The idea of earning money without having to work hard for it appeals to many people, including me. One of the approaches I take to try and turn that dream into reality is investing in dividend shares. If I was willing to put aside some money and four hours of time each week, I think the passive income plan below could help me earn — and learn.
Taking time to learn
The need for the money to invest is obvious. I can use it to buy dividend shares that hopefully will let me earn income. Indeed, one of the reasons I like this approach compared to some other ideas is that I do not need a lot of money upfront to put it into action. If I have more, I could increase my income – but even with a modest amount like £200 or £300, I could hopefully already earn at least some passive income.
But why would I need to spend time on this? After all, many people just buy dividend shares and forget about them, happy to receive the income. I think the problem with that approach is the same as finding a well in the desert and using it for drinking water. If the well dries up, the water runs out. By contrast, taking time to learn all about wells and what makes a good one is a skill that could be put to use again and again. I think it is the same when it comes to investing in dividend shares.
The four hour learning plan
I think four hours each week is a substantial enough amount of time to learn more about investing without overwhelming one’s schedule. Making an investment can be fast — but learning takes time.
Often people are attracted by certain passive income ideas based on an insight into a particular company. For example, they may know Rio Tinto has a dividend yield of 11.4% right now. Or they may think the powerful market position of Apple might let it pay bigger dividends in future. But knowing a little bit about a business is not the same as understanding how good an investment it would be.
That is why I think anyone seriously interested in buying dividend shares as part of a passive income plan needs to get to grips with the basics of investing. Specifically, I think it is important to understand topics like how the stock market works and also valuation methods for shares. Hopefully, I would also learn about some common investment mistakes to avoid.
My passive income plan
I would learn by focussing on some businesses that looked promising to me, and digging into their accounts. As I did so, there would be lots of things I did not understand or could not see the relevance of. That would help me spot the gaps in my knowledge and I could fill them one by one.
After I felt comfortable I would then start to spend more of my weekly four-hour slot digging into the details of specific dividend shares I could buy. That way, I could begin to build a portfolio of shares in companies I felt I understood that would hopefully help me grow my passive income streams.