Today, there’s not going to be any beating around the bush. I’m simply going to tell you the steps and tools you’ll need to create passive income each month, tax free. Lt’s get into it.
Have the right account
If you’re new to investing, you may not be aware of the Tax-Free Savings Account (TFSA). I won’t get into every single detail here, but the TFSA is definitely one of the tools you’ll need to create monthly passive income.
The TFSA currently has a contribution limit of $88,000 after the addition of $6,500 in January. However, that’s only if you were 18 in 2009. So, make sure you know all the details when you open up a TFSA for yourself.
But, of course, the main benefit here is that you can contribute and take out cash within your TFSA at any time, tax free. Once you have this opened, it’s on to the next part: investments.
Create a diverse portfolio of monthly payers
It’s time to get into the details with your financial advisor. Decide how much you can invest on a consistent basis and put that cash aside each paycheque if possible. However, for the purpose of this example I’m going to use a solid example of a monthly passive-income stock.
Slate Grocery REIT (TSX: SGR.UN) provides monthly passive income through the investment in grocery-anchored real estate across the United States. It currently has a stable occupancy rate and continues to grow by investing in these properties.
Furthermore, the company is quite valuable. Shares are down 17% in the last year, despite strong performance. It trades at just 4.66 times earnings as of writing and offers a 8.58% dividend yield as well. Now, let’s look at how you could create $600 per month over time.
Yes, over time
If you were to create $600 per month right away in passive income, it would mean a huge investment. One that would be too much for most of us. But for the sake of argument, let’s look at what that would cost today.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND (ANNUAL) | TOTAL PAYOUT (ANNUAL) | FREQUENCY | TOTAL INVESTMENT |
| SGR.UN | $13.19 | 6,154 | $1.17 | $7,200 | Monthly | $81,171.26 |
While it’s true this could fit in your TFSA, that’s like putting all your eggs in one basket — something you simply do not want to do. Instead, let’s look at how long it would take if you put $25,000 towards this stock and reinvested your passive income along the way.
| Year | Shares Owned | Annual Dividend Per Share | Annual Dividend | After DRIP Value | Year End Shares Owned | Year End Stock Price | New Balance |
|---|---|---|---|---|---|---|---|
| 1 | 1895.00 | C$1.13 | C$2,144.58 | C$27,226.00 | 2,056.09 | C$13.85 | C$28,475.76 |
| 2 | 2056.09 | C$1.19 | C$2,443.22 | C$31,017.38 | 2,230.86 | C$14.54 | C$32,441.17 |
| 3 | 2230.86 | C$1.25 | C$2,783.45 | C$35,336.73 | 2,420.50 | C$15.27 | C$36,958.79 |
| 4 | 2420.50 | C$1.31 | C$3,171.06 | C$40,257.58 | 2,626.26 | C$16.03 | C$42,105.52 |
| 5 | 2626.26 | C$1.38 | C$3,612.65 | C$45,863.68 | 2,849.50 | C$16.83 | C$47,968.96 |
| 6 | 2849.50 | C$1.44 | C$4,115.74 | C$52,250.46 | 3,091.73 | C$17.68 | C$54,648.91 |
| 7 | 3091.73 | C$1.52 | C$4,688.88 | C$59,526.64 | 3,354.54 | C$18.56 | C$62,259.09 |
| 8 | 3354.54 | C$1.59 | C$5,341.83 | C$67,816.08 | 3,639.69 | C$19.49 | C$70,929.03 |
| 9 | 3639.69 | C$1.67 | C$6,085.71 | C$77,259.86 | 3,949.09 | C$20.46 | C$80,806.31 |
There you have it. To achieve $7,200, and therefore $600 per month, in passive income, it would take nine years at that rate. There are many calculators out there that can help you figure out exactly how and where to invest to achieve this your own way. Just always make sure to discuss it with your financial advisor.
