My £2 a day 2022 passive income plan

Our writer explains how his 2022 passive income approach could let him start generating money for just £2 a day without working.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

One pound coin

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With annual inflation recently reaching its highest level in nearly three decades, I reckon unearned income could help me combat the impact on the cost of living. That is why I have been thinking about my 2022 passive income plans.

Even starting from scratch, I think it is possible to build passive income streams for just a couple of pounds a day. They may be modest in the beginning. But over time, hopefully little acorns could grow into oaks.

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Why £2 a day makes sense

Why would I think about a passive income plan using only £2 a day? If I had more money would it not make sense to use that too?

Yes it would. If I could use more funds, indeed there would be some benefits to me. I could build bigger passive income streams faster. But I like the idea of using £2 a day precisely because it is a modest place to start. It is easy to begin with big ideas, but then when the first obstacle comes along, like an unexpected bill, I may lose momentum on my passive income plan. I think putting aside £2 a day should be consistently achievable. That could help me build discipline, which is a bedrock of long-term investing success in my view.

Dividend shares as passive income ideas

Just putting a couple of pound coins in a jam jar each day will not earn me any income on its own, though. That is just saving. To start generating money from it, I would invest it in dividend shares. That way I could benefit from the hard work of successful companies when they pay out profits as dividends.

£2 a day adds up to £730 a year, so I need to be realistic about my expectations. The average FTSE 100 yield tends to be around 3-4% most of the time. So I would expect annual passive income of around £22 to £29 from my first year of putting aside £2 a day. But if I keep up with the disciplined habit, hopefully the income will increase. Once I buy shares, I can receive dividends until I sell them. So over the years my passive income streams should mount up, even if I am still only putting that £2 a day into my plan.

Putting my 2022 passive income plan into action

Dividends are never guaranteed, as companies can run into unforeseen difficulties or simply change their spending priorities. So I would diversify across different shares and business sectors. That should help me reduce my overall risk.

Some shares yield far more than 3-4%, such as British American Tobacco, M&G, Legal & General and Rio Tinto. But I would not focus only on dividend yield when building my passive income streams. With a long-term approach I would want to find companies that I thought might actually be able to pay higher dividends in future as their business prospects improve. Those will not necessarily be the highest-yielding shares today. To choose such shares, I would keep a lookout for companies with a strong competitive advantage and the opportunity to generate substantial cash flows for years to come.

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Christopher Ruane owns shares in Imperial Brands. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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