Having passive income would certainly be very helpful in the current environment.
Unfortunately, unless you're lucky enough to already have a bank account filled to the brim with cash, it's going to be too late to generate a sizeable income from the share market immediately to combat the cost of living crisis.
However, don't let that stop you from making it a long term goal, so that you are ready to tackle any cost of living shocks that could happen in the future.
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Generating $1,000 of monthly passive income from the ASX
If you wish to pull in $1,000 of monthly passive income from the ASX, you're going to need to generate $12,000 of dividends each year.
The good news is that there are a fair number of ASX shares on the local bourse that analysts are forecasting to provide 6%+ yields. This includes the likes of APA Group (ASX: APA), Stockland Corporation Ltd (ASX: SGP), and Accent Group Ltd (ASX: AX1).
If you are able to build a diversified portfolio of ASX shares that provides you with an overall yield of 6%, you would need a portfolio valued at $200,000 to generate total dividends of $12,000 a year.
Investors that already have this amount of cash to invest can now do this and relax and watch the passive income come in. But if you're starting from zero, you will need a plan.
How to get started
The first step for passive income investors to take is to make consistent investments in the share market.
For example, if you can invest $5,000 into the share market each year, your portfolio would grow to be worth $200,000 in 16 years if you achieved an average total return of 10% per annum. This is broadly in line with historical averages, so not guaranteed but certainly possible.
After which, investors will need to find a high quality group of ASX shares to invest these funds into.
Investors may wish to build a diverse portfolio by splitting their $5,000 investment across a number of ASX shares. This could also include ETFs, which allow investors to buy large groups of shares in one go.
Next, let compounding work its magic. This is what happens when you earn returns on top of returns. It essentially supercharges your wealth, particularly the longer you leave it.
For example, 10 years of investing $5,000 and earning a 10% per annum return would turn into $88,000. But if you keep going just six more years, you will have grown your portfolio by a further $112,000 to the target amount of $200,000.
At that point, you now have enough to start generating material passive income from the ASX.
Overall, by following these steps, you could turn the ASX into your own personal ATM.
