With £30 a week to spare, I could use Warren Buffett’s method to build a passive income!

Billionaire investor Warren Buffett is a proven master when it comes to generating income. He invests in the most popular blue-chip stocks and every year, billions upon billions of pounds flow into his office while he simply banks on the rewards.

Buffett may seem far removed from everyday life for most of us. In fact, his method of investing and generating income is something that can be used at a very low level. If I had £30 to spare every week, I would try to turn it into serious income streams by applying Buffett’s simple but important principles.

Taking a long-term view

Of course the income starting today can be great. But sometimes the biggest prize is in patience.

Buffett takes a long-term approach to investing. By doing the same I can help time work for me, not against me.

Imagine I invested £30 a week and compounded it at 5% per year. If I wanted to start drawing income from it after one year, it would be around £80 a year. But if I wait 10 years my income could be over £1,000 a year. If I waited 25 years, it would be £3,870 a year.

Using income to make more money

But wait, what exactly is integration?

It’s a simple but powerful technique that helps explain much of Warren Buffett’s success: basically reinvesting stocks to buy more stocks.

The downside is that it means that for now, I’ll be putting away my £30 each week without getting a second income.

The good thing is that, at some point in the future that I choose, it should provide me with a large stream of income rather than withdrawing all the dividends as I earned them, rather than putting them back into work the way Warren Buffett did.

Sticking to big, high quality businesses I understand

One of Warren Buffett’s trademarks is investing in businesses he understands, especially large ones that have already proven their business model.

Take it Coca-Cola (NYSE: KO) for example. Buffett hasn’t bought a stake in it for decades, but has held his shares for a long time and now earns hundreds of millions of pounds a year in income from Coca-Cola.

It helps that the company is a Dividend Aristocrat, meaning it has increased its dividends per share every year for decades. But what allows it to do that is the kind of business model that attracts Sage of Omaha.

It has a large market of potential customers who buy regularly. Its strong brand and unique formula give it a competitive advantage. That gives the company pricing power, allowing it to charge a premium for products that can be made more cheaply.

All of that adds up to a dividend-supporting income generation model. That said, the popularity of health drinks is a threat to Coke’s traditional business and therefore needs to keep its portfolio up to date.

How do I start?

Buffett started investing by buying just a few stocks with little spare cash.

To do the same now, and start building an income, I would set up a shares trading account or a Stocks and Shares ISA.