How I’d use $3 a day in 2023 to earn passive income for life

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.

The post How I’d use $3 a day in 2023 to earn passive income for life appeared first on The Motley Fool Australia.

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