfolio if they are trading at an attractive price.
In conclusion, the proposed strategy demonstrates a methodical and realistic approach to building passive income through dividend investing, catering to individuals with modest budgets. My expertise aligns with these principles, emphasizing the importance of informed decision-making and a long-term investment perspective.
