Working for a living has its pros and cons. But a lot of people also like the idea of earning a second income on the side, without having to put in more hours at their main job.
I am trying to earn such additional income by building a portfolio of dividend shares. One of the things I like about that approach is that it does not require a lot of money to begin. In fact, I could start today with nothing and simply put aside £5 a day. Here is how I would go about it.
Saving a little and often
Putting aside a fiver each day seems doable to me. It is not some massive target that I would struggle to achieve the moment some other priority popped up.
But that does not mean it cannot still make a big difference to my income streams. A daily £5 adds up to £1,825 across the course of a year. I would invest that in dividend shares. Imagine the average dividend yield of the shares I buy is 5%. That should mean I earn just over £90 a year in extra income from my first year of regular saving.
That may not sound like much. But once I own the shares, I would be entitled to any dividends they paid for as long as I held them. So the money I save in year one of my plan could still be generating income for me in year two, year three and even year thirty!
As time passes, regular saving should mean I have bought more and more shares. So I would hopefully see my second income increase over the years.
Some practical points
If I had never invested before, buying shares might sound complicated. The reality is that millions of people invest in shares and it can be straightforward to set up a share-dealing account. In fact, that is something I would do on day one of my plan. I would then be ready to invest as soon as I had saved some funds and found shares I wanted to purchase.
What about the risks? Dividends are never guaranteed and shares can go down as well as up in value. That is why I would treat buying shares the same way as other new activities, from learning to drive to taking up boxing. First I would learn about how it works. Then I would spend time improving my knowledge and practicing in a low-risk environment.
For example, if I saw a share I liked such as Greggs or Wetherspoon, instead of buying it I might figure out what I thought it should be worth and then follow its fortunes for three months. I would try to learn from what happens in practice, and compare it to what I would have expected to happen. The more I learn, the better my investment choices could be.
Building a second income
When I was confident I was ready to make a move, I would start investing the money. I would begin by focussing on risk and buying shares I thought had limited downside rather than focusing on those I thought could do brilliantly.
The right balance of risk and reward could help me build my portfolio — and my second income.