If 2024 is your year to get your finances on track, you may want to look into passive income. Earning extra money above and beyond your employment income is a great way to reach your financial goals. And automating your finances is a great way to do that.
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Here are some ways you can automate your finances to create passive income.
What is Passive Income?
Passive income is simply money that you earn without doing any work. So, the income you earn on your investments is passive income. The interest on your savings account is also passive income. When you automate your savings and investing, you’ll earn passive income.
Automatic Savings
“It takes money to make money.” It’s an old adage, but it’s true. Before your money can make money for you, you have to save some money. Here are some ways to automate your savings.
Direct Deposit
You likely have your paycheck directly deposited, but does the whole thing go into your checking account? Put your savings on autopilot by having part of your paycheck directly deposited into your savings account instead. Most companies allow you to allocate your paycheck to several different accounts.
Pro tip: Keep your savings account at a different bank, and don’t link it to your checking. When you’re tempted to move money from savings into checking to spend it, you want to really think about it.
Saving Your Bonuses and Raises
When you set up your direct deposit to send some of your pay to your savings account, you can usually choose a flat dollar amount or a percentage of your paycheck to go to savings, and the balance to go to checking. If you choose the percentage option, you’ll save a little extra when you get a bonus or a raise.
Pro tip: When you do get that annual salary increase, be sure to increase the percentage you’re saving, too. You can split your raise between your savings and checking accounts. For example, suppose you’re putting 5% of your salary into your savings account, and the other 95% into checking. Then you get a 6% raise. Increase your savings percentage to 8% — you’re adding half of your raise to savings, essentially.
Rounding Up
Many banks will let you “round up” your debit card purchases to the next dollar and put the “change” into savings. So if you use your debit card for $32.45 worth of gas at the gas station, your bank will round up to $33.00 and put $0.55 into your savings account. It doesn’t sound like much, but it’s painless, and it adds up over time.
Automatic Investing
Investing is a great way to generate passive income, and it’s easy to automate. It’s a two-step process. First, set up an automatic transfer from your savings account into your investment account. Set this up for a day or two after your paycheck hits your savings account. Second, set up a systematic purchase of stock in your investment account. The money lands in your investment account, and then a few days later, you’re investing that money. Even if you’re lying on the beach or skiing in the Alps, it still gets done.
Pro Tip: Automated investing goes hand-in-hand with dollar-cost averaging. When you set up your investment account to buy a certain dollar amount of a security regularly, you’re buying more shares when the price is low, and fewer shares when the price is higher, reducing your average price per share.
Automating your finances not only generates passive income, but it also sets up good habits for financial success in the future. Regular saving and investing will help you reach your financial goals.
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This article originally appeared on GOBankingRates.com: How Automating Your Finances Can Create Passive Income in 2024
