Jul
02
2024
Guide to Sweep Accounts

Guide to Sweep Accounts

By | Budgeting & Goals, Growing Wealth, Investing, money | Comments Off on Guide to Sweep Accounts

A sweep account automatically transfers, or “sweeps,” money from one account into another, with the goal of earning a higher rate of return. This is usually done to prevent excess cash from sitting in a low-rate account, but sweep accounts can also be used to pay off loans.

Sweep accounts are set up to make these transfers automatically, usually at the close of each business day. If you have several different accounts with a particular bank or brokerage, you may be able to take advantage of a sweep account — and it may be worth considering.

Key Points

•   A sweep account automatically transfers excess funds from one account to another to earn a higher rate of return.

•   Sweep accounts are commonly used when individuals or businesses have multiple accounts at the same institution.

•   The excess funds can be swept into a savings account, money market fund, or investment account.

•   Sweep accounts help maximize returns by preventing cash from sitting in low-interest accounts.

•   There are different types of sweep accounts, including individual, loan payback, business, and external sweep accounts.

What Is a Sweep Account?

A sweep account is typically used when you hold more than one account (e.g. personal checking and savings accounts, or different brokerage or business accounts) at a single institution. To utilize a sweep account, you set a threshold — for example, a certain balance in a checking account — and the sweep account will automatically move funds above that threshold into another account that earns a higher return (typically a money market mutual fund).

This helps to ensure that you don’t keep cash parked in low-interest accounts, and that you’re maximizing the total return across all of your accounts.

Ways to Use a Sweep Account

As an example of how someone might use a sweep account, you may keep a predetermined amount in the checking account to pay your bills. Then, at the end of each business day, any excess money is swept into a savings account or money market fund that earns a higher interest rate.

A sweep account may also be used at a brokerage, where your contributions or deposits (as well as dividends or profits from selling securities) are transferred to an investment account like an IRA or a taxable account, at regular intervals.

Benefits of a Sweep Account

Using a sweep account can offer a couple of benefits. It allows you to keep a set amount of money in your checking account, say, to make sure you have sufficient funds to pay your bills without overdrawing the account. It also allows you to take any funds above that amount and put them in an account with a higher return.

You can also set up a sweep account when you open a brokerage account. This can also be valuable because different investments may generate returns or dividends at different times — but the sweep account makes sure the money doesn’t sit in cash, but gets reinvested and put to work.

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How Do Sweep Accounts Work?

One of the golden rules of investing is to try and maximize your returns, subject to your risk tolerance. A sweep account can be a great tool to help you do that because it helps to overcome inertia — a common behavioral finance hurdle for investors.

Using a sweep account allows you to set an amount of money that you always want to keep in your main account. Then, at the close of each business day, any extra money is swept into a savings, money market fund, or brokerage account that may generate higher returns.Depending on where you want to sweep the funds, they can remain fairly liquid and accessible or they can be part of a longer-term tax-efficient investing strategy.

You can also set up a sweep account to help pay off a loan or a line of credit — another potential use of your spare cash. Beware of fees, though. Some sweep accounts are complimentary, but some aren’t. You don’t want the cost of maintaining a sweep account to eat up the extra interest or returns you hope to earn.

Note, too, that there are no particular tax implications for using a sweep account.

Personal Sweeps vs Business Sweeps

Sweep accounts that are linked to your personal accounts work more or less the same as sweep accounts tied to business accounts. They both enable the swift transfer of funds from a low-interest-bearing account to one that potentially generates some income. This can be important for individual investors.

A sweep account is also important for businesses, particularly small businesses, which have multiple accounts to handle various payments and cash flows. By setting up a sweep system, it’s possible to manage different income streams and get more growth, potentially, by investing the cash.

It’s possible to sweep money back into the main account, if cash is needed to cover expenses, but sometimes this process takes more time. As a business owner, be sure to clarify what the holding periods might be.

💡 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.

Types of Sweep Accounts

There are a number of different types of sweep accounts. Be sure to inquire at your bank or brokerage about the kinds of sweep accounts they offer, and ask about the terms and any fees that might apply.

•   Individual sweep account — Typically used by a brokerage to store funds from a client until they decide how to invest the money.

•   Loan payback sweep account — Instead of sweeping the money into a money market or savings account, you can sweep excess funds to help pay off a loan.

•   Business sweep account — Allows you to sweep excess money from business accounts.

•   External sweep account — Some institutions can sweep cash into deposit accounts externally, which can increase the amount of FDIC insurance coverage ($250,000 per account).

Pros of Sweep Accounts

As discussed, there are several upsides to sweep accounts, which can include the following.

•   May help you to earn higher interest rates or possibly investment returns.

•   Happens automatically at the close of each business day, so you don’t have to think about it.

•   Some sweep accounts are FDIC-insured (by the Federal Deposit Insurance Corporation), or they may be protected by SIPC (the Securities Investor Protection Corporation).

Cons of Sweep Accounts

There are pros to sweep accounts, and there are cons to sweep accounts. Here are some things to consider about the potential downsides.

•   Your bank or brokerage may charge additional fees for using a sweep account which might cancel out the interest earned.

•   If your money is swept into a brokerage account, it won’t be FDIC-insured (but it could be covered by the SIPC).

The Takeaway

A sweep account can be a great way to maximize the amount of interest that you earn, if you have multiple accounts. When you use a sweep account, you set a threshold amount that you want to keep in a specific account. Then, at the close of each business day, any excess funds are swept into an account that pays a higher interest rate (e.g. a money market fund).

Sweep accounts offer investors a way to leverage their spare cash. Although returns can vary, and with brokerage accounts there is always the risk of loss, sweep accounts provide an important function by putting your cash to work.

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 a sweep account good?

Sweep accounts can be useful if you have multiple accounts with different cash flows, and you want to make sure your spare cash is always earning the most it can.

Can you lose money in a sweep account?

Not really. A sweep account generally does not hold money itself; it just sweeps funds from one account to another. So a sweep account itself will not lose money, though it is possible to lose money, depending on where you sweep the money to.

What is the benefit of a sweep account?

The main benefit of a sweep account is the ability to automatically control how much money is in your various accounts. With a sweep account, you can set a minimum threshold for your checking account, for example, and then automatically sweep any excess funds into a money market fund at the end of each day.

Photo credit: iStock/Viktor_Gladkov

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.

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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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Jul
02
2024
How to Prepare Your Finances for a Recession

How to Prepare for a Recession: Ways to Protect Your Money

By | Budgeting & Goals, Family Finances, money | Comments Off on How to Prepare for a Recession: Ways to Protect Your Money

Many people are feeling the pain of the current economy, which has made it more difficult to buy a home or a car, and even afford everyday necessities like groceries and gas. While fears of recession have eased, inflation has proven sticky, interest rates remain high, and economic growth slowed in the first quarter of 2024.

Whether we head into an official recession or not, it’s important to understand that downturns are a normal part of economic cycles. There are also steps you can take when the economy is slowing to safeguard your financial health and avoid being significantly affected by a recession. Here are some key strategies to consider taking now, as well as actions you may want to avoid should the economy take a turn for the worse.

What Happens During a Recession?

A recession is a significant decline in economic activity that is spread across the economy and lasts more than a few months. One rule of thumb is that two consecutive quarters of negative gross domestic product (GDP) growth indicates a recession, but a number of formulas are typically used to determine recessions.

During a recession, several economic indicators show a downturn: Employment rates drop, consumer spending decreases, business revenues fall, and overall economic confidence wanes. This environment can lead to higher unemployment rates, decreased consumer confidence, and a general slowdown in economic activity.

Recessions are part of the economic cycle, which is characterized by peaks of growth followed by downturns. These phases of contraction can be triggered by various factors, including high inflation, rising interest rates, decreased consumer spending, or unexpected global events like a pandemic. Understanding the mechanics of a recession can help you take proactive steps to protect your finances and minimize the negative effects.

How to Prepare Your Finances for a Recession

Recessions are an inevitable part of any economy. But you can avoid some of the negative impacts by anticipating challenges early and preparing for the future.

Take Stock of Your Finances

High prices across the board have already forced many consumers to cut back on their budget for basic living expenses, such as groceries and travel. Even if you’ve made some spending adjustments, however, it’s a good idea to check in on your finances. You can do this by scanning the last few months of financial statements and assessing your average monthly spending and average monthly take-home income.

If you find that your spending is close to your earnings (meaning you’re not saving) or it’s higher (meaning you’re going backwards), you’ll want to comb through your discretionary spending and find places to cut. This can free up funds to boost saving and pay more than the minimum on any debt.

Build a Safety Net

Hard as it may be to find extra cash right now, it’s important to make sure you are putting funds aside each month toward building your emergency fund. This fund will serve as a financial cushion if you experience a job loss or get hit with any unexpected expenses. If you already have an emergency fund, consider increasing it to provide extra security during uncertain economic times.

The general rule of thumb is to keep at least three to six months’ worth of living expenses in a separate, easily accessible account. But if that feels like an overwhelming goal, it’s fine to start slow — even transferring $50 a month to your safety net can add up significantly over time. To benefit from the upside of the Fed’s multiple rate hikes, choose an account that pays a competitive annual percentage yield (APY), such as a high-yield savings 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.

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Pay Down High-Interest Debt

Here’s the bad news about higher interest rates: The national average credit card rate is now 27.70%, which makes credit card balances a significant financial burden. As a result, you’ll want to check rates on all of your credit cards and other debts. Any variable rates may have gone up. Next step? Pay as much as you can on your highest interest rate balances first to whittle down that debt; it’s the kind that can unfortunately snowball during tough economic times.

You might also look into balance transfer credit card offers. They can provide a period of no or low interest, during which you can pay down that debt. Another option is to consolidate high interest debt with a lower interest personal loan. You might also look into a nonprofit debt counseling program.

Once you’ve eliminated high-cost obligations, you’ll be better prepared to manage any potential financial bumps in the road.

Stay Your Investment Course

When it comes to your long-term investments, such as 401(k)s and other retirement accounts, you’ll want to continue making your contributions (or, if you’re not, consider starting), and not worry too much about market volatility. If you have a diversified portfolio, you generally don’t want to change your strategy out of fears of a looming recession.

For perspective, consider the most recent downturn: The Dow Jones fell nearly 3,000 points on March 16, 2020, which was the largest decline in one day in U.S. stock market history. Yet, the market rebounded quickly and set new records in late 2020 and early 2021. Investors who sold in a panic didn’t see any of those record-breaking returns.

If rising expenses are making it impossible for you to keep up with 401(k) contributions, try to contribute at least the minimum necessary to get any matching funds your employer offers. That’s free money, and you don’t want to miss out.

Recommended: How Much Should I Contribute to My 401(k)?

Recession-Proof Your Career

Recessions often involve layoffs and a significant rise in unemployment. This is something you’ll want to keep in mind, especially if you work in an industry that typically suffers downturns in a recession. Reducing debt and building emergency savings, as mentioned above, are two important steps you can take to prepare for the financial shock of a layoff.

In addition, you may want to take some steps to recession-proof your career. Start by updating your resume and LinkedIn page. If you notice any gaps in your skill set, you may want to explore getting the extra education, skills, or training you may need to protect your livelihood. It’s also smart to refresh connections within your professional network, looking both within and outside your organization. Having a strong professional network and staying adaptable can provide opportunities even during economic downturns.

What to Avoid Doing During a Recession

Here’s a look at what not to do if the nation slips into a recession.

Panic

While the term “recession” can be panic-inducing, you’ll want to avoid making any rash decisions. Economists use the word recession simply to indicate that the economy is contracting, not growing. Not all recessions lead to double-digit unemployment or severe stock market losses.

That said, the stock market often experiences significant volatility during a recession, which can lead to fear and panic-selling. As mentioned above, selling investments hastily could result in substantial losses. It’s often wiser to focus on your long-term investment strategy and avoid making impulsive decisions based on short-term market movements. Market downturns can also present buying opportunities for long-term investors.

Tap Your Retirement

Withdrawing from your retirement accounts should generally be considered a last resort during a recession. Early withdrawals can incur penalties and taxes, and reduce the funds available for your future. You’ll want to explore other options, such as cutting discretionary spending, picking up a side gig for an extra income stream, or using your emergency fund, before tapping into retirement savings. Protecting your retirement funds is crucial for long-term financial security.

Accumulate New Debt

Taking on new debt during a recession can increase financial stress and vulnerability. Ideally, you want to avoid making large purchases or using credit cards for nonessential expenses. It can also be a good idea to delay significant financial commitments, such as buying a home or car, until the economic situation improves. You’ll likely be better off focusing on maintaining a healthy debt-to-income (DTI) ratio and preserving your financial flexibility.

Become a Cosigner

Cosigning a loan for someone else during a recession can expose you to significant financial risk. If the primary borrower defaults, you will be responsible for the debt, which can strain your finances and damage your credit score. During uncertain economic times, it’s best to avoid taking on additional financial liabilities that are beyond your control.

Take Your Job for Granted

Job security can be fragile during a recession, so it’s important not to take your employment for granted. Stay proactive in your role by demonstrating your value to your employer. Consider taking on additional responsibilities, seeking feedback, and continuously improving your skills. Being an indispensable employee can increase your chances of retaining your job during economic downturns.

Recommended: The History of US Recessions: 1797-2020

The Takeaway

Preparing for a recession involves taking proactive steps to protect your financial health and avoid common pitfalls. Smart moves to take when a downturn may be looming include: building an emergency fund, reducing debt, continuing to save for retirement, and recession-proofing your career. Equally important is knowing what to avoid, such as panic selling, accumulating new debt, and tapping into your 401(k) or IRA.

Economic downturns are never pleasant and often painful. But with some thoughtful planning and the steps outlined above, you can protect your finances and better position yourself when the economy bounces back.

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.

Photo credit: iStock/tolgart

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.

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.

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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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2024
7 Ways to Tackle Financial Stress

7 Ways of Dealing With Financial Anxiety

By | Budgeting & Goals, Financial Independence, student_loan | No Comments

If you’ve found yourself worrying about money lately, you’re not the only one. Nearly half of Americans say 2024 has been the most stressful year of their lives financially, often citing high costs for essential goods like food, according to a May 2024 poll of 2,000 adults by MarketWatch Guides . Nearly nine in 10 respondents (88%) reported feeling financial stress, with 65% saying their finances are the most stressful aspect of their life.

Many of today’s financial stressors are out of our control — like inflation and high mortgage rates. Even so, there are actions you can take to manage money-related anxiety. Here, you’ll learn steps you can take to tackle financial goals despite challenging times.

What Is Financial Anxiety?

It’s normal to worry about money from time to time, but if you are continually worrying about bills, your money worries keep you up at night, and/or you find it difficult to face your financial situation head on and come up with solutions, you may be dealing with financial anxiety.

Financial anxiety is defined as an intense fear or discomfort caused by things related to money, such as debts, expenses, investments, income, savings, or adverse economic situations. This type of anxiety can affect anyone, regardless of their income or financial status, and it can often be debilitating.

Like other forms of anxiety, financial anxiety can interfere with everyday life and affect your mental and physical well-being, leading to depression, loss of appetite, insomnia, an inability to focus, and even cardiovascular and other medical problems.

Can You Overcome Financial Anxiety?

Yes, it’s possible to overcome financial anxiety with the right strategies and mindset. Overcoming this issue involves understanding the root causes of your anxiety, developing a proactive approach to managing your finances, and seeking support when needed. While financial anxiety may not disappear entirely, you can learn to manage it effectively and reduce its impact on your life.

7 Ways to Deal With Financial Anxiety

While there’s no one-size-fits-all solution to money stress, there are strategies that can help you feel more in control of your finances. Consider trying one or more of these tips, and see what works best for you.

1. Tackle One Decision (or Problem) at a Time

Financial anxiety can be paralyzing when you try to address all your financial concerns at once. A good first step to reducing financial stress is to figure out what’s making you feel most anxious. Is it your spending, your student loans, your mortgage, or saving for the future? Then focus on tackling one decision or problem at a time.

It can also be helpful to break down larger financial goals into smaller, manageable tasks. For instance, if you’re worried about debt, start by creating a plan to pay off the smallest debt or the highest-interest loan first. Gradually addressing each issue can help you feel more on top of your money and reduce overall stress.

2. Create a Budget

A major facet of money stress can involve feeling out of control in terms of your finances. There’s a simple solution to that: making and sticking to a budget. A budget allows you to see exactly where your money is going and helps you make informed decisions about your spending.

While budgeting may sound like an overwhelming process, it simply involves looking at your income and spending over the last several months, categorizing your spending, and (if necessary) identifying areas where you can cut back. There are all different ways to allocate your money, but one simple framework is the 50/30/20 budget. It recommends putting 50% of your after-tax income toward needs, 30% toward wants, and 20% toward savings and debt repayments beyond the minimum.

Having a clear financial plan can provide a sense of control and reduce uncertainty about your financial future.

3. Prepare for the Unexpected With an Emergency Fund

One great way to allay financial stress is to know that you have some back-up funds when or if you need them. Should life throw you a financial curveball (like a major car repair, unexpected medical bill, or loss of income), having a solid emergency fund you can tap means you won’t have to run up expensive debt to cope.

A general rule of thumb is to keep at least three to six months’ worth of living expenses stored in a separate savings account (ideally a high-yield savings account). And since you already created a budget, you know how much, on average, your necessities cost each month.

Keep in mind that you don’t have to build your emergency fund overnight. It’s okay to start small; even setting aside $50 to $100 a month can add up over time. Consider setting up an automatic transfer on payday from checking to a linked savings account so you aren’t tempted to spend that amount.

Recommended: How to Build an Emergency Fund in Six Steps

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.


4. Deal With Debt

Even in the best of times, debt can cause worry and stress. It may feel like a weight that is always hanging over you. And inflation and high interest rates (ouch) can make the anxiety more intense.

If you have debt that is causing you stress, it’s a good idea to take steps to reduce it — think of it as a form of financial self-care. Start by listing all your debts, including the interest rates and minimum payments. Then consider using strategies like the debt snowball method (paying off the smallest debt first) or the debt avalanche method (paying off the highest interest debt first). You may also want to explore options for consolidating or refinancing your debt to reduce interest rates and monthly payments.

5. Just Say No to Splurging

When we’re stressed, there are a lot of ways to relax or blow off steam — and many of them cost money. Retail therapy, a big night out, a weekend getaway: Sure, they are all wonderful, but if you are dealing with financial stress, they may not be good options. They can add to any debt you are carrying, give you less cash for daily life, and lead to more financial stress.

Here are some tips that can help you develop better spending habits:

•   Don’t window-shop or pit-stop at your favorite stores. That’s just putting temptation in your path.

•   If you see something you feel you must have, even though it’s not a true need, wait for a while (anywhere from 24 hours to 30 days) before buying it. You may find that the urge cools.

•   Set aside some “fun money” in your budget for low-cost treats. Some ideas: getting a fancy coffee on Friday morning to reward yourself for a week of hard work; taking yourself to the beach one afternoon; climbing a mountain and savoring the view; getting a 10-minute massage at a nearby spa.

6. Add a Second Income Stream

Sometimes it’s not about subtracting spending from your daily life, but rather, about adding more cash to your pocket. There are many benefits to a side hustle: Picking one that fits into your current lifestyle without taking up too much of your free time can really add value to your wallet and your life.

Before choosing a gig, think about what you’d like to do. You might be able to freelance as a writer or social media consultant. Or perhaps you can sell your suitable-for-framing travel photos online. If you enjoy driving around on weekends, you might sign up with a ride-sharing app. Love animals? Consider starting a dog-walking service.

If you don’t have time to take on additional work, you might sell items you own that are in good condition but you no longer need. There are dozens of places to sell your stuff: For clothes, try a local second-hand store near you, such as Crossroads or Buffalo Exchange. For furniture and other goods, try listing on eBay, Etsy (yes, it’s for more than crafts), Facebook Marketplace, or Nextdoor.

7. Reframe Your Financial Stress

Changing the way you think about financial stress can help manage anxiety. Instead of viewing financial challenges as insurmountable obstacles, try to see them as opportunities for growth and learning. Focus on the progress you’ve made rather than the setbacks. Practicing gratitude for what you have and acknowledging your efforts can shift your mindset and reduce anxiety.

It can also be helpful to talk to those close to you. Let them know you are dealing with financial stress, and ask how they manage theirs. Talking about your worries can help put them into perspective. And in addition to getting reassurance and comfort, you may learn some new strategies.

Getting Help for Your Financial Anxiety

If you’re having trouble sorting out your finances and managing your anxiety on your own, it can be worthwhile to seek outside help.

For practical solutions to money issues, you might seek out a financial advisor. These professionals can offer advice on savings, investments, and retirement planning tailored to your financial situation, helping you develop a strategy to achieve your financial goals.

If your money anxiety is more deeply rooted or affecting your mental or physical health, you might want to consult a mental health professional, such as a psychologist, social worker, or financial therapist. These professionals can help you understand and work through the emotional aspects of your money worries and provide you with coping mechanisms to manage stress.

The Takeaway

Money worries can get the best of us, especially in challenging times, such as when inflation and interest rates are high and there’s talk of a potential downturn in the economy.

To manage financial stress, it’s wise to take steps to improve your cash situation — say, by budgeting, building up an emergency fund, and lowering high-interest debt. It’s also a good idea to work on your emotional wellness by tackling one problem at a time, avoiding temptation and the subsequent guilt, seeking support from those close to you and, if necessary, enlisting the help of a financial or mental health professional.

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

How do you stop being financially anxious?

There are a number of steps you can take to reduce financial anxiety. If you’re worried about debt or lack of savings, for example, you might want to assess and categorize your spending over the last several months, then look for places to cut back. Any money you free up can be redirected toward paying more than the minimum on your debts and/or building your savings.

Other ways to stop feeling financially anxious include: building an emergency fund (this provides a safety net for unexpected expenses); seeking advice from a financial advisor to develop a long-term plan; and practicing stress-reduction techniques, such as mindfulness, exercise, and adequate sleep.

Why do you get anxious about money?

Financial anxiety can stem from a number of factors, including:

•   A lack of control or understanding of your financial situation

•   Job insecurity

•   Inflation

•   Unexpected expenses

•   Insufficient savings

•   Cultural and societal pressures (i.e., the expectation to maintain a certain lifestyle)

•   Past financial mistakes or trauma

How do you stop obsessing about money?

You might start by setting some clear financial goals, and then creating a realistic monthly budget that can help you achieve those goals. This can reduce financial worries — and help you stop obsessing about money — by giving you a greater sense of direction and control.

Other ways spend less time thinking about money include:

•   Automating savings and bill payments.

•   Limiting the amount of time you spend reviewing your accounts to once or twice a month.

•   Engaging in hobbies and activities that bring you joy and distract you from financial worries or temptations to spend money.

•   Seeking support from friends, family, or a therapist if money worries persist.

•   Educating yourself about personal finance to build confidence and reduce fear stemming from the unknown.

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.

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.

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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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.

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2024

Guide to Practicing Financial Self-Care

By | Budgeting & Goals, Family Finances, money, Money & Life | Comments Off on Guide to Practicing Financial Self-Care

As nice as a spa day or yoga class is, sometimes the best form of self-care doesn’t cost anything at all. It’s financial self care, and practicing it may help you manage your money.

Financial self-care involves taking steps to avoid financial stress and meet financial goals. Given that 73% of Americans say money is their number-one stressor in life, practicing financial self-care can be a very good thing.

But what exactly does financial self-care mean and how do you do it? Read on to find out.

What Is Financial Self-Care?

Financial self-care is a form of self-care that focuses on financial wellness. Essentially, instead of more traditional self-care activities (like getting massages or enjoying dinners out), you learn the best way to manage your finances and improve your financial situation. This may not sound fun, but worrying about debt, paying the bills, and falling short of savings goals can all lead to a lot of stress that can be draining both physically and mentally. Self-care and money can go hand in hand.

Here’s another perk: Once you get your financial life under control, you’ll have more money to put towards the more exciting areas of self-care. Whether that means finally splurging on that cleaning service or a new puppy is up to you.

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.


💡 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.

Tips for Practicing Financial Self-Care

Self-care and money can combine in the pursuit of financial self-care. Here are some strategies to help incorporate this form of self-care into daily life.

Creating Realistic Financial Goals

To make strides in the area of financial self-care, it’s important to set reasonable goals. That way, you can make progress and feel a positive boost when you finally do reach a goal. Here’s an example: Paying off your student debt in a single year would likely be hard even on a high salary. Instead, having a goal of paying off your highest-interest debt (perhaps a credit card balance) in a year may be more obtainable. Look at your income versus your monthly necessary expenses (the “musts” in your life), and see if you can begin funneling some of the funds left over after bill-paying towards your debt.

Tracking Your Expenses Daily

Impulse spending can feel good in the moment, but it can do a lot of harm. You can be more mindful about your spending by reviewing your personal finances daily, focusing on where your cash was spent. You may not realize just how much money flows away from you on a typical day. Expense tracking will reveal that. On days that you don’t spend much or anything at all, give yourself a big pat on the back. You’ve just taken care of yourself financially.

Checking Your Banking Accounts Frequently

Good cash management is an important part of hitting your financial goals. Alongside tracking your daily spending, it can be helpful to check bank account balances daily or at least a couple of times a week. You’ll see where you stand financially and won’t be caught unaware by a low balance. This process will also give you a deeper look at how any automatic bill payments are impacting your cash flow.

After all, most of us don’t see the money we earn or spend in cold hard cash, so it can feel less tangible. Your paycheck may be directly deposited into your checking account, for example. When you know exactly where you stand financially, it can empower you and help better inform your purchasing decisions.

Making Any Needed Changes to Budgets

After keeping an eye on spending habits and account balances, it’s a good idea to review your monthly budget goals and see how you’re doing. Perhaps you put a reminder in your calendar to do a quick check-in on the last day of every month and see how things look. Maybe eating lunch out on weekdays has made it hard to stick to your food budget for the month. Perhaps having too many subscription services left no wiggle room in the entertainment section of the budget.

The end of the month is the perfect time to reevaluate spending habits, to see where you can cut back on spending, and to figure out how to increase savings.

Focusing On Getting Rid of Debt

Debt is likely part of your life, but it can also cause a lot of worry. Thanks to interest charges, debt can mount and be hard to pay off. So when you have some extra money, sure, you might spend it on a new outfit or a weekend getaway and lift your spirits that way. Or you could pay down your debt instead.

By prioritizing debt, you’d be a step closer to eliminating some money stress from your life. Getting rid of debt can be a key aspect of financial self-care and can boost your peace of mind.

Improving Your Mindset on Money

Self-care has just as much to do with our mental health as our physical health. Feeling negative about money can really drag a person down. That’s why it can be helpful to focus on what you have instead of what you don’t have.

If you are feeling as if you can’t compete with other people’s lifestyles, it may be that your comparison framework is skewed. It may be beneficial to take a break from social media (or unfollow certain luxury accounts), stop watching reality TV, or skip hanging out with that friend who earns and spends big.

Recognizing what your money can do for you rather than feeling deprived is an important step. It can be a very empowering mindset to adopt.

Improving Financial Literacy

Money can be intimidating in part because most of us lack a basic financial education. While you may not have learned about money management in school, you can teach yourself the financial basics and beyond. Knowledge is power, after all.

From learning about how credit scores work to the investing basics, take some time to read up on the financial topics that seem confusing. Also look into apps that help you with budgeting, saving, and tracking your spending. These tools can be part of financial self-care, helping to boost your financial literacy and wellness.

Visualizing Retirement and Investing in It

Financial self-care means taking care of today’s and tomorrow’s needs. Retirement can seem like a distant concept, so try picturing your future self at retirement age and how you’d want to live then. That way, you may feel more motivated to save even though retirement is far away. Look at your budget again to see if there is room to improve your retirement savings. Even saving an extra 1% a month can make a major impact.

Respecting Money

Money is a tool and a very valuable one at that. Embracing financial self-care means recognizing that money isn’t just about buying things. That may be the easy and fun part, but saving and investing it is what really makes the most of your cash. Educating yourself on saving and investing or seeking professional advice may help you harness the full power of the money you make. Money is a force to be reckoned with; respecting its importance could help you achieve your financial and lifestyle goals.

Why Financial Self-Care Is Important

Financial self-care is equally important, if not more so, than more traditional forms of self-care like heading to the spa or taking a personal day off of work. When you prioritize financial self-care, you can work to reduce money stress and move closer to your short- and long-term goals.

Banking With SoFi

Financial self-care can be a way to help reduce money stress and make the most of what you earn. Being smart about your cash and building your savings can unlock the good things in life today and in the future. Try practicing some financial self-care ideas, and see if you don’t feel more in control of your money and less stressed about it.

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

Why is financial self-care important?

Financial self-care can help reduce the financial stress in your life. Specifically, prioritizing financial self-care may make it easier to reach financial goals like paying down debt or saving for retirement.

How do you take care of yourself and your money?

Budgeting, focusing on debt repayment, and setting clear savings goals are all good ways to take care of yourself and your money. Not having to worry about too much debt or overdue bills are other potential benefits of financial self-care.

How do I respect my money?

Respecting money involves not wasting it and instead looking for ways to make the most of it. Being mindful about purchases, sticking to savings goals, and not taking on high-interest debt are all ways someone can respect their money.

Photo credit: iStock/hatman12

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.

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® 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.

4.00% APY
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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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2024
10 Tips for Spending Your Money Wise

10 Tips for Spending Your Money Wisely

By | Budgeting & Goals, Financial Independence, money | Comments Off on 10 Tips for Spending Your Money Wisely

If you feel like your money vanishes almost as soon as you get paid, you’re not the only one. Fortunately, there’s a way to remedy the problem — by learning to spend your money wisely.

Being wise with your money means being thoughtful and accountable and helping it go further to get what you want. It’s about having a plan so you can spend as well as save money for a vacation, an emergency fund, or even start that business you’ve been dreaming about.

Being wise with money is not about how much you make. It’s how you spend it and manage it so you can optimize your quality of life.

Why Spending Wisely Is Important

How to spend money wisely is not a skill taught in school, and many families don’t feel comfortable discussing money openly. Which means many of us are in the dark when it comes to putting money in a savings account and understanding how to budget and not overspend.

Plus, the world is full of enticing new things to buy, and our phones, computers and TVs are full of images of people dining out, shopping, and traveling. The idea of spending limits is often absent.

But if you’re serious about learning about how to reach your financial goals and not having too much debt, you can adopt habits that will help. It’s not about living a life of deprivation at all. But spending money a little differently is likely to be on the agenda.

When you start learning how to spend money correctly, you can get on top of your budget and your financial life. That’s a great feeling of accomplishment and independence. Plus, it sets you up for good money habits for years to come.

Here are 10 ideas for how to spend your money wisely.

10 Tips for Wise Spending

1. Not Trying to Impress Others

When you buy something, check in with yourself and make sure it’s something that is truly for you and not something you’re buying because you feel you’re “supposed to,” or “everyone else is getting one.” These purchases can wind up being very expensive and even disappointing.

Cars are a great example. There are many vehicles that may be adequate for your needs, but you might end up buying an expensive car that looks impressive and wind up living above your means. Being stuck with an unmanageable monthly payment is uncomfortable and adds a level of stress to your daily life. What’s more, if you default, it could hurt your credit score. So work towards buying just what you need, not status items.

2. Not Eating Out or Splurging Every Day

Small splurges every once in a while aren’t going to kill your budget, but a regular habit of them can put a dent in your financial fitness. Everyday spending habits can make or break your budget. Perhaps it’s not eating out that is costing you; maybe it’s ordering things online or picking up the tab too often when you and your best work buddy have a quick drink. All the small purchases you make add up over time and wind up undermining your plans to improve financial health.

To make sure you’re spending wisely, be sure to have a budget for your splurges. It’ll feel good knowing you have a plan to spend on fun things while also putting money away in your bank account. For instance, if you’ve been getting a pricey takeout coffee most mornings as a treat en route to a busy workday, try dialing it back to a Monday and Friday splurge. Eventually, you may decide to skip it completely and drink your java before you leave home.

Recommended: 6 Tips for Making a Financial Plan

3. Setting Reminders for Bills to Avoid Late Fees

One thing you don’t want to do is spend money on late fees, interest, and other costs.To make sure your bills are getting paid on time, automate your payments as much as possible and set reminders so you’re never late.

4. Using a Journal of Transactions to Avoid Frivolous Spending

A journal of transactions can help keep you accountable to yourself about where your money goes. Truly, there’s nothing more eye-opening than seeing how much you’re really spending in a month. Reviewing your transactions can help you learn how to spend wisely.

For example, you might not realize how often you use ride-share services. You may think you only call an Uber “in emergencies” but then realize those emergencies are happening a couple of times a week. A journal can help you truly get a grip on overspending and dial it down.

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.


5. Having a Monthly Budget

A monthly budget is nothing more than a plan for how you want to spend your money for the month. When you have a plan and a goal, you can train your brain to forgo things that are not important and save for things that really matter to you.

Which kind of monthly budget to set up depends on your personal preferences and needs. Some people love apps which automate the process and can show you how your money and spending break down. Others prefer using a spreadsheet or journal. Some find systems like the envelope method or 50/30/20 rule helpful. Do a bit of online research; you may spend more wisely once you find a system that suits you.

6. Figuring Out What Habits Eat Up Your Budget

After you’ve tracked your expenses, it might be shocking to see where your money is going. You might have a few habits, such as shopping too often or splurging on gourmet dining, that take up more of your budget than you would like. Or you might have signed up for a number of streaming services when you only really watch a couple of them.

By identifying what is burning through your money, you can then take steps to spend more wisely. Changing up a few of these habits can help you stretch your budget, save more, and spend your money wisely.

7. Putting Money on Your Credit Card When You Can Afford to Pay It Off

As of June 2024, the average credit card interest rate is more than 24%, making this one of the most expensive ways to finance a purchase. In a nutshell, you wind up paying a 24%-plus surcharge if you buy things with plastic and don’t pay it off right away.

Using a credit card wisely is key. Charge up no more than 30% of your credit limit (though less is better) to keep your credit utilization ratio low. And pay the bill off ASAP to avoid owing interest.

8. Thinking About Long-Term Effects of Purchases

The average American spends approximately $150 on impulse purchases each month, data shows. That’s $1,800 a year for unplanned purchases. If spending wisely is your goal, you should ask yourself: Wouldn’t that money be put to better use elsewhere, such as a vacation or in savings?

One way to curb impulse spending is to acknowledge the emotional component. Some of us shop when we are feeling bored, angry, or sad. Purchasing some cool new gizmo or a great jacket can be a distraction and a mood booster. One strategy to help short-circuit this emotional spending can be to imagine the item in your house and how it will look used a few years from now. If you can visualize its future (being out of style, faded, worn, or broken), you might not want to purchase it in the first place. That may help you realize that the item isn’t as vital as it feels when you are shopping.

You might also want to consider the long-term financial impact the purchase will have. If you make a lot of impulse buys, these costs can either snowball due to interest or shadow your finances for years to come.

9. Tracking Your Finances Daily

Following your money closely can help you spend wisely. Fortunately, there are easy ways you can keep track of your spending in today’s technology-rich world, including money-management apps. These can connect your bank accounts, credit cards, investment accounts, and more to give you a snapshot of your financial health.

If, say, you see that your credit card balance is climbing, you might decide to cook pasta versus ordering takeout that night. Or perhaps you notice that with a recent rent increase, you are struggling a bit to cover all your expenses. That trend might convince you to economize some of your spending or start a side hustle to bring in more cash.

10. Knowing How Much You Can Actually Spend

A key part of your budget should be knowing how much you can actually spend in a month, as well as how much you should save per month. It sounds obvious, but many people don’t do the math. Figuring out and then hitting those numbers is important when you are focusing on spending wisely.

While the average household spends more than $6,000 each month, your number will likely be different as it is unique to your circumstances. It’s wise to look at your take-home pay and see how much the “musts” (food, shelter, health expenses, and anything else needed to survive) cost every month. Next, assess what debts need to be paid. Do you have student loans you are paying off? Credit card debt you are whittling down? Subtract that from your earnings, too.

Then, you don’t want to spend every penny of what’s left. It’s important to also dedicate some funds to saving, whether that means for a down payment for a home, for retirement, or for an emergency (or for all of those). Budgeting $25, $100, or more a month to savings can help you reach your money goals. You might have that amount automatically transferred on payday from your checking account to savings accounts so you can help keep your cash safe vs. spent.

Managing Your Finances With SoFi

Spending wisely is a key step towards financial health. Often, we fall into shopping and splurging habits without realizing where our cash is going. By tracking your spending and starting some smart new habits, such as finding the right bank account and regularly making deposits into it, you can save more and rein in spending without feeling deprived.

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 smartest way to spend money?

The smartest way to spend money is to spend according to your means and your values. Figure out how much you want to save, whether for a vacation, a new car, retirement, or something else, and how much you owe for expenses, and create a budget. Then, your spending needs to fit within that budget, including planned-for splurges. Be sure to track what you spend to stay accountable.

How can I manage my money wisely?

If you’re looking to manage your money wisely, use the tools available to you. There are apps that help you track your money and budget, or you could use a journal or spreadsheets. Put some time into finding a system that suits your goals and lifestyle.

How do I start saving?

One way to start saving is to open a savings account and automate your deposits. Have a certain amount transferred regularly from checking into savings, for example.

Photo credit: iStock/millann

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.

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® 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.

4.00% APY
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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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