Starting Small? 6 Ways to Build Passive Income

1. Write down a small income goal and amount

A notebook and $1 to start: the easiest way into interest and dividends. Number six: write down a small income goal and amount, right now. 10% of income is one page's example. A goal means knowing what it's for, when you'll need it and how much.

One page asks if you want growth, a regular income, or both. A clear goal helps you decide between saving and investing, another page says. It's okay to have more than one goal at a time, one guide adds. Another page says knowing monthly expenses shows how much room there is to save.

By our count, a dollar a day for a year is $365. Next, where money you need soon can sit.

2. Money you'll need soon stays in savings

Number five: money you'll need soon stays in savings, apart from what you invest. Savings fit short-term goals, such as within three years, one page says. The same page says growth investments may suit longer goals, if the money can stay invested. Savings usually offer more certainty and easier access, another page says.

Cash can also be part of a longer-term mix, that page adds. Say Maya has 500 put aside, and 200 is for bills in the next two years. By our count, that leaves Maya 300 for the longer term. Subscribe so the next guide reaches your feed whenever you want clear money math from official pages.

Every step here comes from official money and investor pages linked below. Those timeframes are a general guide. Next, two kinds of income.

3. Interest and dividends

Number four: interest and dividends, the two kinds of income a small amount can earn. Interest returns a percentage of your money over time, one guide says. When you lend money for a set period, you usually receive regular interest payments, one page says. One page shows a thousand dollars at 3% paying $30 a year.

A dividend is a payment to shareholders from the company. Dividends are most often paid quarterly, and a company's board decides each one. Say Maya's holding pays $2 every quarter. By our count, that's $8 in a year.

Tax rules on interest and dividends differ by place. Next, one purchase that spreads a small amount wide.

4. A fund that holds many companies or bonds at once

Number three: a fund that holds many companies or bonds at once. In one page's example, a single purchase covers a market's thirty largest companies. By our count, that's one purchase instead of thirty. One page calls this not putting all your eggs in one basket.

Another page says a fund can give you many different investments in one trade. Fund shares can often be bought for relatively low amounts, one guide says. Index funds aim to follow an index with low fees, it adds. Some funds pass on dividends or interest from what they hold.

Spreading money this way can help smooth out long-term returns, one page says. Returns aren't guaranteed, and the value can go down as well as up. Next, the yearly fee on a small amount.

5. The yearly fee

Number two: the yearly fee, and what it means for a small income. A 1% yearly fee on 10,000 costs a hundred, one page shows. It's taken from the fund's returns automatically, without a bill, another page says. Say Maya holds $500 in a fund with a 1% yearly fee.

By our count, Maya's fee is $5 a year. One guide's example: $10,000, 5% a year before fees, twenty years. With a yearly fee of one and a half percent, the guide shows roughly 19,612. With half a percent, it shows 24,002.

One page calls such results a model, not a prediction. Next, one check a year.

6. Check what your money paid

Number one: check what your money paid, then choose what to do with it. At least once a year, one page suggests a regular review. Another suggests every six to twelve months for long-term shares and funds. Look at changes in value, and at payments like interest or dividends, it says.

Dividends can be reinvested or taken as income, one guide says. Say Maya's holding paid $12 this year. She can spend it, or add it back so next year's start is higher. One guide's example starts with a hundred dollars at 5% compound interest.

It shows a hundred five after one year, then a hundred ten dollars and twenty-five cents. By our count, the second year earned $5 twenty-five, a bit more than the first. Compounding means earning on the money you save and on its interest, another page says. One page says to check what fees or tax may apply before you act.

Want to start even smaller? The next video shows four ways to put spare change to work.