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When it comes to creating passive income that’s going to be paid out on a monthly basis, you need one thing. That’s consistency. You need to create a consistent approach to investing between you and your financial advisor. Once you have that, then it’s time to figure out where and what you’re investing in.
The Tax-Free Savings Account (TFSA) is an excellent place to put this cash if you’re hoping to use it for monthly retirement. In fact, the TFSA was meant as a secondary retirement savings account when it was first introduced in 2009. Yet now, it’s used for any long-term goal, or even short-term ones.
So let’s get into how you can use your TFSA to your advantage, and create investments on a consistent basis to create $250 in monthly passive income.
Creating consistency
If you’re going to invest on a consistent basis, this means you need to invest a certain amount on a consistent basis. So you’ll first need to go over your budget and decide how much you can put into your account every single paycheque.
From there, treat it as a bill payment. Put that cash right into your investments without thinking about it by making automatic contributions. Once that’s done, you’ve already ticked off the boxes of creating consistent investments.
Then, of course, you need to move to the next part. What to invest in?
A top ETF
If you don’t have all that much to invest, I would certainly consider an exchange-traded fund (ETF) for consistent investing. By investing in an ETF with low management fees, you’ll be able to invest without worrying about rebalancing your portfolio. The managers of the ETF do that for you!
Then, stick to something simple such as an ETF following the TSX index. You’ll also want to have an ETF with a dividend that you reinvest back into your portfolio. In that case, a great investment option would be the iShares S&P/TSX 60 Index ETF (TSX:XIU).
The XIU ETF has grown at a steady pace since its introduction, following the top 60 companies on the TSX. Further, it holds a 3.31% dividend yield that you can reinvest. Now, how to make that $250 per month!
Breaking it down
If you’re going to bring in $250 per month in income to your TFSA, that means creating annual passive income of $3,000. In this case, we’ll look at how long it will take you to create $3,000 in dividend income from XIU ETF for retirement. This is based on a compound annual growth rate (CAGR) of 5.53% in share price, and 10% CAGR in dividend growth.
| Year | Share Price | Shares Owned | Annual Dividend Per Share | Annual Dividend | After DRIP Value | Annual Contribution | Year End Stock Price | New Shares Purchased | Year End Shares Owned | New Balance |
| 1 | $30.45 | 328 | $1.03 | $337.18 | $10,324.78 | $1,000 | $32.13 | 41.61 | 369.61 | $11,661.87 |
| 2 | $32.13 | 369.61 | $1.13 | $417.95 | $12,294.96 | $1,000 | $33.91 | 41.81 | 411.42 | $13,712.77 |
| 3 | $33.91 | 411.42 | $1.24 | $511.76 | $14,463.37 | $1,000 | $35.79 | 42.24 | 453.66 | $15,974.98 |
| 4 | $35.79 | 453.66 | $1.37 | $620.73 | $16,855.48 | $1,000 | $37.77 | 42.92 | 496.58 | $18,476.36 |
| 5 | $37.77 | 496.58 | $1.51 | $747.40 | $19,500.81 | $1,000 | $39.85 | 43.85 | 540.43 | $21,248.39 |
| 6 | $39.85 | 540.43 | $1.66 | $894.74 | $22,432.79 | $1,000 | $42.06 | 45.05 | 585.48 | $24,327.48 |
| 7 | $42.06 | 585.48 | $1.82 | $1,066.26 | $25,690.05 | $1,000 | $44.38 | 46.55 | 632.03 | $27,756.09 |
| 8 | $44.38 | 632.03 | $2.00 | $1,266.13 | $29,317.66 | $1,000 | $46.84 | 48.38 | 680.41 | $31,583.67 |
| 9 | $46.84 | 680.41 | $2.20 | $1,499.36 | $33,368.14 | $1,000 | $49.43 | 50.57 | 730.98 | $35,867.70 |
| 10 | $49.43 | 730.98 | $2.42 | $1,771.87 | $37,902.56 | $1,000 | $52.16 | 53.14 | 784.12 | $40,674.40 |
| 11 | $52.16 | 784.12 | $2.67 | $2,090.75 | $42,991.31 | $1,000 | $57.38 | 53.87 | 837.99 | $46,082.22 |
| 12 | $57.38 | 837.99 | $2.93 | $2,457.83 | $50,539.35 | $1,000 | $60.55 | 57.11 | 895.1 | $53,997.37 |
| 13 | $60.55 | 895.1 | $3.23 | $2,887.87 | $57,086.31 | $1,000 | $63.90 | 60.84 | 955.94 | $60,973.90 |
| 14 | $63.90 | 955.94 | $3.55 | $3,392.57 | $64,475.78 | $1,000 | $67.43 | 65.14 | 1021.08 | $68,868.31 |
If you were to start by investing $10,000 in XIU ETF, adding $1,000 each year and reinvesting dividends, it would take you 14 years to surpass the $3,000 mark. You would then have $3,392 in annual income, creating $282.67 in monthly passive income.
