How to Earn $1,317.16 in Passive Income With Less Than $10K in Savings

Looking for passive income? Just $10,000 can create an immense amount even in the first year. And even more if you hold out.

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So you don’t have much in savings, but want to create more passive income. Well, you’ve certainly come to the right place! While investing is certainly a part of creating passive income, there are many things to consider. And first and foremost, risk should be one of them.

When it comes to creating passive income with $10,000, risk should be first and foremost on your list of concerns. That’s not enough to see you through an emergency like losing your job. It’s not enough to cover costs in retirement. But it is enough to get started on creating enough to cover a job loss or retirement.

In fact, given time, you can create a strong amount of passive income even with just $10,000 in savings. So let’s get started.

Creating more income

Rather than trying out a million side hustles or even other passive income streams, investors should consider options that they can perform long term. While some of us might be able to become ride-share drivers, work evenings and weekends, or rent out storage, not all of us have that option and time on our hands.

Because of that, I would instead look to your current job to create more income. That could involve increasing your income by asking for a raise. Or, if your boss isn’t going to provide that, go somewhere that will. It’s your life, and you have to make the most of it. And if that means you’re not making enough to cover your costs at your current job, it could be time to go elsewhere.

This alone can create a significant increase in income and you’ll still be performing the same job. From there, I would then start putting aside cash on a regular basis. This can be done through automated contributions from each paycheque. So let’s get into that next.

Getting to $10,000

Let’s say you want to create $10,000 on an annual basis. That’s a large goal that would make up over 10% of a $60,000 salary. A 10% goal is usually as far as I would take saving for investments. However, if you can afford it, then it would mean putting aside about $830 each month for just under $10,000 in savings.

Meanwhile, you’ll want to research options that can provide you with a diversified stream of passive income. And again, risk should be a main concern. So don’t put that $10,000 all into one basket. Instead, consider a mixture of GICs, stocks, and exchange-traded funds (ETF).

If you’re really focused on passive income in this case, I would look for a dividend stock that has growth both behind and ahead of it. In this case, consider a company such as Bank of Montreal (TSX:BMO). BMO stock is on the rise, with a diversified portfolio spanning North America. It also provides the largest ETF holdings in Canada. All while having a 4.54% dividend yield.

In fact, I would consider a BMO ETF as well that focuses on passive income. A strong option is BMO CA High Dividend Covered Call ETF (TSX:ZWC). This ETF holds a 3.97% dividend yield, with shares already up 7.5% year to date. It offers a low expense ratio as well, with a management team keeping your passive income high.

Bottom line

Now let’s look at how much passive income you could make in the first year of performing this. First off, $830 each month would create $9,960 in savings. Then consider BMO stock has a compound annual growth rate (CAGR) of 6.1% in the last decade, with ZWC ETF at 9% since the pandemic bottom. Here is how this could play out in the year to come with $4,980 in each stock.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYPORTFOLIO TOTALNEW PRICENEW PORTFOLIO TOTAL
BMO$132.8537$6.04$223.48quarterly$4,915.45$140.95$5,215.29
ZWC$17.38287$1.20$344.40monthly$4,988.06$18.94$5,436.99

Now you’ve created dividend income of $567.88 and returns of $749.28! That’s total passive income of $1,317.16 from your original $9,903 investment. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in the BMO Canadian High Dividend Covered Call ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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