My $15 a day plan to build passive income this year

It’s likely many ASX fans have entered the new year with new investing resolutions. No doubt, a common one is to build passive income.

Passive income is a relatively self-explanatory concept. It’s income that a person receives without actively earning it. If you’re anything like me, that’s an appealing reason to invest.

Fortunately, I believe creating an income by investing in ASX dividend shares doesn’t have to break the bank. If I had just $15 a day, here’s how I would aim to build a passive income, starting in 2023.

How I would build a passive income with $15 a day

While $15 a day might not get you lunch at a café, it can add up over weeks, months, and years. Indeed, $15 a day equates to around $456 a month, or $5,475 a year.

The Vangaurd Australian Shares Index ETF (ASX: VAS) – an exchange-traded fund (ETF) tracking the S&P/ASX 300 Index (ASX: XKO) – currently offers a 4.3% dividend yield.

However, I think I could do better than that. Last year’s downturn has likely left many shares trading below their fair value, and potentially boasting notable dividend yields.

Could I use 2022’s downturn to supercharge my returns?

Plenty of ASX 300 shares are currently trading with dividend yields of around 6.5% following 2022’s downturn.

Indeed, Bank of Queensland Limited (ASX: BOQ), DEXUS Property Group (ASX: DXS), Nick Scali Limited (ASX: NCK), and Codan Limited (ASX: CDA) currently boast an average dividend yield of approximately 6.5%.

In building my own portfolio, I might seek out a diverse set of stocks I believe could offer consistent dividends, yielding around 6.5%. Of course, such a feat cannot be guaranteed.

To give myself the best chance, I would look for companies I personally believe can outperform over the coming years. I would also pay close attention to their cash flows and balance sheets, as such factors can make or break dividends in the years to come.

Assuming I could build a portfolio capable of offering a 6.5% dividend yield, the $5,475 I could invest over the course of 2023 (at $15 a day) would be capable of providing $355.87 of passive income.

If I were to continue investing $15 a day for the next 20 years, I could hold a $109,500 portfolio, able to provide $7,117.50 of passive income each year.

Now, if I were to be handed $7,117.50 in cash every 12 months, I wouldn’t say no.

However, if I was aiming to build a passive income, I probably wouldn’t take my dividends as spending money. Instead, I’d aim to compound them.

The power of compounding

If I were to reinvest such dividends into my portfolio, assuming I don’t recognise share price gains, I could boast a $214,059 nest egg in 20 years’ time.

That would be capable of providing $13,913.83 in passive income annually at a 6.5% dividend yield.

That’s certainly worth $15 a day, in my opinion.

The post My $15 a day plan to build passive income this year appeared first on The Motley Fool Australia.

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More reading

• Can ASX bank shares deliver in 2023 after higher interest rates?
• Should I buy Bank of Queensland shares for passive income?
• I think these are the 10 best ASX shares to buy for 2023
• 3 ASX shares I’d buy after each fell by over 30% this year
• Why Bank of Queensland, Block, Fletcher Building, and Newcrest are dropping today

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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