The current economic environment has got many people thinking about passive income and ASX shares.
The sum of $20,000 creates a baseline level of income that can help to pay the bills and basic living expenses for many individuals.
Of course, that doesn't mean you can't continue to work. But the potential to add $20,000 without lifting a finger is enticing to most savvy investors.
So, how can you build a strong passive income stream with ASX shares in 2020?
Save as much as you can
This is a critical step in the process. There's no magic cure here that will build your wealth overnight.
Trimming down expenses where possible is a great first step. That means creating a budget and looking at cutting down on discretionary spending.
All of this extra income can go towards investing in ASX shares. Whether it's an extra $500, $5,000 or $50,000 per year, strong savings habits are crucial to developing a passive income.
Invest in ASX shares for a passive income
Once you've got strong personal finance habits in place, it's time to start investing.
There are many ASX shares like Fortescue Metals Group Limited (ASX: FMG) with strong dividend yields.
Of course, dividend yields can be misleading but are the best income indicator we have right now.
At the time of writing, Fortescue shares are yielding 6.88% while Harvey Norman Holdings Ltd (ASX: HVN) shares are yielding 9.18%.
If you can consistently save $10,000 per year and invest in a diversified ASX share portfolio, you can quickly generate a $20,000 passive income stream.
If we assume a 7% average dividend yield, we would need to build a $285,714 portfolio for a $20,000 per year passive income.
Let's say we save $10,000 per year and invest it in ASX shares. If we receive a 7% yield and reinvest it into these shares, we could generate a $21,588 passive income in just 17 years.
Foolish takeaway
It's easy to think that creating a passive income from ASX shares is all too hard.
However, while the above calculation is a simplified example, it does demonstrate that discipline and a strong dividend portfolio can help you build your long-term wealth.
