Save Thousands With Passive Saving — 3 Ways To Do It and How It Differs From Being Frugal

goodluz / Shutterstock.com What’s one of the best ways to save for the future and build long-term wealth ? Start by investing in index funds. Want to know more? In order to set yourself up for a brighter financial future, GOBankingRates spoke with Andrew Lokenauth, founder of Fluent in Finance , about four key strategies to passively save for the future. David Frederick, director of client success and advice at First Bank , also shared how passive saving differs from frugality and how making choices factors into smart passive saving decisions.

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Follow: 25 Things You Should Never Do With Your Money What Is Passive Saving?

Passing saving might sound new, but it’s actually a pretty old-school financial concept.

“Passive saving is saving without having to actively manage it,” Lokenauth said.

Once you start viewing money as a tool, you can start using money resourcefully to build wealth.

More Tips: 10 Ways To Build Wealth Fast Strategies To Passively Save For the Future

Passive savings isn’t setting aside a certain amount from a paycheck. Rather, passive saving is money that passes by or that you might not have had otherwise through an outlet such as a second income stream.

Here are three great ways to begin passively saving for the future. Invest In Index Funds

In 2021, legendary investor and Berkshire Hathaway CEO Warren Buffett offered short lessons to new investors during the annual Berkshire Hathaway meeting. Rather than stock pick, Buffett said invest in a low-cost index fund. His recommendation was investing in an S&P 500 index fund.

Why? These types of funds hold 500 of the largest companies in the United States across 11 industries. An S&P 500 index fund is Buffett’s preference to hold over a 30-year period. Upon his death, Buffett’s trustee in charge of his estate has even been instructed to invest 90% of his money into the S&P 500.

Read: What is an Index Fund and Should I Buy One ?

Investing in the S&P 500 is easy and stress-free for the majority of Americans. Think of it less as betting on a single company, and instead the S&P lets you bet on 500 companies and utilize the power of compounding interest.

“According to historical records, the average annual return since the S&P 500’s inception in 1926 through today is around 11%, per year,” Lokenauth said.

Let’s say you invest $10,000 in an S&P 500 fund this year. What happens next?

“If you invested $10,000 in an S&P index fund, and contributed $10,000 a year for 20 years, you would have invested a total of $210,000 cash,” Lokenauth said.

Now, factor in compounded interest. Watch your investment substantially grow.

“Over 20 years this amount — $210,000 — would have grown to $793,274.56 based on the S&P 500’s historical records of an 11% rate of return compounded annually!” Lokenauth said.

See: How To Compound Your Income in 2022 Own Real Estate
Instead of renting, passively save for the future by owning real estate.Buying has several benefits beyond renting. (When you rent, your money is used solely to provide shelter.) Owning real estate allows you to put your monthly payments toward the following wealth-building areas. > Building equity in the residence that you can use in the future Building additional equity over time through price appreciation in the property Leveraging equity in the home to take out loans Renting a room or floor in your residence — this generates money passively and allows you to save it. “You should consider buying a home if you have the cash available for a down payment,” Lokenauth said. “First-time homeowners may purchase a property with as little as 3.5% down or 0% down if you served in the military.” Learn More: 20 Insider Tips To Save Money on Every Part of Your Home Get a Side Hustle In the era of the gig economy, it has never been easier to start or pick up a side hustle for extra income. Side hustles can be any gig from walking dogs to driving a ride-share to delivering groceries.Look into signing up on apps or websites that allow you to work on your own schedule. (Bonus: many side hustles may also be done remotely!) See: 22 Side Gigs That Can Make You Richer Than a Full-Time Job One example of a side hustle growing in demand worldwide is becoming an online English teacher.“You are able to set your own schedule, and most opportunities are with elementary school students,” […]

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