Generating a high level of ASX passive income sounds like a wonderful thing. Imagine seeing $500 flow into your bank account every month, or even $1,000.
So how much are people willing to sacrifice to make that happen? The price could be as little as a daily coffee.
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Find those savings
When it comes to money, everyone's finances are different. Someone earning $1 million a year has more financial flexibility to allocate to investing each month than the average income earner.
It's likely household budgets are tighter these days after all the inflation and interest rate hikes.
If someone has only a little money to invest each month after paying for the bare essentials, then it comes down to choices. It'd be easy to say, "get a better-paying job", but sometimes that's not an option.
Working longer and longer hours may not be the best choice either – we aren't robots. Having a break, taking care of yourself, and spending time with family and friends are usually good things for life and enjoyment.
For me, I'd rather avoid spending a certain amount each month than give up my time doing something that I enjoy.
It's about the dollar amount saved rather than the activity or product itself. Everyone spends on different stuff. If we want to make ASX passive income, we need to come up with some savings. It could be the $5 or $10 daily coffee, it could be subscriptions like Netflix and Foxtel, or something else.
The idea is to cut out spending that isn't truly making a difference to our happiness.
How much ASX passive income could we make?
Let's say we cut $40 a week out of spending and start investing that into ASX shares. That translates into $2,080 per year if we save every single week.
Saving $2,000 doesn't make us an instant millionaire. Investing $2,000 with a 6% dividend yield would create $120 of annual ASX passive income. That's not a bad start, and the $120 would hopefully grow with organic business dividend increases over time.
But, the power of compounding can help us make that $40 a week grow much bigger.
If we invested $40 a week for 10 years, and the share portfolio achieved total returns of 10% per year, that would grow to $33,150. With a 6% dividend yield, this would generate around $2,000 of annual ASX passive income.
Doing that same exercise but running it for 20 years, the portfolio could grow to be worth $119,132. With a 6% dividend yield, that'd turn into around $7,150 of annual dividends or almost $600 per month.
That's a lot of extra cash flow, right? Investors just need to decide what they're willing to do to save while still enjoying life.
