Is it really possible to make a six-figure income doing absolutely nothing? Does it sound too good to be true?
It sure does.
But does it matter if it sounds too good to be true, if I show you the numbers? That’s what I’m going to do today, is show you the numbers. I’m going to show you exactly how to make $100,000 a year with easy passive income.
The Six-Figure Formula
There are many ways to make six-figures of passive income. Passive income is where you make money while you sleep, and it is easier than you think. What are these ways? Well, they include:
- Growth Investing
- Value Investing
- Real Estate Investing
- Affiliate Marketing
- Forming a Business
- Dividend Investing
Which of these would you say is the easiest?
It is most certainly dividend stock investing.
Growth and Value Investing requires that you stay updated on every aspect of the stock market, so you can see if you need to buy or sell. The intent is to hold long-term, but if the share price falls, it may be time to worry. There isn’t peace of mind with growth and value investing, because if the share price falls, you lose your money.
Real Estate Investing takes a lot of up-front work, and then it is mostly passive, unless something goes wrong. This is a great way to invest, but it does take a lot of prior knowledge and work up-front.
Affiliate Marketing takes a lot of work before things become passive. You need to build a website, dish out content, and have the ability to drive traffic and convert sales. After you succeed in doing all of this, then your income becomes mostly passive.
You could Form a Business. Find something that fuels your passion. For example, a vending machine business. You can buy a good vending machine for $2,000. So, save your salary, buy a vending machine. Put it in a good location, and stock it every day or two. If you found a good location, you will be able to afford one again. Then your income doubles. Eventually you will hit 10 vending machines. The magic of this is, the more vending machines you have, the less time it takes before you are able to afford the next one. Once you hit a large number of vending machines, you can hire someone to go and stock the machines for you, and then it becomes passive income.
eCommerce is the new big thing, and for good reason! You can open a shopify store, or your own website! Sell products through either creation or dropshipping. There are many strategies out there, you can do good in this, if you know how to market your items. This isn’t truly passive though, because you need to make sure the items ship properly, and you need to make sure the items are still in stock.
This brings us to the last option, with literally no downside. Literally. No. Downside. Dividend Growth Investing is the way Warren Buffett achieved a $78 Billion net worth. His dividends aren’t giving him six-figures in passive income every year, they are giving him ten-figures.
Ten-figures. Every. Year.
How does he do it? Combine this method of generating 100K a year with double— or triple the time, and you just might hit that point. You will obviously need great health to live that long, because he has been investing for over seventy years.
But we’re not focused on getting ten figures a year, we’re focused on six. Six-figures a year is certainly realistic, as long as you have some money to set aside every month towards this passive income strategy. It doesn’t have to be much, just a few hundred dollars.
“Dividends may not be the only path for an individual investor’s success, but if there’s a better one, I have yet to find it”
– Josh Peters
Dividends are a long-term plan where your income grows overtime. You need to be in it for the long haul. You will not reach 100k a year in a year, or five years, or even ten years- if you don’t have a lot of money up-front, which I assume is why you’re reading this article.
Time = Money
Lesson 1 of creating a 100k annual income is understanding that time = money. You’ve heard it for years, the saying has gone around, but have you really understood what time can do?
Many view time as an opportunity to work more, but have you considered what time could do for your investments? The longer you allow your investments to compound, the more money you will make every year.
If you don’t understand what compound interest can do, you can read about it here: dividendsforbeginners.com/what-is-the-power-of-compound-interest/
It’s always best to invest as soon as possible, and I will show you why utilizing a free Dividend Reinvestment Plan calculator.
We will be using 3M as the example for this scenario.
You can earn a six-figure income with an initial investment of $10,000. This specific example is a tad bit unrealistic because we will only be analyzing it with one stock and you should diversify some, but this is for example purposes. It is easily replicatable.
We took an extremely conservative number of 3% as the expected share price growth rate, although it is expected that 3M will grow more.
We used an expected dividend growth rate of 11.7%, because that is the average growth rate of 3M over the last 10 years.
The current dividend yield is 3.52%.
As you see, this is a long-term process. A 100k income from passive investments will not come overnight. Remember: patience is a virtue.
People often find dividend investing to be a waste of time. You invest $10,000, and you only receive $352 in passive income your first year? Typically, those people don’t consider dividend growth.
You will make less than $1000 a year from dividend income in your first 8 years. So, in a mind that doesn’t understand compound interest, it would make sense for it only to go up another $1000 in the next 8 years. However, this that is simple interest. Utilizing compound interest the way dividend stocks do brings it to an entire other level.
If you understand compound interest, (you should, my article is linked above) then you know that a snowball effect will form. This snowball effect will cause bigger gains.
Year 20 you will make less than $10,000 every year. How could you possibly earn another $90,000 yearly through the next ten years?
It doesn’t matter what you invest in- growth stocks, real estate, dividend stocks, the rule remains the same: The beginning is always the slowest- and toughest part.
If you invest in real estate, you buy one house. That is one form of cash flow. You can use your salary and that cash flow to buy a second house. Now you have cash flow from 2 houses. This makes it easier to buy a fourth. Each time you get a new house, it is easier to buy another house because you are now provided with more income from your investments. It is the same with dividend growth investing.
By year 24 you are making $25,000. You are certainly past the “slow” threshold that seems to contain so many.
Three years after this you will receive $60,000 annually.
In this example, it takes 29 years to reach a 100k annual income from dividends. Upon reaching this point, each year will be a massive jump in annual dividends that you receive!
How Do You Start?
This example was using a $10,000 initial investment. You don’t need that much, if you invest with $1,000, you can still achieve it- it will simply take longer to reach that point.
If you invest part of your salary every month into your portfolio, you will reach the six-figure income much sooner.
But to maximize compound interest, you MUST:
- Reinvest your quarterly dividends
- Find quality dividend-growth stocks
- Be patient, and wait.
Many people get panicked into selling, and while this is a good idea sometimes, you shouldn’t need to. If you believe in the company’s fundamentals, there is nothing to worry about.
I hope that you enjoyed this guide, and a goal of $100k a year from dividend income is realistic, and is feasible by anyone! You simply have to want it.