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Income is money collected without working for it. If that sounds like a dream, consider how many people are generating that kind of income right now, for example by owning rental properties.
Another way is to buy shares of blue-chip companies that look ready to share some or all of their earnings with shareholders in the form of dividends.
If I wanted to target an average income of £70 per week (£3,640 per year) investing in such shares, here is how I would do it.
1. Set up a sharing account
My first move would be to create a shares trading account or Stocks and Shares ISA.
2. Find money to invest
Next, I would deposit money into that account. It would be a sum of money, if I had enough cash on hand. How much I need is based on the rate of return on my investment. At 5%, for example, my goal would require an investment of £72,800.
Another would be to start with what I had (or whatever it was). nothing) and making regular donations. To do that, it will take me some time to reach my passive income goal.
3. Learn about the stock market
My next step would be to find out more about how the stock market works. For example, sometimes a stock has a high dividend yield but its cash flow is declining. That risks cutting off future profits.
So learning about valuations and company accounts will hopefully help me as I aim to set a solid path and hopefully increase passive income.
4. Set a strategy
No dividend is guaranteed to last forever. So I would like to diversify between a range of different companies.
That's just one of the risk management strategies I use, along with measures like sticking to business trends I understand and always focusing on the company's commercial strength, not its dividend yield.
Hopefully, setting the right strategy can help me reach my goal.
As an example, consider the share of income I bought this year: Legal & General (LSE: LGEN).
I like its strong brand, existing customer base and focus on the retirement market, as I expect that to be in high long-term demand. But the share price has moved slowly (down 9% this year).
For a while, Legal & General was on my list of stocks to buy, if they were available at the right price and I had the cash to invest. Then I bought it.
6. Start buying stocks
As with any assignment, the FTSE 100 A financial services company faces risks. For example, a sudden market crash could see policyholders cash out, hurting profits. As we have seen over the past few years, the pension market can also experience sudden external shocks, such as changes in government policy.
For what it's worth though, I think those are the risks I have to take when it comes to Legal and General.
7. Start earning income!
With a maximum yield of 9.1%. Even at the low rate of 5% I mentioned above, if I invest £85 a week and reinvest the returns to start, I should reach my goal of being passive after 13 years.
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