3 steps to replace your wage with dividends from ASX shares

I think virtually every Australian adult would love to be financially independent, where you don’t have to rely on your work earnings to sustain your life expenses. I believe dividends from ASX dividend shares could be the answer.

This is a great time of year to look at potential financial goals. What could be better than building enough wealth that pays tens of thousands of dollars in dividends?

But, a large nest egg doesn’t appear out of nowhere – it’ll take consistency and good financials choices. I believe it boils down to three steps.

Save money

Being able to put money into the ASX share market comes down to one simple equation: spending less than you earn.

If someone earns $10,000 and spends $11,000 per month then they won’t have anything to invest. Earning $6,000 and spending $5,000 per month would be a better monthly financial picture, in my view, because it would mean having $1,000 to put into wealth-growing assets.

It takes money to make money in the ASX share market, so for someone to unlock savings with a tight/negative budget, they may need to earn more, spend less or both. The extra earnings could come in the form of a side hustle/part-time job. Every household has different spending requirements, but finding value for money with the biggest categories (food, transportation and so on) is usually a useful strategy.

Invest for the long-term in ASX shares

Compounding is a very powerful financial force. Albert Einstein once supposedly said:

Compound interest is the most powerful force in the universe. Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t pays it.

The longer we give our investments to grow, the more they can help our net wealth become a meaningful figure.

There are a number of appealing investments we could make for the long-term. I’d want to own ASX shares/investments that I think could grow nicely in value over the long-term.

For capital growth, I’m thinking of exchange-traded funds (ETFs) like Vanguard MSCI Index International Shares ETF (ASX: VGS), VanEck MSCI International Quality ETF (ASX: QUAL) and Betashares Global Quality Leaders ETF (ASX: QLTY).

For long-term dividends and growth, I’d look at names like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), MFF Capital Investments Ltd (ASX: MFF) and Wesfarmers Ltd (ASX: WES).

Replace your wage with dividends

By regularly investing, preferably monthly, Australians can steadily build up their portfolio enough to generate enough passive income to replace a wage with dividends through ASX shares.

Remember, the ASX share market has returned an average of close to 10% per year over the ultra-long-term. If an investment grows at 10% per year, it doubles in value in around eight years.

Trying to replace a wage could take time, but consistent effort will pay off. If someone can invest $1,500 per month into ASX shares (and never increasing that amount) and it grows at an average of 10% per year, it would turn into $1 million after 20 years and $1.5 million in less than 24 years.

If your portfolio had a 5% dividend yield, $1 million would unlock $50,000 of passive income, while $1.5 million would unlock $75,000 of dividends from ASX shares. That sounds good to me!

I think investing in ASX shares is the best way to build a river of passive dividend income, with franking credits being a major boost.

The post 3 steps to replace your wage with dividends from ASX shares appeared first on The Motley Fool Australia.

More reading

• 2 ASX dividend shares raising dividends like clockwork!
• I plan to invest $1,000s into these 2 ASX ETFs in 2026
• Is investing $5,000 enough to earn a $1,000 second income?
• Retirement wealth plan: Create $1 million with a single Australian stock
• Buy, hold, sell: DroneShield, Macquarie, and Wesfarmers shares

Motley Fool contributor Tristan Harrison has positions in Mff Capital Investments, VanEck Msci International Quality ETF, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Washington H. Soul Pattinson and Company Limited and Wesfarmers. The Motley Fool Australia has positions in and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Mff Capital Investments, Vanguard Msci Index International Shares ETF, and Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.