Generating a reliable stream of passive income is one of the most appealing aspects of investing in ASX shares.
The good news is that it is not something that is reserved for only the ultra-wealthy. With the right strategy, even everyday investors can turn their portfolio into a monthly income machine.
In fact, earning $100 a month in passive income is a realistic and achievable target for investors. And thanks to the generous dividend culture of many ASX shares, getting started is easier than you might think.
Let's break down what it takes to earn $100 a month in passive income using dividend-paying ASX shares — and how you can build a portfolio to help you reach that goal.
How much do you need?
To earn $100 per month — or $1,200 per year — of passive income, you'll first need to estimate your required investment based on your expected yield.
A 5% dividend yield is a solid and realistic average across high-yield ASX shares and ETFs. At that rate you would need a portfolio valued at $24,000 to generate the targeted income.
Don't have $24,000 lying around? No problem. You can work towards this goal by investing gradually and consistently.
For example, if you invest $500 each month in quality ASX dividend shares (or ETFs), and earn an average 10% total return per annum, your portfolio would grow to $24,000 in approximately 3.5 years. From there, you could start collecting that $100 per month in dividends.
Choose the right ASX shares
If you're chasing passive income, quality matters. You want dependable dividend payers with strong balance sheets, solid cash flows, and a track record of distributions.
Some sectors known for high and sustainable dividends include financials, real estate and infrastructure, consumer staples, and telcos.
Alternatively, ETFs can be a great starting point. One option is the Vanguard Australian Shares High Yield ETF (ASX: VHY), which holds a basket of high-yield ASX dividend shares. It is a hands-off way to tap into the income potential of the broader market.
It is important to remember that investing for passive income is a long game and doesn't happen overnight.
The key to succeeding is to keep your portfolio aligned with your goals, avoid chasing yield at the expense of quality, and stay consistent. Even if markets wobble, remember — those dividends can still roll in, providing a steady return regardless of short-term price swings.
Foolish takeaway
Earning $100 a month in passive income from ASX dividends isn't a pipe dream. It is a tangible goal that thousands of Australian investors are already achieving. With a plan in place, disciplined investing, and a focus on quality dividend shares, you can build a portfolio that pays you.
