Earning some extra money without working for it has timeless appeal. But looking forward to next year, I think the time to put such a passive income plan into action could be now.
Even with no savings and limited cash to spare, I could start building up my 2023 passive income by creating a portfolio of dividend shares. Here is how I would do that beginning today, in five steps.
1. Get into a regular saving habit
Although I do not need savings to begin, as I want to buy dividend shares I will need money to do so. That is where regular saving comes into play.
I would set a target that was achievable given my own financial situation, such as £5 a day. I would then take a disciplined approach to saving that money each day. For that purpose, I would set up a share-dealing account, or Stocks and Shares ISA.
2. Learn how the stock market works
Not sure what to say when people ask if you want anything for Christmas? What about one of the classic books on investing, such as The Intelligent Investor by Ben Graham? The upcoming holidays also present a great opportunity to learn more about how shares work.
Specifically, I would want to understand what makes a good share when it comes to dividends – and how to value it. After all, being a successful investor involves buying the right thing, but not at the wrong price!
3. Start looking for shares to buy
As the money I was able to invest grows, I would start looking for shares I could buy.
For example, one of the dividend shares I have bought in 2022 is homewares retailer Dunelm. It has a strong position in a market I expect to see ongoing demand and has been a generous dividend payer. That does not guarantee it will pay dividends in future though.
Companies can run into unexpected difficulties however, so I am not only relying on Dunelm for passive income. I always make sure to diversify my portfolio. £5 a day adds up to £1,825 in a year. That is ample to diversify across a range of shares.
4. Make a move
Once I had enough money and had identified what I thought were the right shares for me, I would start buying.
I believe in long-term investing, so would buy to hold. I am looking for companies with great business models I think can generate surplus cash to fund dividends, not only in 2023, but far beyond.
5. Turning on my 2023 passive income tap
If I start saving now, I could be buying shares in a few months and hopefully already earning dividends in the first half of next year.
My 2023 passive income might not be big but, over time, it would hopefully grow. Investing £1,825 at a 5% dividend yield could offer me around £91 of annual passive income. As I keep saving and investing, I could buy more shares – and boost my income streams!
