Passive Income: How to Make $135/Month TAX FREE!

A close up image of Canadian $20 Dollar bills

In today’s unpredictable economic landscape, the quest for financial stability is more critical than ever. One strategy that can provide a financial lifeline during turbulent times and secure a comfortable retirement is the creation of monthly passive income. This approach not only shields you from economic uncertainties but also ensures a steady stream of funds when you need it the most.

In this article, we’ll explore how to kickstart your journey towards monthly passive income and why investing in Royal Bank of Canada (TSX:RY) might be an excellent choice for your financial future.

Make it automatic

Creating passive income starts with a simple but effective step: putting cash aside each month through automated contributions. You don’t need to be a financial wizard to begin. Even modest monthly contributions can accumulate into a substantial income over time.

Let’s assume you start by setting aside $300 per month. At first glance, it may not seem like much, but the power of compounding can work wonders. Over the course of a decade, these contributions would amount to $36,000!

Park it in a TFSA

Now that you’re diligently setting aside $300 each month, the next step is to maximize your returns by minimizing taxes. The Tax-Free Savings Account (TFSA) is an invaluable tool in your quest for monthly passive income. TFSA allows you to invest your money and earn returns without paying taxes on the gains.

What makes TFSA particularly attractive is its flexibility. You can use it to invest in various assets like stocks, bonds, and mutual funds, making it a versatile choice for long-term investments. With a contribution limit that increases annually, your potential for building a substantial passive-income stream grows over time.

Why RBC stock is a perfect choice

When it comes to selecting assets for your TFSA, it’s crucial to choose investments with a strong history of growth and stability. RBC stock is a prime example of a stock that fits the bill perfectly.

As of now, RBC stock is trading well below its 52-week highs, presenting an excellent buying opportunity. With a long history of delivering consistent returns and dividends, RBC stock offers investors a reliable source of passive income. Currently, RBC boasts a dividend yield of 4.4% at $5.40 per share and trades at a modest 11.64 times earnings.

One significant advantage of investing in Canadian banks, including RBC stock, is their resilience during economic downturns. The “Big Six” Canadian banks, of which RBC stock is the largest, have a track record of weathering financial storms. This stability translates into a steady stream of dividends, making RBC an ideal choice for your TFSA.

Bottom line

To put it into perspective, let’s revisit our earlier calculations. Over a decade of automated $300 monthly contributions, you would have accumulated $36,000. By investing this amount in RBC stock today, you could potentially earn $1,620 in dividends annually, or $135 per month.

Building monthly passive income is not just a financial strategy. It’s a lifeline in rough economic times and a solid foundation for a secure retirement. With automated contributions, the tax-free benefits of a TFSA, and a reliable choice like RBC stock, you can transform your financial future one month at a time. Start today and watch your passive income grow, providing you with peace of mind and financial security in an uncertain world.

The post Passive Income: How to Make $135/Month TAX FREE! appeared first on The Motley Fool Canada.

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Fool contributor Amy Legate-Wolfe has positions in Royal Bank Of Canada. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.