I'm sure most readers will agree that generating an income without having to lift a finger would be a dream.
Well, the good news is that you can turn this dream into a reality with ASX shares.
And if you are already sitting on $10,000 in savings, then you are part of the way there.
But how could you turn this money in a meaningful passive income? Here's how I would do it.
Turning $10,000 into passive income with ASX shares
Firstly, as much as I would want to have an immediate source of passive income, I would accept that good things come to those that wait.
Instead of investing this money with a focus on income, I would try and compound it into something significant. I would also look to add to my investments regularly to take full advantage of compounding.
For example, if I were to start with a $10,000 investment and then put $500 each month into ASX shares, I would have a portfolio valued at approximately $125,000 in 10 years if I were able to generate a return of 10% per annum.
This return is in line with the historical average of the share market, which I think makes it a realistic goal.
At that point, I could either keep going to grow my portfolio further, or I could switch to a passive income focus.
If I decided to do the latter, I would look to build a diversified portfolio filled with high yield ASX dividend shares.
There are plenty of shares out there that offer 6% dividend yields, so that would be my target yield across the portfolio.
If I then invest the funds into this portfolio, I would be pulling in passive income of $7,500 each year. This is the equivalent of $625 per month.
Adding extra for longer
If I wanted a larger passive income, I could look at putting extra into ASX shares each month and for a longer period.
Let's imagine I started with $10,000, then put $1,000 a month into ASX shares for a total of 15 years. This would turn my portfolio into approximately $440,000 if I achieved a 10% annual return.
Putting this money into my passive income-focused portfolio would generates $26,400 in dividends each year, which equates to $2,200 a month.
Overall, I think this demonstrates how with a combination of patience and capital, investors can generate a significant passive income from the share market.
