Passive Savings

By | May 21, 2017

We all want passive income. Imagine sitting on the beach, drinking a smoothie, and checking your investment account. You look at your iPhone and realize that you just made enough money from dividends to more than cover your monthly expenses. Or, you wake up in the morning and realize you made enough money with dividends to quit your day job, all while you were sleeping. Oh what a day that will be. But until then, we have to keep saving and keep investing. There are many ways to save, but one of my favorite is passive savings.

What Are Passive Savings?

When I say passive savings, I mean that you are saving money passively. That is, money automatically leaves from one account into another. For example, you could set up passive savings to have money automatically move from a checking account into an investment account. One of the benefits of passive savings is that you don’t have to remember to move the money yourself every time you want to save. Here are some ways to utilize passive savings. I am not endorsing any particular method or recommending that you choose any particular strategy. As always, I’m not a financial advisor. So, please don’t take anything on this post or site as financial advice.

Automatic Transfers

Having money automatically transferred from one account to another is a great way to save money passively. You can do this with a 401k account or an IRA. One of the best things to do is set up the automatic withdrawals such that money is taken from your paycheck before it even hits your bank account. You may have to get with your Human Resources department for assistance. But, if you can get it accomplished, you will learn to live on less. For example, if your paycheck is $5700 per month, but you’re able to take $700 of that to be transferred to your retirement account before you see it, then your take home pay is $5000. You would then learn to live off of that $5000.

Moreover, you would be practicing what gurus have been preaching for a long time. That is, pay yourself first. You’ve heard of this term before. Unfortunately, too many Americans get their paycheck, pay their bills, run out of money, and don’t put any towards savings. Instead, as soon as we get our paycheck, we should save a little bit of that first, and then use the rest to pay our bills. Having automatic transfers from one account to another is certainly one pay to have passive savings.

Digit

I love the Digit app. Digit’s slogan is “save money, without thinking about it.” Basically, Digit monitors your bank account and analyze how much it thinks you can save.  Then, automatically, the program transfers small amounts of money from your bank account to your account at Digit. It may be $1 here or $3 there. But these numbers adds up over time. Digit has settings so that you can increase or decrease the aggressiveness on how much it saves. Regardless, the idea is that you won’t miss these small amounts of money.

Today, my Digit account balance is $1,151.41. So, I consider it my main emergency fund. And, I’m still saving passively. Digit started out free, and technically is still currently free. I think the way Digit makes money is that it keeps the interest that is deposited into their account. So, you don’t earn interest on the money you deposit with Digit, because they keep it.

The downside with Digit is that it’s no longer free. Because I started using Digit before they started charging a fee, I get 100 free days with the program. But, as of April 11, 2017, Digit charges a whopping $2.99 per month for using the program. If I stay with Digit, I will also be paying that money per month. I’m not really sure it’s worth it. In essence, I would be paying $35.88 per year just for the privilege of saving money that I could have already saved. And, what’s worse is that I wouldn’t be making any interest on that money.

I really have some soul searching to do. Would I have saved that extra $1151.41 without using Digit? Because Digit saves such a small amount of money at a time, you really don’t miss the savings. It’s easy to forget that it’s there, although I track my expenditure from my account several times a week, and so I’m quickly reminded that I save with Digit.

It’s not an easy answer when deciding whether I should keep Digit. Sure, if it was purely a question of math, the answer would be easy. Cancel Digit and save the money myself. I eliminate the $2.99 cost and reap the interest on the savings. But life is more nuanced than that. There’s behavior and discipline that also have to be considered. I’ve stated this on many occasions. I’m lazy. If I have to manually transfer money from my checking account to my savings account, it’s not going to happen. What’s worse is that I have easy access to my savings account and will likely use the money there in some way shape or form.

Although I have easy access to the money in Digit, it takes about a day or two for the funds to be transferred back to my Checking account, and so that helps control my impulse spending. In any case, no matter what you think of Digit, it’s certainly an option if you want to have passive savings.

Qapital

Qapital is another way in which you can have passive savings. There slogan is “Save small Live large.” The Qapital app is similar to Digit in that money is automatically transferred from your bank account into Qapital account. However, with Qapital, you set up the rules under which money is transferred. Moreover, when paired with If This Then That, it gets even more exciting. You can have rules such as, “if I visit the Gym, then save $5” or If a particular person posts a video on YouTube, save $2.

The other good thing about Qapital is that you can have several goals you’re saving towards at the same time. So, you can set up different rules based on what your saving goals are. So, you may have a different rule for saving for Christmas gifts than for a vacation.

I just looked and my Qapital account has a balance of $865.26. I’ve had Qapital for a shorter period of time than Digit. With Digit, I don’t feel the savings as much. But, because I have so many rules, the money that gets transferred from checking account tends to be larger than those of Digit. So, I feel it more with Qapital. Truthfully, I got Qapital just to learn more about it. The idea of saving towards goals with rules you set up was intriguing.

The other part of Qapital that I like is that it’s all free. Hopefully it stays that way for a very long time. Qapital is my secondary emergency fund. In other words, if I have to tap money in an emergency fund, I’m going to go to Qapital before I go to Digit. I know that I am supposed to be saving for specific goals using Qapital. But, if something were to come up before I meet one of those goals, then so be it. I have to be flexible because, as the saying goes, life is what happens when you make plans.

Conclusion

There are different approaches to saving money. Savings can be done actively, passively or by some combination thereof. Passive savings are an important part to building wealth. But, how you save passively depends on you. I like the idea of saving money even before my paycheck hits my bank account. But, I also like personal finance apps like Digit and Qapital that helps you save a little bit at a time over the long haul.

Do you use a personal finance app like Digit or Qapital? Regardless, what do you think about the use of such savings apps? Do you otherwise have passive savings? Let me know by commenting below.

12 thoughts on “Passive Savings

  1. Investment Hunting

    DIgit is one of my favorite apps. I have it set to pull a good amount of money from my checking account daily. Once my account reaches $10k, I use the money to pay-down my mortgage. Then I start over again. It’s amazing how fast the account increases in value. I’m up to $7,200 right now. So I’ll be cashing this out again in another month or two. It’s a great way for me to eliminate my mortgage.

    Reply
    1. Dividend Portfolio Post author

      Yea. It’s pretty great. I just hate the fact that it’s not free anymore.

      Reply
  2. vivivanne

    I don’t like Digit or other app that would control where my money goes. I normally don’t spend money on anything personal. But my expenses are sporadic if I don’t want to get charged fees for over withdrawal. Like this month, I’ve just spend $6K on just taxes alone. LOL 🙂 I don’t think an app is ready for this kind of stuff without me telling directly I have taxes bill coming up.
    But I know it’s different for everyone, if it works for you, go for it!

    Cheers!

    Reply
    1. Dividend Portfolio Post author

      Yea. It’s definitely not for everyone, especially those who already track there spending and know to the penny how much money they have. But under the right circumstances and for the not so extremely disciplined saver, apps like Digit can be useful – just as long as they are used as a supplement and not a primary source of savings.

      Reply
  3. Troy @ Market History

    The only app I use is Mint on my iPad. I generally know how much I spend in a week, so I don’t really need a complicated and comprehensive budgeting app.

    Reply
    1. Dividend Portfolio Post author

      Fair enough try. I actually used Mint before, but didn’t like it. That’s why it’s good to have options. Some apps will work for some people, while some are more suited for others.

      Reply
  4. Dividend Diplomats

    I’ve never used Digit, but I have automated my savings in the past. Ahhh it is a great feeling. For me typically, once I automate my savings, I tend to forget that it is even there. Learning to live without the amount you automated is the best darn feeling out there. Thanks for the great read!

    Bert

    Reply
    1. Dividend Portfolio Post author

      I completely agree Bert. Automation is the key. Whether it’s Digit, ACH transfer, or whatever, making things automatic is a great way to spearhead both savings and investings.

      Reply
  5. Stockles

    Awesome. Passiv saving is so easy, but still very powerful. I recently checked my bank balance, and was supriced that I have saved money in global indexes without even knowing it.

    Reply
    1. Dividend Portfolio Post author

      It’s always nice to see newly ‘found’ money in your account. I also love it when I don’t check my balance often and am just happy how much I can save.

      Reply
  6. pia

    With that new fee that Digit has added on, I personally would jump ship. I don’t think paying to save your own money AND not earning interest on it is a good deal. Maybe set up an automatic transfer of similarly small amounts and frequencies to a high interest bank account that is preferably fee-free, so you can have that still growing as your emergency fund?

    Reply
    1. Dividend Portfolio Post author

      From a math perspective, with the new fee,t Digit absolutely makes no sense. But, there’s the emotional/behavioral side of things too. I like the app, and the amount it saves is an amount I probably wouldn’t have saved otherwise. Not because I couldn’t, but I’m not going to transfer $2 to my savings account every couple of days. In fact, I really like the fact that I don’t know how much is going to get saved AND the amount is different every time. I have to do some soul searching and ask whether the approach Digit uses to save money is worth the not-so-insignificant fee it charges. Decisions, decisions.

      Reply

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