If 2024 is the year you want to get your finances back on track, you may want to consider passive income. Earning extra money beyond your salary income is a great way to achieve your financial goals. Automating your finances is a great way to do that.
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Here are some ways to automate your finances and generate passive income.
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What is passive income?
Simply put, passive income is money that you earn without doing any work. In other words, the income you earn from investing is passive income. Interest earned on a savings account is also passive income. Automate your savings and investments to generate passive income.
automatic savings
“It takes money to make money.” It's an old saying, but it's true. Before money can make money, you need to save some money. Here are some ways to automate your savings.
direct deposit
I'm sure your paycheck is direct deposited to you, but does it all go into your checking account? Instead, put your savings on autopilot by depositing a portion of your paycheck directly into your savings account. Most companies allow you to allocate your paycheck to several different accounts.
Pro tip: Keep your savings account at a separate bank and don't link it to your checking account. When you're tempted to move money from savings to checking, think twice.
Save bonuses and raises
When you set up direct deposit to send a portion of your paycheck to a savings account, you can usually choose to have a fixed amount or a portion of your paycheck go to savings and the balance to your checking account. Choosing the percentage option allows you to save a little extra when it comes to bonuses and raises.
Pro tip: As your annual income increases, try increasing your savings percentage. Your raise can be split between your savings and checking accounts. For example, let's say you put 5% of your paycheck into a savings account and the remaining 95% in a check. If you do that, you'll get a 6% raise. Increase your savings rate to 8%. That means you'll add half of your raise to your savings.
round up
Many banks allow you to “round up” your debit card purchases to the next dollar and put that “change” into savings. So if he buys $32.45 worth of gas at a gas station with his debit card, the bank rounds him up to $33.00 and deposits $0.55 into his savings account. It doesn't sound like a big deal, but it's painless and increases over time.
automatic investment
Investing is a great way to generate passive income and is easy to automate. This is his two-step process. First, set up automatic transfers from your savings account to your investment account. Set this up for a day or two after your paycheck is deposited into your savings account. Next, set up your investment account to make systematic stock purchases. The money will be deposited into your investment account and you will be investing it a few days later. Whether you're lying on the beach or skiing in the Alps, you can get the job done.
Pro tip: Automatic investing works in conjunction with dollar-cost averaging. If you set up your investment account to regularly purchase a fixed amount of securities, you will buy more shares when the price is low and fewer shares when the price is high, making each share the average price of will fall.
Automating your finances will not only help you earn passive income, but it will also help you develop good habits for future financial success. Regular savings and investments can help you achieve your financial goals.
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This article was originally published on GOBankingRates.com: How Automating Your Finances Can Create Passive Income in 2024
