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Image source: Getty Images<\/p>\n
If your goal is to earn money without working for it, why would you instead spend money before earning a penny? What sort of passive income plan is that?<\/p>\n
It can actually be a very lucrative one \u2013 and one that is widely used. Buying blue-chip shares that pay dividends costs money. But it ticks the key passive income boxes: it is effortless and can generate income.<\/p>\n
Here is how that might work for someone targeting \u00a31,000 each month on average in income (I ought to add that it could also work for a higher or lower target, but the sums invested will need to be adjusted accordingly).<\/p>\n
Have BP, Tesco, Vodafone and more working for you!<\/p>\n
I mentioned blue-chip shares above. Those are large, well-established companies like Tesco, BP and Vodafone. Being big and having a successful past is not necessarily an indicator of how a firm may perform in future. It is still important to look into each individual share being considered, and to diversify the portfolio across a range of companies.<\/p>\n
But my point is that this passive income plan<\/a> is not based on tiny companies few people have heard of. My preference is to stick to proven, blue-chip businesses and let their hard work provide income in the form of dividends.<\/p>\n A four figure monthly income<\/p>\n A target of \u00a31,000 a month in passive income adds up to \u00a312k a year. Currently, the FTSE 100 yields 3.1%. That means it pays roughly \u00a33.10 in dividends annually for each \u00a3100 invested.<\/p>\n I think a higher yield is achievable, while sticking to blue-chip shares. Let\u2019s say 6%. At that rate, the ISA would need to be worth \u00a3200k to earn the target income of \u00a31k a month.<\/p>\n It\u2019s possible to start with nothing<\/p>\n So someone with a spare \u00a3200k in their ISA could get going immediately.<\/p>\n What about someone with an empty ISA or none at all? They could start by choosing the right Stocks and Shares ISA<\/a> for them, then putting in \u00a320k a year for a decade, drawing dividends along the way.<\/p>\n Or they might try to speed things up, by reinvesting (compounding<\/a>) the dividends at first. After nine years compounding at 6% annually, the ISA should be worth over \u00a3200k, at which point the dividends could be used as passive income.<\/p>\n Here\u2019s a blue-chip share to consider<\/p>\n