Earning $10,000 a year in passive income might sound like a dream reserved for only seasoned investors.
But with the right approach, time, and a disciplined plan, it is a target that many Australians can realistically aim for.
Here's how you could work towards generating that income stream — without needing to win the lottery or take reckless risks.
Step 1: Build a capital base
To earn $10,000 annually, you will need a portfolio worth around $200,000, assuming a 5% dividend yield.
That might sound like a big hurdle, but most investors don't start there — they build towards it over time.
For example, if you start with $20,000 and invest an extra $1,000 each month, achieving a 10% average annual return (not guaranteed), you could reach that $200,000 milestone in under 9 years. Consistency is key.
Step 2: Focus on quality growth first
Before shifting your portfolio towards income, the goal should be growing your capital.
Owning high-quality ASX growth shares can accelerate this process. Businesses like ResMed Inc. (ASX: RMD), WiseTech Global Ltd (ASX: WTC), and Xero Ltd (ASX: XRO) have sustainable competitive advantages and track records of compounding earnings.
If they continue to deliver the goods, they could help your portfolio grow faster so you can hit your income goal sooner.
Step 3: Transition to passive income
Once you've built a solid portfolio base, the next step is to tilt it towards dividend-paying investments.
ASX favourites like BHP Group Ltd (ASX: BHP), Telstra Group Ltd (ASX: TLS), and Coles Group Ltd (ASX: COL) can deliver fully franked payouts, while real estate investment trusts (REITs) such as HomeCo Daily Needs REIT (ASX: HDN) and Rural Funds Group (ASX: RFF) provide reliable distribution streams backed by essential property assets.
By carefully selecting a mix of defensive, high-yielding shares, you could lock in a 5% yield across your portfolio.
Alternatively, investors could turn to ASX exchange traded funds (ETFs) for a source of passive income. The Vanguard Australian Shares High Yield ETF (ASX: VHY) gives investors access to around 74 ASX dividend shares from a range of sectors.
Foolish takeaway
Earning $10,000 a year in passive income doesn't happen overnight, but it is well within reach for patient investors.
By growing your capital first with quality ASX growth stocks, then pivoting to income-focused holdings, you can build a portfolio that pays you year after year — and continues to grow.
