When the term “passive” is attached to a personal finance topic, it usually has to do with passive income. Passive income is loosely defined as doing the work once, and reaping the benefits over the long term.
Developing streams of passive income is an attractive idea for a lot of people. After all, you’re reading the Passive Family Income blog.
But passive has a role to play when you’re trying to save money as well. Just as with income streams, money saving methods come in both varieties: active and passive.
Maybe the best way to illustrate the idea of passive savings is to give an example of what they aren’t.
Consider grocery shopping. Couponing is all the rage right now, and many people are having great success with clipping coupons and matching them to store sales to get items cheap, or sometimes even free.
Other methods of saving on groceries include keeping a price book, planning meals, and cooking from scratch.
But all of those methods – while effective – are decidedly active. You need to repeat them month after month to keep the savings rolling in. More coupons need to be clipped. More sales and prices need to be tracked. And more meals need to be planned.
Passive savings methods don’t require that kind of continued effort.
Here are some of my favorite ways to passively save money:
Cancel Memberships and Subscriptions - The unused – or underused – gym membership is a cliche, but only because so many people have signed up for one with good intentions and watched as the membership fee got sucked out of their checking account month after month, while the membership went unused. Cancelling unused — or underused — memberships is a great way to recapture that money and direct it somewhere else.
Subscriptions fall into this category too. Many people re-evaluated their Netflix memberships after recent price increases went into effect. But you don’t have to wait for a price increase to weigh the value of the subscriptions you’re paying for.
Negotiate Prices - Recently I was able to negotiate my cable/internet/phone bill down by $42/month. That one phone call will result in savings every time I get my bill, with no additional effort needed on my part. I’ll passively save $500 this year and then I’ll call to negotiate again.
Surf Credit Card Balances - This one has gotten a little harder to do since our financial world was turned upside down, but if you’re carrying a credit card balance at a high interest rate, definitely check to see if you can get it transferred to a lower rate, maybe even 0% for a while. You will probably have to pay a balance transfer fee, but you should see overall savings. Again, that one action will continue to save you money month after month until your credit card is paid off.
Refinance the mortgage - Just last week, the interest rate on a 30 year mortgage dropped to its lowest point ever. Ever! Refinancing a mortgage isn’t as easy as, say, cancelling a membership. But the rewards are much greater. Whether your choose to stay with a 30 year mortgage and lower your monthly payment or refinance to a shorter term (my choice) and save big on interest over the life of the mortgage, the savings after that first month will be passive.
Have you taken advantage of a passive savings method? Tell us about it.
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