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Working for a living has its pros and cons. But many people like the idea of earning a second income on the side without putting in extra hours on top of their main job.
I am trying to earn extra income by building a portfolio of dividend stocks. One of the things I like about that approach is that it doesn’t require a lot of money to get started. In fact, today I was going to start with nothing and easily put off 5 pounds a day. Here’s how I go about it.
Saving a little and a lot
It seems possible to me to set aside a fiver every day. It’s not a big target that you struggle to achieve in the moment of another priority.
But that doesn’t mean it still doesn’t make a big difference to my income. A daily £5 adds up to £1,825 over a year. I invest that in dividend stocks. Assume that the average rate of return on the stocks I buy is 5 percent. This means that in the first year of regular savings I will earn £90 a year in extra income.
That may not sound like much. But after I hold the shares, I am entitled to any dividends they paid during the time I held them. So the money I saved in my plan in year one could still be earning me income in year two, year three, and even year thirty!
As time went on, regular savings meant I bought more and more stocks. So I hope to see my second income increase over the years.
Some practical points
If you’ve never invested before, buying stocks can seem complicated. The truth is that millions of people can invest in stocks and set up a stock dividend account. Actually, that’s what I plan to do on day one. As soon as I save some money and get the shares I want to buy, I will be ready to invest.
What about the dangers? Dividends are never guaranteed and stocks can go down and up in value. That’s why I treat buying stocks like any other new activity, from cars to boxing to lifting. First I will learn how to do it. I then spent my time practicing in a low-risk environment to improve my knowledge.
For example, if I see a part that I like Greggs Or Wetherspoon, instead of buying it, I might find out what I think should be valuable and track the treasure for three months. I try to learn from what happens in practice, and compare it to what I expect to happen. The more I learn, the better my investment choices can be.
Build a second income
When I am sure that I am ready to move, I will start investing the money. I start by focusing on risk and buying stocks instead of focusing on those that I think can do great.
The right balance of risk and reward can help me build my portfolio – and my secondary income.