Building a second income does not necessarily require squeezing more work into the week.
One approach is benefitting from the hard work of others rather than doing the labour yourself. To try and achieve this, I simply buy shares in blue-chip companies with proven business models I think could help fund future dividends.
Such an approach does not need lots of money. In fact, it is possible to start with nothing and aim to build a growing income stream by putting aside just a few pounds each day.
If I wanted to take that approach in the coming year, here is how I would go about it.
Setting up a simple saving habit
I would aim to get into a regular, consistent habit of putting money aside to invest. So I would set up a share-dealing account or Stocks and Shares ISA as my first move. Next, I would set up a regular drip-feed of money into it.
Now, £3 a day might not sound a lot. But if I managed to put that aside daily, in 2024 (all 366 of them!), I would have £1,098 to invest.
Building dividend income streams
How could I turn that money into a second income? I would look for shares I think could generate sizeable free cash flows and use them to fund dividends.
For example, I own shares in British American Tobacco.
Cigarettes are cheap to make and can command a premium price, so the company has paid beefy dividends for many years. I think it might be able to keep doing that.
On the other hand, cigarette sales are in long-term decline and the company has sizeable debt. As an investor, I never put all my eggs in one basket.
British American Tobacco yields close to 9%. At that sort of level, one year’s worth of daily saving could buy me shares that pay me a second income of almost £100 annually.
Keeping on going
For as long as I own shares, I would be entitled to any dividends paid to ordinary shareholders.
So if my saving and investing habit stretched beyond 2024, I could hopefully build my portfolio. That could help me grow the second income it generates.
A 9% yield is quite high. The FTSE 100 average yield is less than half that. But right now, a number of blue-chip FTSE 100 shares offer yields at that sort of level.
In fact, that is one reason I am excited about the prospect of building a second income by buying shares in the next few months.
I would not start by looking at yield, though. After all, dividends are never guaranteed. So I try to find brilliant companies that have attractive share prices.
Only then do I consider whether they could also help me earn passive income.
