Building a second income might sound like a lofty goal, but what if I told you it's achievable with just $25 a day?
That's about the cost of a takeaway meal or a trip to the cinema.
By redirecting this amount into quality ASX shares, you could create a portfolio that not only grows in value but eventually generates a consistent income stream—enough to significantly enhance your lifestyle or help fund your retirement.
The power of consistent investing and compounding
The plan is quite simple: invest $25 a day—or approximately $750 a month—into high-quality ASX shares or exchange-traded funds (ETFs) that have the potential to deliver steady, long-term returns.
The longer you do this, the more that compounding can do much of the heavy lifting for you.
Let's assume an average annual return of 10%, which is in line with historical market returns. If you invest $750 monthly and reinvest all your gains, your portfolio could grow to approximately $550,000 in 20 years.
This demonstrates the power of compounding. You're not just earning returns on your original investments but also on the returns you've already accumulated.
Transitioning to a second income
Once your portfolio reaches that $550,000 mark, it is time to start thinking about income.
By gradually shifting your focus from growth stocks to dividend-paying shares, you could build a second income generator.
It is quite easy to find high-quality ASX dividend shares that offer dividend yields of 5%.
If you could average this yield across your $550,000 portfolio, it would provide an annual second income of $27,500.
And the best part? Many quality dividend shares on the ASX have a history of increasing their payouts over time, meaning your income could grow steadily as well.
Focusing on quality
To build this kind of wealth, it's important to invest in high-quality companies with strong track records of performance.
Investors ought to look for businesses with solid earnings growth, competitive advantages, and healthy balance sheets. Companies like CSL Ltd (ASX: CSL), Goodman Group (ASX: GMG), or Wesfarmers Ltd (ASX: WES) have historically rewarded investors handsomely through both capital gains and dividends.
Alternatively, ETFs like Vanguard's Australian Shares Index ETF (ASX: VAS) or BetaShares Australian Quality ETF (ASX: AQLT) offer diversification and exposure to some of the best companies in the market. They could be worth a closer look.
Discipline and patience
The $25-a-day plan is straightforward but requires discipline and patience.
The share market will inevitably experience ups and downs, but staying the course and consistently adding to your portfolio will be crucial to achieving your goal.
If you do, by 2045, that modest daily investment could turn into a substantial asset, providing you with financial security and a steady second income.
