Creating a lifelong passive income stream doesn't have to be a bank-breaking exercise. In fact, I think it can be done with just $7 a day by investing in ASX shares.
Thanks to the power of compounding, patient investors willing to consistently build wealth could find themselves with a substantial nest egg – one that could be capable of funding their lifestyle in the future.
So, how would I take advantage of the passive income building opportunities housed on the ASX with just $7 a day? Keep reading to find out.
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How I'd turn $7 a day into $67k of lifelong passive income
My first step is perhaps the most important: Consistently setting aside $7 (or more, or less) each day to invest.
At that rate, I could save $49 a week or $2,548 a year. When I have a stash worth investing – considering the impact brokerage fees could have on my returns – I could snap up ASX shares I believe to be capable of providing above-market returns over the long term.
I would also aim to reinvest all the dividends paid to me over the years, thereby further bolstering my compounding.
Using Moneysmart's compound interest calculator, I can see that a 10% annual return could see my $7 daily investment grow to be worth more than $43,600 in just 10 years. But the real magic happens later.
Here's a breakdown of how my ASX portfolio could compound, assuming a 10% annual return:
| Years invested | $ invested | Portfolio value |
| 10 | $25,550 | $43,634 |
| 20 | $51,100 | $161,734 |
| 30 | $76,650 | $481,434 |
| 40 | $102,200 | $1,346,878 |
That's right, after 40 years my $7 a day could have multiplied and compounded to be worth more than $1.36 million. That's not bad for pocket change!
At that point, my portfolio could yield $67,344 of passive income each year, assuming a 5% dividend yield.
Shortening the horizon
Of course, the longer one consistently invests, the more passive income one might realise later on.
However, if 40 years is too long of a horizon, an investor could choose to skim some of the dividends offered by their holdings.
They could even stop reinvesting their dividends entirely, taking the offerings as spending money and relying purely on capital gains to grow their portfolio.
That's still likely to be a worthwhile wealth-building activity, considering the market has always historically gone up. Though, no investment is guaranteed to provide returns or downside protection.
