How I’d generate a passive income for life with £20 a week

How would I plan to generate steady passive income to help fund my retirement? I’d start small, and invest regularly for the long term.

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.

Passive income text with pin graph chart on business table

Image source: Getty Images

What is passive income? It’s income we get without having to work for it. Sounds good? So what’s the best way to achieve the dream?

For me, it’s all about buying shares in companies that pay dividends. But wouldn’t I need a fat wad of cash to generate any kind of meaningful income?

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

I see two main answers. Firstly, I’m not looking for enough passive income to live the life of a millionaire. Even a few hundred pounds a month would make a nice addition to my main income.

It’s like working at my regular job and then having an extra contribution just dropping into my bank account without having to lift a finger.

Start small, build big

My other thought is that it’s surprising how much money we can accumulate by making modest regular investments. That £20 a week is £1,040 per year. So I’d stash it away in my ISA account every week. And I reckon that would be enough to make two dividend share investments in a year to generate passive income

The FTSE 100 is expected to deliver 4% in dividends in 2022. But that includes all the big dividend payers and the ones that pay little or nothing. So by going for the bigger dividends, I hope I could average 5-6% each year.

That is by no means guaranteed, as it’s entirely up to each company how much they want to hand out every year. If they need to reinvest in R&D, for example, they might choose to keep more cash and pay less.

Dividends not guaranteed

Additionally, when times are tough, companies might suspend their dividends completely. That’s exactly what happened during the Covid-19 pandemic, when the banks in particular all stopped paying out. So shareholders’ passive income took a hit.

Still, on the bright side, those dividends are all resuming. And some are already coming in even better than before.

Research has found that the UK stock market has delivered total returns averaging about 4.9% above inflation for more than a century now. The past decade might not have lived up to that long-term record, mind, with crisis after crisis hitting British shares. But short-term down spells are something we just have to live with.

Long-term passive income

I look to the long term, investing for decades and aim at generating passive income to top up my retirement spending. Over that timescale I’m happy to take whatever risks shares throw at me. And the risks reduce the longer I leave my money in.

The longer I stick at it, reinvesting my dividends every year until I need the income for spending, the greater I think my chance of getting my 5-6% per year in passive income.

I certainly don’t see any way I could get close to that by putting £20 per week into a savings account.

So starting today, I’d still have a lot to learn about investing in shares. But by stashing away my £20 per week, I reckon I’d be making a great start to my passive income ambitions.

Inflation Is Coming: 3 Shares To Try And Hedge Against Rising Prices

Make no mistake… inflation is coming.

Some people are running scared, but there’s one thing we believe we should avoid doing at all costs when inflation hits… and that’s doing nothing.

Money that just sits in the bank can often lose value each and every year. But to savvy savers and investors, where to consider putting their money is the million-dollar question.

That’s why we’ve put together a brand-new special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation…

…because no matter what the economy is doing, a savvy investor will want their money working for them, inflation or not!

Best of all, we’re giving this report away completely FREE today!

Simply click here, enter your email address, and we’ll send it to you right away.

Views expressed 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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

More on Investing Articles

Happy retired couple on a yacht
Investing Articles

This growth stock has seen its shares pull back! Should I buy now?

When a growth stock sees its share price drop, I look carefully to see if I could pick up a…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How to identify the best income shares like this one

Income shares vary in quality but this approach keeps me from making some of the worst howlers with dividend investing.

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

If I’d invested £1k in Tesla shares a year ago, here’s how much I’d have now

If Jon Smith had bought Tesla shares a year ago, he'd be in profit. But he has some concerns for…

Read more »

Twenty pound notes in back pocket of jeans
Investing Articles

Should I buy tobacco shares now for big dividends?

After a possible setback for electronic cigarettes, our writer explains why he would still buy tobacco shares for his income…

Read more »

a couple embrace in front of their new home
Investing Articles

3 FTSE shares I’m buying with the Help to Build scheme!

Last week, the government launched a new, Help to Build scheme. So, here are three FTSE shares that could benefit…

Read more »

Stack of one pound coins falling over
Investing Articles

Should I bite on these 4 double-digit dividends?

Our writer considers whether these four double-digit dividends look sustainable and what that means for his portfolio.

Read more »

Close-up of British bank notes
Investing Articles

Can the Rolls-Royce share price get any cheaper than 80p?

The Rolls-Royce share price was edging back towards £1 and maybe above penny share levels. But then new troubles sent…

Read more »

Senior woman wearing glasses using laptop at home
Investing Articles

2 value stocks with high dividend yields to buy in July

Our writer examines two value stocks for his portfolio that marry low price-to-earnings ratios with high dividend yields.

Read more »