Passive Income: How to Make $6,331.54 Per Month Tax-Free

Want to make true passive income? Many of us believe that passive income involves side hustles and gigs. But all this takes effort. True passive income comes from making minimal effort, and ideally none at all. Which is why today we’re going to look at how to create passive income starting with $0 on hand, and turning that into a lucrative side career that involves basically nothing on your part.

Start renting

One of the best ways to start creating passive income is simply renting out what you already have. For example, let’s consider a power washer. These items can be expensive, but if you already own one, there are certainly others who could also benefit.

You’ll want to first check out local rental companies, but power washers generally range between $40 to $80 per day, or $150 to $250 per week. You can then list your item for rent on platforms like Fat Llama, Kijiji, or Marketplace.

Beyond keeping track of your items and making sure they’re in good condition, this will mean very minimal effort. Let’s say you rent it out 10 days a month, that’s $500 per month and $6,000 per year!

Start investing

Now that you’ve got some extra cash coming in, it’s time to start investing for even more income. Consider investing in your Tax-Free Savings Account (TFSA) as well for tax-free passive income.

Now, first ensure you have sufficient contribution room. The TFSA contribution limit for 2024 is $6,500, but you may have more room if you haven’t maxed out previous years’ limits. From there, focus on dividend-paying stocks that are known for stability and growth potential in sectors like consumer staples, utilities, and healthcare.

Then, enrol in a dividend reinvestment plan (DRIP) to automatically reinvest dividends to purchase more shares of the same stock. This will compound your growth further without contributing any more! So, what stocks should you consider? 

As many as you can

If you really want in on some high passive income, consider investing in an exchange-traded fund (ETF). One that looks stellar at this point is the iShares S&P/TSX Composite High Dividend Index ETF (TSX: XEI).

XEI ETF holds a dividend yield currently at 5.2%, and this usually hovers around 4 to 5%. The ETF provides diversified exposure to high dividend-paying companies across various sectors, including financials, utilities, energy, and telecommunications.

While focusing on high dividend yields, XEI also includes companies with potential for capital appreciation. XEI also offers a Dividend Reinvestment Plan, allowing investors to reinvest their dividends automatically to purchase additional units of the ETF, facilitating compounding growth. Combining high yield with growth potential, XEI includes solid companies known for stability and consistent performance.

Bottom line

So let’s say you use that $6,000 to buy shares of XEI ETF on the TSX today. Here’s what that might look like.

So even without returns, you’ll immediately earn another $331.54 in dividends. In total, that’s $6,331.54 in passive income for the year! Without spending a penny.