Passive income remains a top priority for investors in Canada these days. The TSX today remains a volatile place and could get worse before it gets better. Therefore, passive income through dividends could be a strong way to make some extra cash while waiting for the market to recover.
But how do you do that if you’re already trying to make money by investing but don’t have the cash to manage it?
We’ll go over three steps you can take to create passive income this year.
Create extra income
The first step is to identify a source of passive income you can get on board with — one that won’t take away from your full-time job. Remember, a full-time job pays the bills, including your health coverage. So, do not risk losing that.
Then you can make extra income by finding passive-income streams that align with what you’re able to provide. For example, you could try renting out a parking spot if you live in an urban environment and don’t own a car! This could bring in around $300 per month in many cases.
This method of creating passive income takes minimal effort, could last years, and doesn’t require you to continue maintenance or anything. It’s simple and effective, with plenty of cash coming in.
Put it in a TFSA
Next, you’ll want to start putting your cash into a Tax-Free Savings Account (TFSA). The TFSA is perfect for those wanting to create passive income and invest it, as all the income you make is tax free!
To be clear, the cash you’re making through the passive-income stream could be taxable, so make sure to declare it on your returns. However, TFSA returns and dividends through investing would not be taxable.
Once you place it in there, make sure you’re not overcontributing. The TFSA allows for a $6,500 contribution limit in 2023. However, in total, there is $88,000 if you were at least 18 in 2009 and have never contributed. You can easily check your contribution room by calling the Canada Revenue Agency (CRA) or checking through the CRA My Account.
Drip feed
Finally, to create the most passive income you can, consider drip-feeding into your TFSA and investments throughout the year. Every time you’re paid, create automated contributions to your TFSA. That way, you’re not tempted to spend it. Then just put it into the investment of your choice!
For example, if you’re looking for strong long-term income, then TransAlta Renewables (TSX:RNW) is a good option. It provides renewable energy through multiple streams, including renewable natural gas. So, you can look forward to cash coming in from gas production but also from renewable energy sources in the future.
Meanwhile, you can bring in a dividend yield of 6.89% as of writing. Shares are still down 25% as well, so you’re currently getting a deal! Yet continue to drip feed into it month after month to make sure you don’t miss out on a dime in passive income.
Bottom line
By investing in a top dividend producer and creating tax-free passive income through a zero-cost stream, you can create long-term income that lasts decades. What’s more, you won’t be putting your full-time job at risk! By following these steps, you’ll ensure you create cash flow coming in throughout the rest of 2023 and far beyond.
