It's likely many ASX fans have entered the new year with new investing resolutions. No doubt, a common one is to build passive income.
Passive income is a relatively self-explanatory concept. It's income that a person receives without actively earning it. If you're anything like me, that's an appealing reason to invest.
Fortunately, I believe creating an income by investing in ASX dividend shares doesn't have to break the bank. If I had just $15 a day, here's how I would aim to build a passive income, starting in 2023.
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How I would build a passive income with $15 a day
While $15 a day might not get you lunch at a café, it can add up over weeks, months, and years. Indeed, $15 a day equates to around $456 a month, or $5,475 a year.
The Vangaurd Australian Shares Index ETF (ASX: VAS) – an exchange-traded fund (ETF) tracking the S&P/ASX 300 Index (ASX: XKO) – currently offers a 4.3% dividend yield.
However, I think I could do better than that. Last year's downturn has likely left many shares trading below their fair value, and potentially boasting notable dividend yields.
Could I use 2022's downturn to supercharge my returns?
Plenty of ASX 300 shares are currently trading with dividend yields of around 6.5% following 2022's downturn.
Indeed, Bank of Queensland Limited (ASX: BOQ), DEXUS Property Group (ASX: DXS), Nick Scali Limited (ASX: NCK), and Codan Limited (ASX: CDA) currently boast an average dividend yield of approximately 6.5%.
In building my own portfolio, I might seek out a diverse set of stocks I believe could offer consistent dividends, yielding around 6.5%. Of course, such a feat cannot be guaranteed.
To give myself the best chance, I would look for companies I personally believe can outperform over the coming years. I would also pay close attention to their cash flows and balance sheets, as such factors can make or break dividends in the years to come.
Assuming I could build a portfolio capable of offering a 6.5% dividend yield, the $5,475 I could invest over the course of 2023 (at $15 a day) would be capable of providing $355.87 of passive income.
If I were to continue investing $15 a day for the next 20 years, I could hold a $109,500 portfolio, able to provide $7,117.50 of passive income each year.
Now, if I were to be handed $7,117.50 in cash every 12 months, I wouldn't say no.
However, if I was aiming to build a passive income, I probably wouldn't take my dividends as spending money. Instead, I'd aim to compound them.
The power of compounding
If I were to reinvest such dividends into my portfolio, assuming I don't recognise share price gains, I could boast a $214,059 nest egg in 20 years' time.
That would be capable of providing $13,913.83 in passive income annually at a 6.5% dividend yield.
That's certainly worth $15 a day, in my opinion.
