Oct
03
2023
Blue piggy bank with penny

9 Ways To Get Better Purchasing Habits

By | Budgeting & Goals, Financial Independence, money | Comments Off on 9 Ways To Get Better Purchasing Habits

Shopping is part of daily life and often a fun experience (glossy stores, cool new items to try, and a way to fill a rainy afternoon), but it can impact your budget in some not so wonderful ways. That’s where smart purchasing habits come into play.

If you know some clever ways to rein in overspending and snag good deals, you can help ensure that shopping doesn’t blow your budget. In fact, if you learn how to shop smarter, you may be able to avoid excessive credit card debt, save regularly, and reach your financial goals.

Habits like comparison shopping, using coupons and discount codes, and knowing how to hit the pause button can all contribute to improving your buying style. Here, you’ll learn nine effective strategies to try that won’t leave you feeling deprived.

9 Tips for Building Better Buying Habits

Here are nine tips for building better, more mindful purchase habits.

1. Having a Financial Goal in Mind

Motivation is a wonderful tool. To kick off better consumer habits, you may want to think about what your financial aim is and what you want to save money for in the first place.

This could be as small as wanting to save money for the perfect new handbag or to go to a hot new restaurant for an omakase dinner.

Or, it could be something much larger like saving for a vacation, a wedding, a home, or even for retirement somewhere down the line.

Having a financial goal might make it easier for you to sidestep an impulse purchase or spend money on something you don’t actually need.

To double-down on this habit, try writing down any and all financial goals in a notes app, diary, or even on a piece of paper. Then, stick it in your wallet or mobile phone case so it’s with you wherever you go. Tempted to tap or swipe your way to an impulse purchase? Check that note, and think twice.

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

2. Giving Every Purchase — Big or Small — a Little Time

Sometimes all it takes to reverse a buying decision is to just sit and think about it for a second. Is this new dress really all that great, and will it be worn more than once? Do you truly need a new mobile phone just because a flashy new model was released? Here are some tactics to try to decide whether or not to buy:

•   Try the “take a walk” method, which is to literally leave a store, go for a walk, and think about the item a bit more. This way, the initial adrenaline rush and excitement can wear off just a bit so you can clearly consider the purchase with fewer emotions attached.

Then, come back, look at the item again. If it still elicits butterflies, then it could be worth the purchase. If not, that’s great. Confidently walk away.

•   Want to take this habit to the next level? Try the 30-day rule. Just as the name implies, those looking to purchase anything nonessential must put the product back on the shelf and step away for a full 30 days. Put a note in your calendar, and if you still want the item after a month, you can then buy it (finances permitting), knowing it will bring them a little more joy.

Here’s one more trick to try when using the 30-day rule. Over the 30 days, try saving little by little to purchase the item. At the end of the month, if you decide that product is no longer needed, that cash could be put right into savings.

Recommended: Different Types of Budgeting Methods

3. Coming Up With a Personal Spending Mantra

If taking a walk isn’t an option, try a different method for forging better consumer habits. It may be time to come up with a personal spending mantra. This could be a saying like “Keep the memory, get rid of the object,” or Marie Kondo’s question, “Does this spark joy?”

You can briefly focus on your mantra before making any purchase. This can help determine if that object really deserves to take up space in your life and in your monthly budget.

4. Learning to be a Comparative Shopper

Shopping around can be another way to improve your purchase habits. You never have to settle for the first price tag you see. Spending wisely can mean finding a better deal, often with just a quick online search.

To become a great comparative shopper, you can start small by investigating prices on everyday purchases like groceries. Try looking up a price comparison for milk between high-end grocery stores versus the neighborhood grocer vs. a discount store. Then, think about monthly expenses like the internet, cable, telephone bills, and even things like gym memberships or subscriptions.

Can you find a better price for any of these items or negotiate the price down? Could you wait for a sale to kick in? Go for it, and save along the way.

💡 Quick Tip: Bank fees eat away at your hard-earned money. To protect your cash, open a checking account with no account fees online — and earn up to 0.50% APY, too.

5. Falling in Love With Coupons and Discount Codes Again

Another better buying habit to adopt: Take a minute when shopping to find a few coupons to use in physical stores and discount codes to use online.

Here’s how to coupon for beginners: Look online. There are a number of coupon websites such as RetailMeNot, Coupons.com, and The Krazy Coupon Lady that can help shoppers hunt down a few discounts when they need them.

There are also services like Honey, which is an extension you can add to your dashboard that will automatically scour the web for discount codes and plug them right in at checkout.

Long story short, don’t settle for the first price.

Recommended: Ways to Save Money on Clothes

6. Maintaining the Things You Already Have

A hole in a sweater, a scratched coffee table, and a tiny crack in a dish can be enough to send some people hunting for an entirely new item to replace the old.

However, rather than tossing something just because it’s a little worn, it’s can be wise to learn how to give things a new life. Or, find an expert who can.

For example, rather than buying all new shoes just because the tread is a little worn down, try bringing them to the local cobbler (aka shoe repair). They may be able to replace the thread for a fraction of the price of new shoes. This same idea goes for big-ticket items too.

Consider keeping a maintenance calendar for things like a car’s oil changes, a home’s roof inspections, and more. That way, things will always stay in tip-top shape for longer, and you may, say, save money on your car or home repair costs.

7. Understanding Shopping Triggers

To create better spending habits, it can be worthwhile to take a bit of time to self-reflect and discover why you like to spend money in the first place.

•   Do you suffer from FOMO (fear of missing out), spending and buying things because friends, family, or a favorite influencer is sporting it on social media?

•   Do you shop when bored, as a way to add excitement to an otherwise dull day?

•   Do you tend to shop when you are feeling sad or stressed? Retail therapy is a common way to lift a mood, but it can have an impact on your financial standing.

It can be important to delve into why you shop. That insight can then help you so you avoid triggers that could lead to overspending.

Doing so could also help you rein in habits that make you a compulsive or impulsive shopper.

8. Getting in on the Financial Buddy System

Here’s another tip for improving purchasing behavior. Everything’s better with friends — and that includes developing better spending habits. Here’s an example of the power of pairing up:

•   According to one landmark study by researchers at the University of Aberdeen, Scotland, people who work out with a friend are more likely to hit the gym more often than those who choose to work out alone.

That lesson can easily be applied to finances too. Find a trusted friend or family member who can offer advice or simply understanding and support as you cultivate better shopping habits.

Make a pact to call one another every time either of you needs a second opinion about making big purchases or when you need someone to talk you out of an impulse buy.

9. Knowing Where Money Is and Where It’s Going

A major part of creating better buying habits is understanding where your money stands and where it’s going. Don’t shy away from making a personal budget. Tracking apps (perhaps provided by your financial institution) can help in this effort too.

Monitoring your checking account will also help you get in touch with your spending habits. Some people find checking in every couple of days a good move.

These moves can reveal patterns that you might be unaware of and also help you see where you might cut back on expenses. That, in turn, can free up some funds so you feel better about splurging when the opportunity arises.

Smart Buying Habits Last a Lifetime

Establishing smart purchasing habits like these can set you up for a lifetime of living frugally but without deprivation. If you learn how to get the best possible deals on a daily basis and rein in overspending, you will likely be in a better position to reach your goals.

That might mean watching your retirement fund grow steadily, avoiding high-interest credit card debt, or knowing you’ll be able to afford the down payment on a house in a few years time.

Once you get in the groove of improving your habitual buying behavior, you may also feel less money stress and a greater sense of financial control.

Watch Out for Lifestyle Creep

Another way to embrace better purchasing habits is to be on the lookout for what is known as lifestyle creep. This happens when, as you earn more, your expenses rise, so building wealth is a challenge.

For example, if you change jobs and get a nice salary bump, you might decide to swap your current car lease for a pricier luxury car. After all, you deserve it, right? And you might book a trip to celebrate your new position as well. Moves like these can quickly eat up your raise and then some.

Celebrating within reason is of course part of life (and a good one, at that). However, doing so extravagantly and on an ongoing basis can wind up preventing you from reaching your financial goals.

Smart Buying Habits Can Help You Save

By focusing on improving your purchasing patterns, you can likely save more money. It can be wise to bank with a financial institution that not only helps your cash grow but also offers tools to help you track your spending and save smarter.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

What are smart buying habits?

Smart shopping habits can include budgeting, comparison shopping, avoiding impulse buys, couponing, and putting a pause on spending.

How do you change your buying habits?

Changing your buying habits can involve recognizing your shopping patterns and triggers (such as impulse buying when bored or trying to keep up with friends) and then adopting new behaviors. This might mean comparison shopping, buddying up with a friend who is also trying to save, and unsubscribing from retailer emails that can lead to overspending.

What are buying habits?

Buying habits refers to the way a person purchases, such as whether they have a budget or usually shop online or in-store. It might also include whether they make a list or tend to make impulse purchases and if they use discounts and coupon codes or not.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOBK0723059

Read more
Sep
29
2023

What Is Loan Modification? What You Should Know

By | Budgeting & Goals, personal_loan | Comments Off on What Is Loan Modification? What You Should Know

Loan modifications change the terms of your loan with the goal of making the payment more manageable. Unlike refinancing a loan, having a loan modified means the loan remains with the same lender — just under revised terms.

Loan modifications can be challenging to obtain and typically decrease your credit score. But for some borrowers, they may be the only option, if the lender agrees to the terms.

So what is a loan modification and how does it work? Let’s explore the details below.

Loan Modification Defined

A loan modification is a revision to the terms and conditions of an existing loan. The lender and borrower agree to new terms that make the monthly payments more manageable for the borrower and prevent the lender from having to take more expensive, drastic actions, like foreclosing on a property.

While loan modifications are most common for secured loans, like home mortgages, it’s also possible to get student loan modifications and even personal loan modifications.

How Do Loan Modifications Work?

The goal of a loan modification is to make a borrower’s monthly payments more manageable. Typically, borrowers will consider this option if they’re at risk of defaulting on their loan (or if they already have). In the case of mortgages, loan modifications can help prevent foreclosure.

Borrowers may also look for loan modifications in times of hardship, like a serious illness or injury. In this case, borrowers might also request a loan deferment.

So how do loan modifications work? They’re a two-way street: The lender and the borrower must come together and agree to a change of the loan terms. The approach can vary, but strategies may include:

•  Adjusting the interest rate: If interest rates were high when you first took out your loan, your lender may agree to lowering the interest rate on your loan. Doing so typically reduces your monthly payment. SoFi’s personal loan calculator is one tool that might be helpful in determining how a new interest rate can affect your monthly payments.

•  Extending the length of the loan: Extending the loan could reduce your monthly payment, though adding more years to a loan may mean you’ll spend more on interest in the long run. Still the immediate relief it offers might be worth it.

•  Changing the structure of the loan: If your loan has an adjustable interest rate structure, you might benefit from modifying it to a fixed rate. This can make your monthly payments more predictable.

•  Reducing the principal balance: In some cases, a lender may agree to temporarily reduce the amount owed on your principal to make it easier to manage your monthly payments. Note, however, that you’ll have to make up for those reduced payments later. In the case of mortgages, this is a rare strategy that is typically only considered to avoid foreclosure. Student loan forbearance is also possible.

When Should You Use Loan Modification?

Loan modifications are often a last resort. Here are some scenarios when it might be time to consider loan modification:

•  Risk of foreclosure: If you’ve missed multiple payments on your mortgage or cannot afford to make future payments at the current amount, a lender may be open to modifying. This can prevent you from losing your home to foreclosure and may save the lender money in the long term.

•  Underwater on a mortgage: An underwater mortgage (also called an upside-down mortgage) occurs when you owe more on your home than it’s worth. This can happen if your home’s property value plummets or if you miss payments early on and are playing catchup on accumulated interest. Loan modification may be the right solution for you and your lender.

•  Defaulting on a personal loan: If you cannot afford your upcoming monthly personal loan payment or have already missed one or more payments, it may be worth seeing if you can have your loan modified, likely by extending the life of the loan to reduce your monthly payments. This may be more agreeable to a lender than having to take expensive legal action against you.

•  Financial hardship: If you are undergoing some kind of hardship, such as a debilitating medical condition or loss of job, you may want to work with your lender to see if you can modify your loan before you miss a payment.

Does Loan Modification Hurt Your Credit Score?

A loan modification will show up as a negative entry on your credit report and thus could drive down your credit score.

That said, if you’re missing payments on your loan because you can’t afford them — or worse, verging on home foreclosure in the case of a mortgage loan — that can have an even more dramatic impact on your credit.

Recommended: What Credit Score Is Needed For a Personal Loan?

How Often Do Loan Modifications Get Approved?

While getting a personal loan can be a simple process, approval for loan modifications vary by lender, loan type, and the borrower, but they’re typically more challenging to get than refinancing. Lenders are not obligated to approve your loan modification, but it may be in their best interest to avoid an expensive foreclosure process.

You might be able to improve your chances of approval by working with a debt settlement company. These companies advocate on your behalf with the lender and have more time and experience to negotiate.

However, debt settlement companies aren’t free, and there’s no guarantee that they’ll be successful in getting your loan modified.

What Does It Mean to Refinance Your Personal Loan?

Personal loan modification is possible, but for many borrowers, it may make more sense to refinance a personal loan. You might consider refinancing a personal loan to achieve one of several goals. Here’s a look at a few of them:

Shortening Your Term

If you initially took out a personal loan with a particularly long term, you could try to refinance for a shorter term and pay it off sooner. While your monthly payment would go up, you might pay less in interest over the life of the loan.

Lowering Your Monthly Payment

On the flip side, you could extend the length of your loan when refinancing to lower your monthly payment. While you might pay more in the long term, this strategy could be helpful if you’re struggling to pay your bills each month.

Lower the Interest Rate

If you took out a personal loan when interest rates were higher — either because of your credit score or the state of the market — it could be worth refinancing to get a better personal loan rate. Depending on the difference in the interest rate and the size and length of the loan, refinancing could save you a considerable amount of money.

Recommended: Loan Modification vs. Refinancing

How to Get a Loan Modified

Lenders are under no obligation to modify your loan, but it’s worth a shot if you don’t see any other options.

Qualifying for modification usually requires missed payments and a demonstration of personal hardship. In some cases, borrowers may qualify for a government loan modification program.

Thinking about applying for loan modification from your lender? You’ll need to assemble a wide range of documents for your application, including:

Proof of Income

Or rather, proof of lack of income. Demonstrating to the lender that you do not currently earn enough income to afford your loan payment is crucial to making your case.

Self-employed individuals may need to supply a profit and loss balance, while salaried and hourly workers can supply an employment contract demonstrating their pay.

Your most recent tax return can also offer insight into your income and overall financial standing.

Bank Statements

Lenders typically want to see your bank statements as well. This will verify how much money you have but will also show them your spending habits.

Hardship Statement

A hardship statement is your chance to make your case. You can use this formal letter to explain your hardship — medical issues, divorce, unemployment, etc. — and how it has affected your finances.

You may be more successful if you include documentation to support your argument. This might include medical bills, divorce paperwork, or a termination letter.

The Takeaway

A loan modification can help make monthly payments more manageable for borrowers and can be a useful strategy for those who are at risk of defaulting on their personal loan or having their house foreclosed. The lender and the borrower must agree to a change of the loan terms. Strategies may include adjusting the interest rate, extending the length of the loan, changing the structure of the loan, and reducing the principal balance.

Are you looking for a personal loan with no hidden fees at competitive interest rates that makes it much easier to manage your monthly payments? Consider a personal loan from SoFi. Check your personal loan rate with SoFi in as little as 60 seconds.

Get competitive rates, no hidden fees when you take out a SoFi personal loan.

FAQ

Does a loan modification hurt your credit?

A loan modification results in a negative mark on your credit report, which can lower your credit score.

However, the alternative for many borrowers is missed payments and, in the case of a mortgage or car loan, eventual foreclosure or vehicle repossession. These can have an even worse impact on your credit score.

What qualifies as a loan modification?

Loan modification is a revision to the terms of an existing loan. The borrower and the lender must both agree to those terms. Modifications can take many forms, but often the lender will reduce the borrower’s interest rate, increase the length of the loan, or change the rate structure from adjustable to fixed.

What are the types of loan modifications?

Borrowers can seek out loan modifications for various types of loans, but mortgage modifications are the most common. Borrowers with unsecured loans, like personal loans and student loans, may also be able to get modifications. Modification types include changes to the interest rate, rate structure, and length of the loan. In some cases, lenders may temporarily adjust the principal balance as a type of loan modification.

Photo credit: iStock/Riska
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOPL0323001

Read more
Sep
28
2023
woman working in cafe

Tips for Avoiding Minimum Balance Fees

By | Budgeting & Goals, Financial Independence | No Comments

When you work hard for your money, it’s not fun to see any of it slip away due to monthly bank fees. And, since information about bank fees is often tucked deep into the fine print of your account details, these debits to your account may come as an (unpleasant) surprise.

One of the most common recurring bank fees is the minimum balance fee, also known as the monthly account maintenance or service fee. This fee generally kicks in if your account balance drops below a certain amount at some point during the month.

Fortunately, monthly account fees aren’t just something you have to accept. Read on to learn more about minimum balance service fees, including how to know if your bank charges them and what you can do to avoid monthly maintenance fees entirely.

Minimum Balance Fee Definition

A minimum balance fee is a fee that many banks charge when your account balance dips below a certain dollar amount. For example, if the minimum balance required in your checking account is $500, but you only have $450, you would be charged a minimum balance fee.

These fees are often presented as account maintenance charges, with exceptions for account holders who maintain a monthly minimum balance in their account. Typically, the major national banks require you to maintain a minimum balance of around $300 to $500, although it can be more, to avoid monthly service fees.

There are different types of minimum balance requirements. A bank may define a minimum balance in one of these three ways:

•   Minimum balance This typically means your account balance cannot drop below the specified amount at any time during your statement cycle or you will be charged a fee.

•   Minimum daily balance Often used for checking accounts, this means your balance can drop below the required amount at any point during the day as long as you meet the balance requirement at the end of the business day.

•   Average minimum balance Here, the bank takes the amount of money in your account at the end of each day during a statement period and divides it by the number of days during the statement period. If your average balance was below the minimum, you would get hit with a maintenance fee.

💡 Quick Tip: Banish bank fees. Open a new bank account with SoFi and you’ll pay no overdraft, minimum balance, or any monthly fees.

How Much Is a Typical Minimum Balance Fee?

A recent Bankrate study found that, on average, financial institutions are charging $5.31 per month in maintenance fees for non-interest-bearing checking accounts and $15.33 for interest checking accounts. That adds up to roughly $64 and $184, respectively, per year. Keep in mind, though, that this is just the average — minimum balance fees can be even higher at some banks.

Minimum balance fees are typically automatically deducted from your account.

Recommended: Guide to How Much ATMs Charge

6 Tips for How To Avoid Minimum Balance Fees

There are a number of ways to avoid getting hit with a minimum balance fee. Here are some to consider.

1. Keeping Your Account Above the Minimum Balance

Perhaps the most obvious way to avoid a minimum balance fee is to keep your account balance above the stated minimum amount. However, this might take some effort on your part.

First, you’ll need to read the fine print in your account information, or call your bank, to find out what the minimum balance is and — equally important — how it’s calculated. In some cases, you may be penalized for having your balance dip below the minimum at any point. In others, the bank will look at the balance at the end of each day or average your daily balances for the statement period.

If it’s an account you pull from frequently (like a checking account), you’ll need to pay close attention to your balance to avoid fees. You might want to set up an alert for any time you account dips below a certain amount.

2. Linking Your Accounts

Another possible strategy is to link multiple accounts you have at the same bank. In some cases, banks will look at your combined account balance (such as your checking and your savings account balance) to determine if you’ll owe a service or maintenance fee. This may or may not be an option where you bank, so again, you’ll want to look into the details of your account.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


3. Enrolling in Direct Deposit

You may be able to avoid minimum balance fees by signing up for direct deposit. This allows your employer to send your pay straight to your bank account, so you won’t need to deposit a paper check each payday. While the main benefit of direct deposit is the convenience, many banks provide added incentives to account holders who are paid this way, including monthly fee waivers.

Some banks will require you to receive a certain amount of money in direct deposits each month to dodge monthly fees. If so, you won’t want to distribute your income to more than one account. Rather than split your direct deposit between checking and savings, for example, you might have it all go to checking and then transfer some of that money into savings each month.

4. Using Your Debit Card More Often

Some banks will waive monthly maintenance fees for account holders who use a debit card linked to the account a certain number of times each month, often around 10 transactions. The reason is that whenever you swipe your debit card, the merchant pays your bank a transaction fee; these fees can make up for the loss of your monthly account fee.

5. Opting Into Paperless Statements

Some banks will waive monthly fees as long as you opt into e-statements. This means that instead of getting a paper statement in the mail every month, you’ll simply access it by logging into your account online (where you can view, download, or print your statements) or via your bank’s mobile app.

6. Hunting for a No-Fee Bank Account

One surefire way to get rid of minimum balance fees is to switch to a bank that doesn’t charge them. Online banks generally charge fewer fees because without brick-and-mortar branches to maintain, they have less overhead. In addition, they tend to offer higher annual percentage yields (APY), which makes it even easier to save each month.

If you’re in school, keep in mind that a number of banks offer no-fee checking accounts to college students. To open a student account, you typically need proof of student status (such as a college ID, an admittance letter, or a transcript).

💡 Quick Tip: The myth about online accounts is that it’s hard to access your cash. Not so! When you open the right online checking account, you’ll have ATM access at thousands of locations.

Opening a SoFi Checking or Savings Account

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

3 Great Benefits of Direct Deposit

  1. It’s Faster

    2. As opposed to a physical check that can take time to clear, you don’t have to wait days to access a direct deposit. Usually, you can use the money the day it is sent. What’s more, you don’t have to remember to go to the bank or use your app to deposit your check.

  2. It’s Like Clockwork

    3. Whether your check comes the first Wednesday of the month or every other Friday, if you sign up for direct deposit, you know when the money will hit your account. This is especially helpful for scheduling the payment of regular bills. No more guessing when you’ll have sufficient funds.

  3. It’s Secure

    4. While checks can get lost in the mail — or even stolen, there is no chance of that happening with a direct deposit. Also, if it’s your paycheck, you won’t have to worry about your or your employer’s info ending up in the wrong hands.

FAQ

How do you avoid minimum balance fees?

Some banks, credit unions, and other financial institutions charge a monthly maintenance or service fee if your account balance dips below a certain amount. Some ways to avoid these fees include:

•   Keeping your balance above the minimum balance requirement

•   Opening up both a checking and savings account at the same institution

•   Making a certain number of debit card transactions each month

•   Setting up direct deposit

•   Finding a bank with no minimum balance requirements

Why do banks charge minimum balance fees?

Banks charge minimum balance fees for several reasons. One is that it allows the bank to have more deposits, which in turn allows them to lend more money and maintain certain regulatory reserve requirements. Minimum balance fees also help banks cover the cost of maintaining your bank account, plus earn a profit.

What is the penalty for being under the minimum account balance?

Possible penalties for having less than the required minimum in your bank account include getting hit with a fee, receiving less (or no) interest for that statement period, and having your account closed.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOBK0923019

Read more
Sep
27
2023

Guide to What Percentage of Income to Save

By | Budgeting & Goals, Growing Wealth, Life & Career | No Comments

If you want to build financial security and hit your long-term savings goals, it’s probably a wise move to put a portion of each paycheck into a savings account.

Week by week, month by month, and year by year, the money will grow and help you afford your dreams, whether that means buying a house, funding your kids’ education, or having enough cash to retire early. Or all of the above.

But it can be challenging to know how much to stash away. Some people save 10% of their take-home pay, others three or four times that. Still others deposit a round number (be it $50, $500, or $5,000), into their savings account on a regular basis.

So how much should you aim to save? That depends upon a variety of factors, including your personal style and financial aspirations. In this guide, you’ll learn how to use percentages to your advantage when it comes to saving, plus hear smart advice on how to prioritize and reach your goals.

What Percent of Your Income Should You Save?

There isn’t a set percentage of how much of your annual income you should save. Much will depend on your particular circumstances. For example, your income, your cost of living, your expenses, and your debt level will all matter. A person who earns $75K per year, lives in an expensive city, has student loans to pay off, and is supporting a family of four will likely find it more difficult to save money than someone who is earning $125K, lives in a less pricey location, has zero loans to pay down, and is single with no dependents.

That said, you are likely to hear that 20% is a good number to aim for in terms of the percentage of your income to be saved. If that proves too high, then 10% is a good figure to use as a goal.

Pros and Cons of Saving a Fixed Percentage of Your Income

Sure, saving money is important. But what about saving a percentage vs. a specific dollar amount?

There are pluses and minuses to saving a fixed percentage of your income. This approach may or may not work for everyone. Consider the upsides first:

•   It’s consistent. You know that every paycheck, the percentage you’ve indicated will be heading into savings, helping you reach your financial goals. Even if your earnings vary, your savings will be aligned.

•   It protects you against lifestyle creep. If, say, you are saving $500 per pay period and then get a raise, you might just spend all of that additional cash you are earning. Called lifestyle creep, that means your expenses rise, gobbling up your enhanced income.

When, however, you set a percentage to go into savings, you know that the amount will automatically adjust with any income fluctuations. For instance, if your pay varies depending on your hours or goals achieved, you will always be allocating the same ratio of your money to savings, whether you earn more or less.

But there are potential downsides to consider too.

•   When you determine a percentage of income to save, it may feel more challenging to know how much you’re socking away. Again, if you allocate $500 a month to savings rather than a percentage, it’s easy to calculate where you stand at any moment during the year.

•   The way a percentage automatically adjusts to income changes may not suit you. For example, if you are saving 20% of your salary and then get a $10K raise, the amount funneled into savings will rise correspondingly. But what if you wanted to earmark that money to pay down your credit card debt more quickly? You will have to take steps to adjust where your money goes.

The 50/30/20 Rule

If you’re wondering, “What percent of my income should I save?” the 20% figure is likely to crop up often. One reason: the 50/30/20 budgeting plan, which was made popular by Sen. Elizabeth Warren and her daughter, Amelia Warren Tyagi, in a book they co-wrote. It suggests savers should allocate their money as follows:

•   50% of their after-tax paychecks toward essentials like housing, food, healthcare, and minimum debt payments.

•   30% toward discretionary spending

•   20% toward savings

So, someone who takes home $3,000 every two weeks (or $78k per year) might put $1,200 a month into savings. They would have $15,600 at the end of the year.

That’s just a guideline for getting started, though, so don’t panic if putting 20% into savings seems impossible right now. You can start at 10% or bump it up to 30% or more.

Recommended: See how your money is categorized using the 50/30/20 Calculator.

It All Starts With a Budget

Ack. The b-word: Budget. Making a budget may sound boring or even arduous, but it doesn’t have to be either. And sticking to a realistic spending plan can make or break a savings plan.

By prioritizing monthly expenses — from keeping a roof over your head to gassing up the car to indulging in a gelato or good sushi every Friday — you may be able to avoid impulse spending and hold on to more of your hard-earned dollars.

You can track your spending manually with a notebook or spreadsheets, or keep the data in the palm of your hand with a money-tracking app, where you can see your expenses, savings, and earnings all in one place whenever you want to take a peek.

4 Different Types of Savings

Once you determine what percentage you’ll be able to save from your salary, you may want to break down that amount even further, into separate designated “buckets” or sub-accounts for different goals, which could include things like:

1. Emergency Fund

An emergency fund has the potential to turn life’s potholes into speed bumps.

It’s money you can use to pay for unexpected expenses, such as medical bills, home repairs, and fender benders. And your emergency fund might serve as a lifeline if you lose your job and don’t have another source of income.

A good rule of thumb is to save at least three months’ salary, but you don’t have to come up with those dollars all at once.

You could start by saving a small amount each month — and you can always add to the fund when you get a raise, bonus, or tax refund. (You also should be prepared to replenish the fund if you have to use all or part of it at any point.)

The money in your emergency fund could go into a savings account at your local branch bank, or you might want to check out the benefits of an online bank account which might offer no account fees and a solid interest rate.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


2. Short-Term Goals

Most of us have goals we hope to fund in the next few months or couple of years. This could be anything from throwing your significant other a memorable birthday party to booking that vacation to Positano to affording a new car. You can start your own short-term fund at your financial institution. You can label the account “holiday spending” or earmark it for any other short-term goal: “Fall Wardrobe,” “Beach Vacation,” or maybe a “New Laptop.”

You may want to automate your savings and have money whisked from your checking as soon as your paycheck hits.

3. Long-Term Goals

Setting aside money for a long-term goal — a down payment on a house, a honeymoon in Bali, a year in Paris with your bestie — can feel like a slow slog. But you may improve your chances for success if you set up an account for the money and designate a consistent amount to slip in there from every paycheck.

Depending on your timeline, you may want to check into a certificate of deposit (CD), or you could stick with that same high-interest savings account, which you can build with automatic deposits and link to other accounts with a tracking app. These are secure ways to save towards future goals.

4. Retirement Savings

Another aspect of how much of your annual income you should save involves preparing for retirement. If you have a 401(k) investment savings account available through your employer, you’re likely already building wealth for retirement with automatic contributions every payday. And if your employer offers any type of matching contribution, you have an opportunity to grow your money even faster.

Beyond that, it’s up to you how big of a slice of your savings pie you want to put toward retirement at any time.

If you’re just starting out, and especially if you have some debts to pay off, saving for retirement may seem like the least of your worries. But the earlier you start putting money away, the faster it can grow. Time is the investor’s true friend; it allows you to ride the ups and downs of the market without panicking as you work toward your goals. (Remember, investments aren’t insured, so you need to be aware of the risk involved.)

If you don’t have an employer-sponsored plan — or even if you do, but you want more investment options or maybe more help than you’ve been getting — you can open your own traditional or Roth IRA outside of work. When considering which type of retirement account to open, IRA or 401(k), you might want to keep an eye on what fees might be associated with each plan.

It’s important to note that employer-sponsored plans allow investors to contribute more annually than an IRA would (basic limit in 2023: $22,500 for a 401(k) for those under age 50 vs. $6,500 for an IRA). And if the employer offers a matching contribution, that’s essentially free money you wouldn’t get from an IRA.

💡 Quick Tip: Want a simple way to save more everyday? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.

Deciding on Your Goals

Goals are a good thing: They can provide motivation for saving. But they can’t just hang out there; they probably need some prioritizing. That doesn’t mean that you are picking just one to focus on. More likely, you are going to decide how to divvy up that percentage of your income that goes into savings.

Say you are committed to saving 20% of your income. You may want to determine percentages for:

•   Retirement

•   Your child’s college education

•   A down payment on a house

One person might split that as 10%, 5%, and 5%. Another might instead do 8%, 2% and 10%. It depends on your particular goals, how else you might finance them (perhaps you expect your child to take out student loans), and the urgency of each.

Setting a Timeline

Some goals will be easy to plot on a timeline. For example, if your wedding is in a year and you’re saving $6,000 for your honeymoon, you’ll need to save $500 a month.

Others goals will likely need more finessing. (The amount you might need for retirement, for example, can be tough to pin down.)

But you’ve got this. You’ve probably been editing your mental wish list since you were a kid saving for candy … no, a toy … no, a bike. And you’ll likely be doing that for the rest of your life. If there isn’t enough money, something has to go or at least wait.

Could you drive your old car for another year or two, thereby saving money daily, if it meant getting a house sooner? Should you work another year before taking time off to be a stay-at-home parent? Would a weekend in Vegas be just fine as this year’s vacation if it meant next year you could afford 10 days in Greece? Only you can make those choices.

Deciding how much money you’ll need when you’ll need it, and how long it will take to save it may seem daunting as you start toward each new goal.

But it also can help you stay motivated to note when you’re making headway. And you might even find new ways to cut expenses as you go — especially if you use an app to track your progress.

Pay Off Debt

The average American had almost $8,000 in high-interest credit card debt as of the end of 2022. In addition, many people are also shouldering other debts, such as car loans and student loans.

If you’re a part of those statistics, paying off those debts could be the most important part of your saving plan.

How’s that?

•   Any debt on which you’re paying interest can feel painful. But if you’ve missed some credit card payments and you’re paying the default rate, say 27%, you’re likely putting an awful lot of money toward your past instead of toward your future.

•   High-interest debt can drag you down, so it’s important to ditch it as quickly as possible. Once you know where you stand with your budget and your savings goals, you may want to start by building a sort of “starter” emergency fund and then move forward with a personal debt reduction plan, like the debt avalanche, debt snowball, or the hybrid debt fireball, which focuses on paying high-interest debt in a way that can build momentum and keep you motivated.

Here’s how the debt fireball method works:

1.    Categorize your debts as either “good” or “bad.” (“Good” debts are generally for things that have potential to increase your net worth, like student loans or a mortgage. “Bad” debt is usually considered to be debt incurred for a depreciating asset, like car loans and credit card debt.) As you develop the list, note all the debts with higher interest rates, above what student loans and mortgages charge (say, 8% or higher) This is likely the “bad” debt you’ll want to focus on first.

2.    List your “bad” debts from smallest to largest based on their outstanding balances.

3.    Make the minimum monthly payment on all outstanding debts, then funnel any excess funds to the smallest of your “bad” debts.

4.    When that balance is paid in full, go on to the next smallest on the bad-debt list. Blaze through those balances until all your “bad” debt is repaid.

5.    When that’s done, keep paying off your debt on the normal schedule while also putting more into various savings strategies that will help get you to your goals.

Remaining Flexible

Consistency can be a key to successful saving. Otherwise, it’s just too darn easy to let yourself off the hook from paycheck to paycheck, month to month, and year to year. But that doesn’t mean your savings plan has to feel like a forced march.

Flexibility is also important.

A savings plan that seems smart and doable today may feel like torture six months from now. Or you might get a raise and decide your plan is actually far too easy and you could be socking away much more.

You might need a major car repair (or a whole new car). Get married. Have a baby. Get sick. Get fired. Or get hired for your dream job and have to move to Dubai.

Life changes. So it makes sense to tighten and lighten your budget — and the savings aspect you build into that budget — as necessary. If you’re tracking your expenses regularly, you may be better able to gauge how you’re doing and make any course corrections that much more quickly.

Anything Saved Is Better Than Nothing

It can feel discouraging when you get started on a long-term savings plan. Say you want to accumulate $60,000 for a down payment on a house. Perhaps saving 20% of your paycheck is impossible right now. And putting a couple of hundred dollars as a start can feel as if you will never reach your goal.

But over time, that little bit of money regularly contributed will indeed grow and propel you ever closer to your goal. Getting in the habit of contributing frequently can be a goal in and of itself, even if the amount is not as high as you’d like.

You may have also had this experience with shorter-term goals, such as building an emergency fund. Even if you only start by contributing $20, you will eventually reach your aim with steady saving.

Start Saving With SoFi

If you’re ready to start on the path to achieving a savings goal, look for a financial partner that minimizes fees and maximizes interest, to help your money work harder.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Is it good to save 50% of your income?

It’s a wise move to save a portion of your paycheck, and 20% is an often-quoted figure to aim for. Fifty percent may be too high for many people, but if you can afford to save half of your take-home pay, you may get to your savings goals that much more quickly.

Is 20% of your income enough to save?

Many financial experts recommend saving 20% of your income or more if you can. The 20% figure is part of the popular 50/30/20 budget rule. However, some people may want to save more if possible, especially if they have a couple of major long-term goals they are saving for, such as buying a home, saving for their children’s education, and affording an early retirement.

What is the 60/20/20 rule?

The 60/20/20 rule is similar to the 50/30/20 budget guideline. In this case, it means that a person allocates 60% of their take-home pay to necessities, 20% to discretionary spending, and 20% to savings.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

SOBK0923003

Read more
Sep
25
2023
man with tablet paying bills mobile

Guide To Static vs Flexible Budgets

By | Budgeting & Goals, Financial Independence | No Comments

A budget is a great way to take control of your money: It gives you vital intel about your earnings, spending, and saving while providing guidance so you can hit your financial goals.

That said, a key step in the budgeting process is finding the right technique for you. Which is why it can be helpful to learn about two different budget types that are often used in business accounting. The two varieties, a static budget and a flexible budget, can apply them to your personal finances.

A static budget presets your spending limits per category, but doesn’t vary with real-time events, like an unexpected car repair bill or low-earning quarter. When you use a flexible budget, however, you can adjust amounts month by month or even week after week.

Depending on your personal and financial style, one type of budget may work better than another for you. This guide will explain each approach and spell out their pros and cons so you can pick what will work best for you.

What Is Flexible Budgeting?

What is a flexible budget? It’s a way of tracking and managing your money that relies on current information. It does not stay fixed. Rather, you can review the data — what’s coming in and what’s going out — and adjust accordingly. So if a client doesn’t pay his bill one month as you expected or an unexpected expense pops up, you can juggle things around a bit.

You might temporarily cut some discretionary expenses, such as entertainment or clothing, for example.

💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.

What Is Static Budgeting?

A static budget vs. a flexible budget is more rigid. Sometimes referred to as a master budget, a static budget can be a good way to establish financial guardrails. You always know how much you have allotted to pay for certain expenses.

Say you typically spend $500 a month on groceries. In a static budget, that is the amount that will be earmarked, regardless of whether, say, you are throwing a 30th birthday party for a pal and need to load up on supplies for charcuterie boards.

The budget won’t vary, and you may perhaps have to figure out how to make it work.

Comparing Static vs Flexible Budgeting

Here, you’ll learn about the differences between static vs. flexible budgets by exploring the pros and cons of each.

Pros and Cons of Flexible Budgeting

Here’s a closer look at flexible budgeting, starting with the upsides.

Pros of Flexible Budgeting

If you review the different budgeting methods and choose a flexible one, you will likely enjoy these positives:

•   Reflects income fluctuations. If you work as a freelancer, a seasonal employee, or on commission, you are used to the ups and downs of your earning. With a flexible budget, this variation is acknowledged and addressed.

•   Adjusts for changing expenses. A flexible budget can help you account for shifts in spending, such as needing to shell out for a new phone or getting a month of free rent when you move to a new apartment.

•   Allows for spontaneity. It can let you jump on an opportunity, like a chance to go to London for half-price when you find a killer deal online.

Cons of Flexible Budgeting

Next, consider the downsides of flexible budgeting.

•   Requires time and energy. Because it isn’t a “set it and forget it” method of budgeting, it means you need to check in regularly on your income, spending, and saving to stay on track.

•   Limits your ability to plan. Since you are adjusting and recalibrating, that may detract from how well you can map out and achieve your financial goals.

•   May minimize accountability. If you know your budget is flexible, you may feel as if you have license to deviate from your money management habits. You may give yourself permission to overspend (like that half-price trip to London mentioned above.)

Pros and Cons of Static Budgeting

Here’s the lowdown on static budgets so you can decide if they suit your personal and financial style.

Pros of Static Budgeting

First, the positives about these budgets:

•   Provides structure. A static budget is a rigorous way of tracking and managing your money. You determine how much cash goes where and then follow those guidelines. It tells you what you can and can’t do month to month.

•   Needs little maintenance. As mentioned before, this is a “set it and forget it” type of plan, not one that needs constant adjustment.

•   Can enhance goal-setting. This kind of plan helps you prioritize and follow through. If you are trying to sock away money for the future (whether that means a vacation next year or the down payment on a house several years down the road), a static budget can help you hit your marks without fail.

Cons of Static Budgeting

That said, there are downsides to static budgets:

•   Can be too rigid. Life happens: You try the new Brazilian steakhouse in your neighborhood and blow your dining out budget. You get hit with an unexpected car repair bill. A static budget doesn’t give you wiggle room.

•   Can be discouraging. A corollary to the above point: Some people feel less motivated to follow a budget when they feel it doesn’t “get” what’s going on in their life. It may lead them to be less diligent about tracking their expenses and money in general.

If you aren’t sure which budgeting method is best for you between static budgets and flexible budgets, a hybrid approach might be appropriate. That could include:

•   Setting up a master budget at the beginning of the year based on projections and using it as a guide.

•   Tracking costs as the year progresses and making adjustments when necessary.

•   Using that information and learning to better inform next year’s plan.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.00% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


7 Steps to Start Budgeting

The point of a budget — whether you’re a freelancer or a full-time employee — is to spend less than you earn so you can save and reach future financial goals. Here are a few steps for budgeting for beginners; they could help you get started.

💡 Quick Tip: If you’re saving for a short-term goal — whether it’s a vacation, a wedding, or the down payment on a house — consider opening a high-yield savings account. The higher APY that you’ll earn will help your money grow faster, but the funds stay liquid, so they are easy to access when you reach your goal.

1. Figuring out What You Spend

If you aren’t already tracking your spending, that may be a good place to begin. There are several ways to do this, from carrying around a small notebook and writing down every expense to using a spreadsheet to downloading an app on your phone (your financial institution may offer a good option).

•   Understand your fixed expenses. Once you’ve tracked your spending for a few months, you can determine your average spending in various recurring categories. Some of this will be fairly easy, because the costs are often the same (housing, car payment, student loans, etc.).

•   Get a handle on variable expenses. Your discretionary expenses will likely vary from month to month or at different times of year. Utility costs may go up or down, for instance, depending on the season. Or your travel costs may go up if you take a summer vacation. And some costs, such as clothing, entertainment, and household goods, will be more discretionary than others.

•   Don’t skip important items. Be sure to include commonly forgotten expenses, such as pet-care costs and charitable donations. If you’re self-employed, you may want to consider taxes, retirement savings, insurance, and other expenses that others might have automatically withdrawn from their paychecks every month.

2. Determining What You’ll Earn

Pinning down how much you can expect to earn is often much easier for those with regular paychecks. If you’re self-employed but have steady clients who pay on time, or your job is a mix of paychecks and tips or commissions, you may be able to come up with a fairly accurate estimate.

But if you’re a freelancer or contractor whose work and pay varies widely from month to month, it can be a challenge to set this amount.

•   Example: You can use your spreadsheet or tracking app to determine an average amount earned ($4,000 in July + $5,000 in August + $3,000 in September would be $4,000 a month, for example). This may give you a more realistic number on which to base your budget calculations than guessing (or hoping) that you’ll make a certain amount.

3. Creating a Budget Using What You’ve Found

Here’s where you can make a budget that you want to use.

•   With a static budget, you would set spending limits and stick with them throughout the year.

•   With a flexible budget formula, you would set spending limits, but adjust when necessary: If you make less than expected, you spend less than you planned.

•   If you see that you’re spending more in one category than expected, you can shift allocations or find ways to cut recurring costs like your cable bill, haircuts or pedicures, or gym membership.

•   If it looks as if you’re headed for a long-term shortfall, and you just can’t cut it any tighter, you may have to find a way to earn extra money by taking on a side gig or perhaps raising your freelance rates. What’s important is setting a realistic budget, so you can stick with it.

4. Considering the 50/30/20 Plan

Looking for flexibility, but don’t want a budget you have to rework every month? You may be a candidate for the 50/30/20 budgeting method, which was made popular by Sen. Elizabeth Warren and her daughter, Amelia Warren Tyagi.

The plan suggests the following:

•   Putting 50% of after-tax income toward essentials like rent and food, as well as minimum debt payments.

•   Allocating 30% toward discretionary spending, or the fun stuff in life.

•   Committing 20% toward savings.

This method also makes sense for people who are on a steady salary as well as those who don’t have a steady income, because it’s based on percentages. And those percentages are just a guideline for getting started, so you can shift the amounts to make it work for your finances.

You can save more or less, depending on what you’re earning or what long-term debts you have. Or you might move a few percentage points from discretionary spending to cover essentials if you live in a city with higher housing or transportation costs.

5. Building a Backup Fund

If possible, consider making an emergency savings account a priority. Life has unexpected ups and downs for everyone, and financial experts’ recommend that you build up to three to six months’ worth of living expenses in the bank.

This can help protect you if, say, you were to lose your job or face a large, unexpected expense. It can help you stay afloat and avoid racking up high-interest credit card debt.

An emergency fund can be especially important for freelancers and other self-employed workers. If you have a slow month or quarter (or get injured or sick), that money can tide you over.

Even if saving anything at all seems daunting, don’t worry or give up. Starting small, with a $100 or $200 deposit or the addition of $20 at a time can be better than never starting at all.

6. Splurging Responsibly

With a personal budget, cost-cutting measures can be a sign of fiscal responsibility, but if you can’t splurge every once in a while, it may make it harder to stick to your overall plan.

So how can you splurge responsibly? Living on a budget doesn’t mean you don’t get to have fun! Maybe you earmark $25 a week for fun little purchases if you’re the kind who loves getting a gelato or buying a book from time to time. Or you might choose to put any bonuses, unexpected earnings, and tax refunds straight into the bank with a trip or some other big spend in mind.

Or you could build the extravagance into your budget, with a category specifically for vacations or travel, or one for home renovations, and deposit that amount into a separate account just for that purpose.

7. Thinking About Tomorrow

A smart personal finance budget involves saving for retirement. Many experts recommend signing up ASAP if your employer offers a 401(k) or some other retirement plan — especially if there’s a matching contribution involved. If an employer plan isn’t available to you, you may still want to make it a goal to invest something each month in a traditional IRA, Roth IRA, or Simplified Employee Pension (SEP) IRA.

With a traditional IRA or SEP, you can defer paying taxes on the money you invest until you take withdrawals in retirement, which can keep you in a lower-tax bracket.

Or, if you’re nervous about tying up the money that long, you could go with an after-tax Roth account, which allows you to withdraw contributions (but not earnings) at any time. You can open an IRA at a brokerage, bank, or other financial services provider.

Savings With SoFi

If you’re convinced you should use a budget — static or flexible — or are already doing so, it’s wise to keep your money with a financial institution that helps you track your spending and make the most of your cash. Like SoFi.
​​

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

What is the difference between a fixed and flexible budget?

Here’s the difference between a fixed vs. flexible budget: With a fixed budget, it’s expected that your income, spending categories, and savings will remain constant. With a flexible budget, there is wiggle room for adjusting and updating these numbers.

What is an example of a fixed budget?

With a fixed budget, the numbers for earnings, spending, and saving would be set and then stay constant. It would be assumed, say, that your housing expenses, your dining out and clothing spending, and your retirement savings will be steady, month after month.

What is an example of a flexible budget?

An example of a flexible budget is one that varies and takes into account the ups and downs of income, spending, and saving. For instance, it might add a category for gift-buying in December as the holidays approach, or drop in a sum of vacation spending in July.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOBK0923004

Read more

CATEGORIES

  • All
  • No categories
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

©2025 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender