Here's how to invest £180 a week in an ISA to set aside a second income of £9,343

Using an ISA to generate a second income is a simple but potentially financially liberating idea. After all, I could put in a stocks and shares ISA with sugary dividend payers and sit back and hope to watch the money roll in.

Turning an ISA into a gold mine

My first move will be to set up a stocks and shares ISA.

Next, I was preparing to make a regular weekly payment of £180 on it. It is important not to focus too much on the number. I can invest every month instead, and put in more or less depending on my financial circumstances. The point is just to get into the habit of making regular contributions to my ISA.

Sticking to £180 for example, putting that into an ISA each week would give me £9,360 a year to invest.

How compounding dividends can help build wealth quickly

But I could invest more money without increasing my regular contributions.

How? Using whatever benefits I get.

That is known as compounding. While billionaire Warren Buffett is a very successful investor, his company does not pay dividends. That's because it returns the money it earns to making more money.

Now I realize that might sound like I'm missing the point of building a second income. Why are you regularly putting money into an ISA, but not taking it out?

In fact, I will take it out – but not yet.

Assume I invested £180 per week at a compound growth rate (thanks to dividends) of 7% each year. After ten years I was already generating £9,343 a year in dividends from my ISA. I can continue to compound, or choose to start drawing income at any stage.

Finding income stocks to buy

That may not sound complicated. It doesn't have to be like that. Indeed, simplicity is the point of earning income.

But one thing that can affect my results for better or worse are the stocks I buy in hopes of reaching my 7% yield goal (well above the average yield FTSE 100 for now, although in today's market I still think it's a reasonable goal).

I can invest in a variety of different stocks, as even the best performing company can experience unexpected difficulties.

Turning theory into practice – and pounds!

An example of a type of stock that I own in part because of its passive income is this Legal & General (LSE: LGEN).

With a yield of 9.2% (yes, 9.2%), the FTSE 100 financial services company blew past my target. Its goal is to increase the payout per share annually – currently by 5% and from next year by 2% per year.

Something important to understand when buying income shares is that no dividend is ever guaranteed and that includes Legal & General's. It cut its share during the last financial crisis. If another economic storm leads policyholders to cash out, hurting the company's profits, I think the same thing could happen again.

But with a large potential market, a large customer base, a popular business model, a proven business model and a track record of cash generation, it's the kind of dividend stock I'd like to own.