3 crucial factors for building my passive income

Story by Ken Hall

Building a substantial passive income can be hard work. While I dream of retiring and living off my UK shares, it isn’t an easy objective to achieve.

Savings discipline

Before I start building a substantial passive income I need to have some money to invest in the first place. I think the foundation of my investment dream comes from savings discipline.

When I calculate my potential passive income in the future, one of the biggest factors is how much I have to invest on a regular basis. For instance, if I assume a 7% annual return and invested £20 each week, I could have a portfolio worth £105,628 in 30 years’ time.

Let’s change that to £100 per week invested. With that same rate of return and timeline, I could instead be sitting on £528,139 worth of investments in 30 years. That’s a huge difference that’s driven by savings discipline and sticking to my goals for the long run.

Dividend shares

Another big factor in achieving my passive income dreams is the investments themselves. I believe in a Foolish long-term perspective and am always looking for strong UK shares that tick my boxes.

For instance, I’m a big believer in dividend shares. This is especially the case for my passive income goals as I do like the regular payout and ability to reinvest versus uncertainty of future capital growth.

How to Reach Financial Freedom

Of course, there’s uncertainty with dividends. Companies do change dividend policies and that’s almost guaranteed over my long-term time horizon

Take the likes of Legal & General (LSE: LGEN). This is a blue-chip insurer and asset manager in the FTSE 100 with a £13bn market cap and 9.3% dividend yield right now.

The company has strong brand awareness (we all know the coloured umbrella) and the potential to grow its total assets in the lucrative UK retirement policy market. I think it’s certainly one for dividend-hungry investors to consider if it can maintain that yield.

While Legal & General isn’t top of my buy list, it does show there are some serious dividend payers on the market that can help me achieve my dream. Ultimately, investing in a portfolio of dividend shares that can regularly deliver me a passive income stream is the goal for me.

Diversification

Diversification is the final piece of my puzzle. I don’t want to put all of my passive income hopes and dreams in the hands of one stock.