Replace your entire wage with dividends from ASX shares

It's definitely possible to replace your whole wage with dividends from ASX shares, read here to find out how.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Replacing an entire wage with dividends from ASX shares is difficult but definitely possible and totally desirable!

Earning a salary doing any form of work is a worthwhile endeavour to pay for life's expenses and save for financial goals. But dividends from shares are work-free for us and will hopefully keep growing if you invest in the right areas.

Wage growth and inflation is very low at the moment, so you'll have to work hard to build up the required amount of capital to generate the dividends to replace your salary.

Save 

Assuming you already have a source of income, the most important factor is to save money. You can't invest if you have no money to invest, "It takes money to make money".

There's no correct amount that you need to save. It's up to you to balance paying the bills, enjoying your earnings and investing for the future.

But, if you can save and invest between 10% to 20% of your after-tax earnings then you're on track for replacing your wage sooner than most people. Every budget is different so you need to find ways of savings that work for your household.

Invest 

The fun part is investing that money. There are plenty of great places to put your money.

There are exchange-traded funds (ETFs) which are very easy and passive ways to invest. For example you can gain exposure to most of the ASX share market with Vanguard Australian Share ETF (ASX: VAS), most of the US share market with iShares S&P 500 ETF (ASX: IVV) or a lot of the global share market with Vanguard MSCI Index International Shares ETF (ASX: VGS).

You could also decide to invest your money with some of the best Australian investors who do the investing for you such as Magellan Global Trust (ASX: MGG), MFF Capital Investments Ltd (ASX: MFF), WAM Microcap Limited (ASX: WMI) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

Or, you can invest in some of the best individual businesses yourself to try to beat the market. I think three of the most promising businesses on the ASX today are Webjet Limited (ASX: WEB), Pushpay Holdings Ltd (ASX: PPH) and Brickworks Limited (ASX: BKW) at today's prices.

Be patient 

It will take time to replace a wage with dividends.

If in 25 years you want to generate dividends of say $60,000 a year with a portfolio yielding 4% (with the share market growing at an average of 10% per annum), you'd need to invest $1,275 a month for the whole period according to Moneysmart's compound interest calculator. You can play around with the numbers to see what would suit your foreseeable circumstances.

You have to keep holding shares through bull markets and recessions, no matter what happens. Indeed, recessions are the best time to buy shares. Patience is key for good long-term returns.

Foolish takeaway 

Eventually most people who retire replace their wage with retirement income, but I think investing in ASX shares can allow us to get there quickly with good dividend payments.

Tristan Harrison owns shares of Magellan Flagship Fund Ltd, MAGLOBTRST UNITS, WAM MICRO FPO, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of PUSHPAY FPO NZX. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Brickworks, PUSHPAY FPO NZX, Vanguard MSCI Index International Shares ETF, and Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Personal Finance

A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.
Cash Rates

Contrarian view: The RBA will keep interest rates on hold according to these experts

The RBA has already cut rates twice so far in 2025.

Read more »

man and woman discussing superannuation
Personal Finance

Thinking about making a concessional superannuation contribution today? Read this first

What are the rules?

Read more »

Frazzled couple sitting out their kitchen table trying to figure out their finances or taxes.
Personal Finance

End of financial year: Should I sell my loss-making stocks today?

What's the verdict?

Read more »

Tax time written on wooden blocks next to a calculator and Australian dollar notes.
Tax

Franking credits from ASX dividend stocks can lower your bill this tax time. Here's how

Who knew investing can help lower your tax bill?

Read more »

A businesswoman weighs up the stack of cash she receives, with the pile in one hand significantly more than the other hand.
Investing Strategies

Should your portfolio be holding cash in this market?

It's an age old question for investment portfolios.

Read more »

Man ponders a receipt as he looks at his laptop.
Personal Finance

Tax planning: Are international shares treated differently?

Do you own international shares?

Read more »

Smiling business woman calculates tax at desk in office.
Personal Finance

3 tips to maximise your tax refund from the ATO in FY25

Are you missing anything?

Read more »

Clock with post it as a reminder of Tax Time
Personal Finance

3 tax deductions that many investors forget to claim

Deductions reduce your overall tax bill.

Read more »