Written by Amy Legate-Wolfe at The Motley Fool Canada
Today, we’re not going to start with how much you can make but how much you should invest. You should not be trying to invest as much as possible into the stock market at any time. Today, let’s look at how much you’re able to invest and how much you can create in passive income each and every month. If you do this properly, you’ll create passive income for life.
I know; budgets are boring and investing is exciting. But if you’re into investing for the excitement, that’s gambling, so go to a casino instead. Investing is instead about creating money through investments over the long term. And to do that, you need to budget.
A budget allows you to figure out what exactly you can afford to put aside each month. You’ll need to come up with a clear number that can be put aside no matter what. Do this, and you can create immense savings over a fairly short period.
For example, let’s say you make $60,000 per year and can afford to put aside 10% of each paycheque. You’ll therefore have about $6,000 in savings before tax put aside! That can all be used for investment.
Put it away safely
Now that you have automated contributions, put it somewhere safe. I would recommend a Tax-Free Savings Account (TFSA), as it offers you the opportunity to invest while still having cash available — but not too available.
A TFSA allows you to invest a certain amount each year, which you can find on your Notice of Assessment (NOI). From there, you can take out as much as you want without being penalized at any time. So, if an emergency arises, go ahead and take out the cash. If not, consider reinvesting it again and again.
That reinvestment is the surest way to create even more passive income. And that’s where we’re going to take another step in the right direction.
Invest well again and again
If you’re looking to create long-term gains, which you should be, you’ll want strong stocks that are going to continue creating cash for you over time. That would mean finding safe companies to invest in. Those that aren’t going to suddenly disappear overnight.
I would look to blue-chip companies. These are companies that provide long-term growth, which has helped fuel their dividend income as well. But while dividend income is important, look at returns as well. Dividends aren’t going to help you much if your shares are doing poorly, after all.
In this case, a great option is BCE (TSX:BCE). The company is the largest of the telecommunications companies, with a long history of share and dividend growth. Yet shares are down in this bear market, providing a great opportunity to jump in and grab a dividend yield at 7.25%.
If you were to take a $6,000 investment in BCE stock and invest it, seeing shares return to 52-week highs, here is exactly what you could achieve in passive income today.
NUMBER OF SHARES
BCE – now
BCE – high
As you can see, you can achieve returns of $1,458 and dividend income of $437.31. That’s total passive income of $1,895.31. This comes to monthly passive income of $157.94 in a short period of time.
The post Passive Income: How Much Should You Invest to Earn $158 Every Month? appeared first on The Motley Fool Canada.
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