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Replace your entire wage with dividends from ASX shares

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.


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.


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.

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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.

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