I'm sure most readers would agree that it would be very welcome to have a second income without having to break a sweat or even lift a finger.
Well, the good news is that the Australian share market can help you achieve this.
That's because there are plenty of ASX shares out there that reward their shareholders with dividend payments every six months (or even more frequently).
But what would you need to do to generate income of $650 a month from an ASX share portfolio. Let's crunch some numbers and find out.
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A $650 a month second income
Unfortunately, generating this sort of income does not happen overnight unless you already have significant capital to play with.
A second income of $650 a month is the equivalent of $7,800 per year. Based on an average dividend yield of 5%, you would need a portfolio valued at $156,000 to pull in annual dividend income of this amount.
If you are lucky enough to already have these funds, then you can move to the next step below. If you don't, then it is time to start putting a plan into action.
Thanks to the power of compounding, you could build a portfolio valued at $156,000 sooner than you think.
The share market has historically delivered a return of 10% per annum. There's no guarantee that it will do the same in the future, but we're going to assume that it does for the purpose of this article.
With that in mind, if you were to invest $750 a month into some high quality ASX shares and reinvest any dividends, you would grow your portfolio to $156,000 after approximately 10 years and two months. At which point, you can start to think about your second income.
Cashing in
Initially, our focus was on growing your wealth and reinvesting any dividends along the way.
Now we can start thinking about cashing in those dividends and using them for income.
If you were to construct a portfolio that averaged a 5% dividend yield, your $156,000 ASX share portfolio would pay $7,800 in dividends each year.
There are plenty of quality dividend shares out there that provide yields of this level, so it shouldn't be hard to build a diversified portfolio for this task.
For example, at present, companies such as IPH Ltd (ASX: IPH), Eagers Automotive Ltd (ASX: APE), and Smartgroup Corporation Ltd (ASX: SIQ) are all forecast to provide yields greater than our target rate.
Once your portfolio is constructed, you can sit back, relax, and watch that income flood in.
