Dec
04
2024
What Is a Luxury Item and Tips for Budgeting for One

What Is a Luxury Good?

By | Budgeting & Goals, money | Comments Off on What Is a Luxury Good?

Luxury goods are sometimes called the finer things in life. Think about those fancy sports cars, watches, handbags, shoes, and jewelry that can cost a mint. Those beautiful objects of desire are not at all necessary to support basic human needs, but they may make life a lot more enjoyable.

Demand for luxury goods is typically driven by perceived value (that is, being a status symbol) as much as product quality and design. Brand awareness is an important aspect of the luxury market. These high-end items from exclusive brands are expensive, putting them out of reach of many consumers, which can add to their allure.

If you’re simply curious about luxury goods or contemplating buying some, read on to understand what makes them special, the pros and cons of purchasing high-end products, and how to afford a luxury item.

Key Points

•   Luxury items are desirable, exclusive, and typically expensive.

•   Saving and budgeting strategies can help you afford luxury goods without incurring debt.

•   Renting or buying pre-owned luxury items are cost-effective alternatives to owning new ones.

•   Luxury goods can offer status, quality, and better resale value, but also come with high costs and potential depreciation.

•   The demand for luxury goods is driven by perceived value, brand awareness, and the desire to display wealth and status.

What Makes a Luxury Good “Luxury”?

Luxury items are defined by their exclusivity and higher cost, which limits access to them. To put it simply, they are expensive! Once a luxury item becomes more readily available at a lower price point, it may lose its appeal, and demand wanes.

Different cultures around the globe have varying tastes about what luxury goods are. That is, what is considered a highly desirable luxury good in one society may not be as valuable in another. However, there are brands that have become international icons of living well (more on that below).

Luxury goods are linked to the economic term “conspicuous consumption,” which occurs when consumers buy higher priced goods to display their wealth and class status. People who want to publicly communicate their economic and social status may buy luxury goods that signal that message. Purchasing luxury goods is typically tied to a consumer having more expendable cash. That said, some people spend well beyond their means in order to own a luxury item.

💡 Quick Tip: Your money deserves a higher rate. You earned it! Consider opening a high-yield checking account online and earn 0.50% APY.

Examples of Luxury Items

What exactly is a luxury item? There are lots of examples in the nearly $300 billion industry. Luxury products have traditionally included aspirational items, such as:

•   Yachts

•   Top-of-the-line cars

•   Fine and antique furniture

•   Art

•   Furs

•   Watches

•   Jewelry

•   Designer clothing and handbags

•   Wine

•   State-of-the-art electronics

•   Cosmetics and fragrances

You’ll likely see some familiar names in the luxury goods market. Many companies have established themselves as luxury brands with their exclusive products.

Some of the top, recognizable luxury brands include:

•   Porsche

•   Ferrari

•   Chanel

•   Hermès

•   Balenciaga

•   Alexander McQueen

•   Louis Vuitton

•   Burberry

•   Gucci

•   Cartier

•   Tiffany & Co.

•   Rolex

•   Dior

•   Prada

•   Bulgari

When you see those names when shopping, you probably are looking at what are known as luxury items.

Recommended: Questions You Should Ask Before Making an Impulse Buy

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 3.80% APY on savings balances.

Up to 2-day-early paycheck.

Up to $3M of additional
FDIC insurance.


Pros of Purchasing Luxury Goods

If you’re looking at purchasing a luxury item for the first time, there’s more to it than its price tag. Purchasing a luxury item can bring other benefits. These can include:

•   Status

•   Better quality products

•   Better service at retail locations or service centers

•   Better resale value than other goods

•   Strong value appreciation in some goods (such as jewelry or art)

•   Exclusivity

Cons of Purchasing Luxury Goods

Conversely, purchasing a luxury item isn’t always a good idea. Some of the downsides to purchasing luxury goods include:

•   High cost

•   Money used to purchase a luxury good could be used elsewhere

•   Can lead to more conspicuous consumption

•   Depreciation on certain goods may be high

•   Can undermine confidence; some people wind up feeling inauthentic (as if they are “faking it”) after spending a lot of cash on luxury items

💡 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.

Luxury Goods vs Normal Goods: What’s the Difference?

Buying normal goods means you are buying items whose cost increases at the same rate as your income increases. If you, say, shopped for clothing at garage sales to save money on your wardrobe at the beginning of your career, and now you spend money on clothing at a traditional retailer, your consumption increased to the higher-priced clothing at the same rate as your income increased. These goods are within a reasonable range given your earning power.

Compare that with what is a luxury good. In this case, the cost of consumption increases, but generally not at the same rate as income. The price tag for a luxury item is often exponentially more than could be afforded by one’s salary raises.

Recommended: 39 Passive Income Ideas to Help You Make Money in 2024

Luxury Goods vs Inferior Goods: What’s the Difference?

According to the principles taught in economics class, an inferior good is one whose consumption decreases as a consumer’s income increases. If you ate ramen in college, for example, but no longer consume them now that you’re making more money in your career, that pack of noodles is an example of an inferior good. Your consumption of it decreased as you made more money.

Typically, with luxury goods, consumption increases with a higher income; with an inferior good, consumption decreases with a higher income.

Tips for Affording a Luxury Item

Saving up for a luxury item and then paying in cash can be a good strategy. Whether the object you’re craving is a handbag or a sports car, you won’t feel guilty about spending money when you’ve stashed the money away for it and can pay without creating credit card debt. If you automate your savings for the luxury item, you may well reach your goal without too much effort.

Saving for a Luxury Good

Saving up for a luxury item and then paying in cash can be a good strategy. Whether the object you’re craving is a handbag or a sports car, you won’t feel guilty about spending money when you’ve stashed the money away for it and can pay without creating credit card debt. If you automate your savings for the luxury item, you may well reach your goal without too much effort.

Waiting for Sales

Even luxury goods can go on sale, though perhaps less often than with lower-priced items. Even if you miss their sales, you may be able to find some premium items at discounted prices at outlet stores.

Recommended: Tips for Overcoming Bad Financial Decisions

Avoiding Trends

When saving for that luxury item, it can be wise to avoid trendy luxury products. Those probably won’t stay in style for long, and if you’re making a major purchase, it can be smarter to spend your money on things that will last.

Recommended: Tips to Stop Overspending

Renting Luxury Items Over Buying

You might want to consider renting a luxury item rather than paying loads of money to own it. For instance, you could lease a luxury car for a while and see if you truly love it. And there are many businesses that rent designer clothing and handbags, such as Rent The Runway and Bag Borrow or Steal. That can give you a taste of luxury at a more affordable price point.

Lowering Your Other Expenses

If you’re really set on affording a luxury item, see where else you can cut back on spending. Knowing you’d rather own a luxury car than go out every weekend can help you feel more motivated to cut back on dining and entertainment expenses.

Buying Pre-Owned

Another way to afford luxury items is to buy ones that have been pre-owned. From BMWs to Louis Vuitton handbags, there’s a large marketplace for gently used posh goods. How to afford luxury items can be a matter of being the second owner rather than the first of the item you desire.

The Takeaway

A luxury good is a product that is generally costly. It may also be of superior quality and retain its value better than non-luxury goods. Owning one can also be an ego boost and a source of pride.
Saving to obtain luxury goods can help you cultivate good financial habits, which in turn can help you reach other goals and build wealth.

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 3.80% APY on SoFi Checking and Savings.

FAQ

Why do people buy luxury goods?

Luxury goods can signal exclusivity, wealth, and a higher social status. People who buy luxury goods typically want to communicate this to themselves and others. Also, luxury items are often very well made and can last for many years.

Do luxury goods have high resale value?

Luxury goods, especially when in excellent condition, can have a high resale value. Some brands, such as Chanel and Hermès, have a better resale value than others. Jewelry by well-known brands (like Tiffany & Co.) tend to hold their value well too.

Does luxury always mean expensive?

A luxury item is typically highly desirable and very exclusive, which is usually tied to the amount of money it costs to obtain it. However, many luxury brands produce cheaper alternatives of their signature products to sell to more consumers at a more affordable cost. The Coach outlet stores are one example that luxury items don’t always have to be expensive, and the Mercedes CLA Coupe starts at about $44,400.

Photo credit: iStock/MoustacheGirl

SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://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.

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

SOBNK-Q424-040

Read more
Dec
04
2024
11 Great Songs About Saving Money

Sing and Save: Our Top Songs About Money

By | Budgeting & Goals, Family Finances, money | Comments Off on Sing and Save: Our Top Songs About Money

Music offers a surprising array of benefits to listeners. Some songs are energizing, some are relaxing, and others, research suggests, can even improve physical and emotional health and manage pain.

Music can even teach us some valuable lessons about money. While you may not want to comb your Spotify playlists for stock market advice, you might find a few financial nuggets of wisdom embedded in your favorite songs.

Here’s a selection of songs from various eras and genres that are all about money, whether saving or spending it. They might nudge you to think more about your finances and relate to other people’s struggles and triumphs with their cash.

So if you’re like Rihanna and you’ve got your mind on your money, check out these 13 songs about finance that span the decades.

Key Points

•   This article lists 13 songs about money, highlighting different perspectives on personal finance, from glorifying wealth to valuing relationships over material possessions.

•   Songs like “Pennies from Heaven” and “Can’t Buy Me Love” emphasize the importance of financial freedom and love over money.

•   “Bills, Bills, Bills” and “Thrift Shop” focus on financial independence and frugality, encouraging listeners to be mindful of spending.

•   “Mo Money Mo Problems” and “Billionaire” discuss the complexities and dreams associated with wealth, reminding us of the challenges money can bring.

•   Listening to these and other songs about money can inspire financial awareness and motivate listeners to achieve their financial goals.

13 Songs About Saving Money

In each song on this list (arranged chronologically by release year), the artist shares a different viewpoint on personal finance. Some singers glorify money; others show us that there are more important things in life. Some singers tout the independence that money gives them and the hard work that got them there; others dream of making more.

No matter what money lessons you take from the music, one thing’s for sure: These 13 songs about saving money (or spending it) are likely to get stuck in your head for the rest of the day.

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

1. “Pennies from Heaven” by Bing Crosby (1973)

The oldest finance song on our list comes from the legendary Bing Crosby and the film of the same name. “Pennies from Heaven” reflects the general feelings of the time. Released during the Great Depression, the song yearns for the financial freedom of the Roaring ’20s yet provides hope that the country will weather the storm.

2. “Sittin’ in the Sun” by Louis Armstrong, Jack Pleiss, & His Orchestra (1953)

The next saving money song on our list comes from the legendary Louis Armstrong. “Sittin’ in the Sun” is so powerful that it made it on an album of his greatest hits. Armstrong paints a simple picture of sitting in the golden sunshine and counting one’s money. He speaks of the comfort of knowing what’s stored in his bank account.
Though Armstrong likely had a different point to make, his song is a reminder that having an emergency fund socked away is never a bad idea.

3. “Can’t Buy Me Love” by the Beatles (1964)

One of the Beatles’ biggest hits takes a more scathing view of money. Sure, it can buy you diamond rings, as Paul McCartney points out. But the one thing money can’t get you — no matter how much of it you have — is love. It’s a simple but crucial lesson: Money’s necessary for survival and can get you nice things, but the most important things in life can’t be bought.

4. “Money” by Pink Floyd (1973)

A well-covered hit from the Dark Side of the Moon album, “Money” starts with the “ka-ching” and register sounds of retail transactions. It’s a haunting sound once you know the lyrics that soon follow: The song serves as a reminder that money and greed can be bad. The lesson to walk away with? While it’s important for your family’s safety, health, and comfort to have money, don’t forget to share with those less fortunate and to take time for more important things.

5. “Money, Money, Money” by Abba (1976)

“Money, Money, Money” by Abba paints a picture of a girl who works hard but is still struggling with her bills. She hopes to land a rich guy because it’s “always sunny in a rich man’s world.” But if that doesn’t work, she contemplates going to Vegas or Monaco and gambling her way to wealth. Perhaps not the wisest of financial plans, but with a fun rhythm and lighthearted lyrics, it’s easy to see why this song is one of Abba’s biggest hits.

6. “The Gambler” by Kenny Rogers (1978)

An example of brilliant storytelling, “The Gambler” could have several deeper interpretations — and may spark a debate between listeners as to whether the titular gambler dies at the end. On the surface, though, it’s a killer song about two men on a train, one of whom is a gambler sharing important advice: “You’ve got to know when to hold ‘em, know when to fold ‘em, know when to walk away, and know when to run.”

7. “She Works Hard for the Money” by Donna Summer (1983)

One of the most popular songs by the Disco Queen is “She Works Hard for the Money.” It’s hard not to jump up and dance when you hear this one, especially if you can relate to the protagonist: a woman who works day in and day out to provide for herself. The lesson here? People who work hard, no matter how much they make or what line of work they’re in, deserve respect and credit for what they do.

Recommended: 5 Ways to Achieve Financial Security

8. “If I Had $1,000,000” by Barenaked Ladies (1988)

This song doesn’t take itself too seriously — just as you’d expect from a group that calls itself Barenaked Ladies. But somewhere in all the silly lyrics, you’ll notice a theme: Though the singer may splurge on a limousine or, weirdly, John Merrick’s remains, he insinuates that money wouldn’t change him or his partner. They’d still eat Kraft dinners, just more of them (and with fancy ketchup). The takeaway from this song is that money can change who we are, but we shouldn’t let it.

9. “Mo Money Mo Problems” by Notorious B.I.G. (1997)

Perhaps the clearest finance lesson from these songs that talk about money hails from this hit from Notorious B.I.G. The takeaway, after all, is right there in the title. As we hear in the song, “It’s like the more money we come across, the more problems we see.” Money can solve a lot of problems, but don’t forget that it can bring on new problems you might not be expecting.

10. “Bills, Bills, Bills” by Destiny’s Child (1999)

How could we put together a list of songs about saving money without featuring Beyoncé? This song, which came out when Bey was still in Destiny’s Child, is all about female empowerment. In it, the protagonist is in a relationship with a man who is using her for her money — and she’s having none of it. The song is a healthy reminder that, while it’s OK to treat friends, family, and partners to nice things, you shouldn’t let yourself be taken advantage of.

11. “Billionaire” by Travie McCoy feat. Bruno Mars (2010)

“Billionaire” is a song that many of us can relate to. Most people will never become a billionaire, but it’s fun to imagine what we’d do if we had that much money. While the song is playful and isn’t packed with useful tips, it’s a reminder that it’s OK to have big financial dreams. Some may be unrealistic, but you need a big dream to keep you motivated and working hard.

12. “Thrift Shop” by Macklemore & Ryan Lewis feat. Wanz (2012)

Macklemore’s brand of humor is on full display in “Thrift Shop.” In it, the rapper criticizes spending money on designer clothes when there are so many better finds in thrift shops. Sure, it’s fine to splurge on yourself now and then, but being frugal — whether it’s shopping at thrift stores, packing a lunch, or borrowing books and movies from the library — is a great way to save money and build your wealth.

💡 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.

13. “Budapest” by George Ezra (2014)

The final entry on our list of songs about saving money comes from George Ezra and carries a message similar to “Can’t Buy Me Love.” In “Budapest,” Ezra promises his love interest that he would abandon all his wealth and belongings if it means he could be with the one he loves. This song is yet another reminder that possession may be nice but our relationships with people are even nicer.

Recommended: How to Get Better with Money

The Takeaway

Music can entertain us, energize us, relax us, and even heal us. It can also teach us — about life, about love, and yes, even about money. These 13 songs about finance are just the tip of the iceberg. So turn on the radio or dig through your music streaming service, and put in those earbuds the next time you’re working on your budget. You may be inspired to spend smarter, save more, and do what it takes to achieve your financial goals.

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 3.80% APY on SoFi Checking and Savings.

Photo credit: iStock/Talaj

SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://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.

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

SOBNK-Q424-043

Read more
Dec
04
2024
Is a $40,000 Salary Good?

Is a $40,000 Salary Good?

By | Budgeting & Goals, money | Comments Off on Is a $40,000 Salary Good?

Whether a $40,000 salary is considered good can depend on a variety of factors. For a recent grad in a small town where the cost of living is low, that might be an annual income that pays the bills. In addition, the $40,000 figure represents earning more than the federal minimum wage ($7.25/hour) in 34 states and districts.

But a $40,000 salary is not typically enough for a household to live comfortably in most parts of the United States. According to the U.S. Census, the median salary was $80,610 in 2023. What’s more, in 2024, a $40,000 salary would be below the United States Census Bureau’s poverty threshold for families of up to six people. Here’s a closer look at the $40K salary figure.

Key Points

•   A $40,000 salary may be sufficient for an individual in a low-cost area, but it may not be enough for a family to live comfortably in most parts of the U.S.

•   Rising inflation has made it more challenging to live on a $40,000 salary, but it still exceeds the poverty threshold for families with five or fewer members.

•   Compared to the median household income in the U.S, a $40,000 salary falls short, but it can contribute to the median household income when combined with a second income.

•   A $40,000 salary translates to a monthly income of $3,333.33, a biweekly paycheck of $1,538.46, and a weekly income of $769.23.

•   Living on a $40,000 budget requires careful expense tracking, budgeting, debt management, and saving strategies. Location plays a significant role in how far the salary can stretch.

How Does a $40,000 Salary Compare to the American Median Income?

Here’s a look at how earning a $40,000 annual income compares to that of your fellow Americans.

•   According to the U.S. Census Bureau, the median household income in 2023 was $80,610.

A $40,000 salary could successfully contribute to the Census Bureau’s picture of the median household income, when combined with a second income from a domestic partner.

Could this salary be considered good? Consider the following:

•   As an individual, you may find that $40,000 is a good entry-level salary.

•   Couples living the DINK lifestyle (which stands for dual income, no kids) and who each make $40,000 would be well above the median household income. Plus, they would have the additional costs of raising children as part of their budget.

$40,000 Salary Breakdown

It can be helpful to know what a $40,000 salary translates to as a monthly budget, weekly paycheck, or even hourly rate. This may help you decide if $40K is a good salary.

Here’s how it breaks down:

•   Monthly income: $3,333.33

•   Biweekly paycheck: $1,538.46

•   Weekly income: $769.23

•   Daily income: $153.85*

•   Hourly income: $19.23**

*Based on 260 working days a year
**Based on 2,080 working hours a year

And remember: That’s before taxes; that’s not likely to be the amount that’s deposited in your checking account when you are paid. If you are single and make $40,000 a year, your federal tax bracket is at 12%, but you may also owe state, city, and even school district taxes as well. It’s important to keep that in mind as you plan and assess how to pay bills and save with this salary.

Recommended: What to Do When You Get a Pay Raise: 12 Tips

Can You Live Individually on a $40,000 Income?

It is possible to live individually on a $40,000 income. In fact, you may be able to afford the average monthly expenses for a single person and work on your saving and investing goals.

Your location will have the largest impact on how far your dollars will stretch. Areas with a lower cost of living will likely be easier to afford for an individual on a $40,000 income.

As an individual, you can help your salary go further by looking for ways to save money, like:

•   Having a roommate or renting out a room in your house if you own one

•   Cooking at home instead of eating out

•   Buying a used car or, depending on where you live, relying on public transportation

•   Finding a higher-yield savings account

Best Places to Live on a $40,000 Salary

If you can afford moving expenses and aren’t tied to a specific location for work, you can make your dollars go further more easily in certain locations in the United States. These are places with a lower cost of living. Here are the five cheapest cities to live in the U.S. this year, according to U.S. News:

•   Fort Wayne, Indiana

•   Huntsville, Alabama

•   Wichita, Kansas

•   Springfield, Missouri

•   Davenport, Iowa

However, there’s more to moving than just the expenses and the job. Before packing up a rental truck, consider whether you are comfortable leaving behind friends, family, and familiar places.

Recommended: Emergency Fund Calculator: How Much Should You Save?

Worst Places to Live on a $40,000 Salary

A $40,000 salary might not go far enough in a city with a high cost of living. U.S. News research indicates these are the most expensive cities to live in:

•   Los Angeles, California

•   Miami, Florida

•   San Diego, California

•   Salinas, California

•   Santa Barbara, California

And if you were expecting to see Honolulu, Boston, and Santa Barbara (which often have reputations for being pricey), you’d find them a bit farther down the list but in the top 10.

Tips for Living on a $40,000 Budget

So how can you (and possibly your family) live on a $40,000 budget? It’s important to cut costs, look for deals, pay down your debt, and build up savings for an emergency.

But living on a small salary doesn’t mean you have to completely give up entertainment. Remember that it’s OK to treat yourself to the nice things in life from time to time, as long as they are within reason. Everyone needs some fun in their life.

Here are some important tips for living on a $40,000 budget:

Carefully Tracking Your Expenses

First things first, get an understanding of your current spending habits. Your bank may offer tools that make this easy to analyze or you can download apps or check websites that make this easier.

Consider what bills you have every month, whether they are set up on auto pay, and, if so, when do they process? (This will help you schedule your bills and avoid getting hit with late fees.) Make a list of all your recurring expenses (mortgage or rent, student loans, car payment, phone, insurance, and utilities), and then analyze how much on average you’re spending on more variable expenses like groceries, gas, clothing, and entertainment.

What can you cut? What bills can you negotiate down? Where can you reallocate money toward savings?

Recommended: 20 Commonly Forgotten Monthly Expenses

Getting on a Budget

Now that you have an idea of what you’re currently spending, it’s time to design a budget around what you should be spending.

Start by plugging in necessary monthly expenses; these are things you must pay for each month, like your home, insurance, and food. Only once you can see that these basic needs are met should you begin to budget for things like dining out or new clothes, also known as wants vs. needs.

Not sure where to start? Do some online research on how to make a budget. There are different techniques including a line item budget and the 50/30/20 budget rule.

Use the 50/30/20 budget calculator below to get an idea of how your budget could be broken down.

You might also check out what tracking and budgeting tools your financial institution offers. Many (especially online banks) offer a suite of tools.


Getting Out of Debt

As you consider how to manage daily life on a $40,000 salary, it’s wise to pay attention to the role that debt plays in your personal finances. Mortgage and student loan debt are structured to be paid off over decades, and can be considered by some to be good debt, as the interest rates are often relatively low and timely payments build your credit history. The rates on credit card debt, however, can be high and therefore more detrimental to your finances (and mental health). If you have serious credit card debt, it is wise to cut back expenses as much as you can so you can focus on paying off your debt.

You can tackle your debt using the snowball method or the avalanche method. You may also consider a balance-transfer credit card or a debt consolidation program, depending on your situation. A debt counselor who works for a nonprofit, like the National Foundation for Credit Counseling (NFCC ), can be helpful as well.

Saving Your Money

If you are debt-free (house, car, and student loan payments aside) and still have wiggle room in your budget after accounting for necessary expenses and a little bit of fun money, you can allocate some of your $40,000 salary toward your saving goals. These might include vacations, a house down payment, renovations, or a wedding. An emergency savings fund is often a good place to start.

Recommended: Emergency Fund Calculator

Investing Your Money

After you have gotten a handle on your expenses, designed a budget, and opened a savings account, you might consider if there is enough leftover from your $40,000 salary for investing. This may not be possible if you live in a city or state with a high cost of living.

How can you start investing? If your employer offers a 401(k) match, consider taking advantage of that. It’s basically free money, so contribute enough to snag it.

You can also look for automated investing opportunities so you don’t have to worry about building a portfolio from scratch.

The Takeaway

Whether $40,000 a year is a good salary depends on a variety of factors. For a single person just out of school, living in a relatively inexpensive town, it might be adequate. For a family of four in a major city, it is likely a challenging sum to subsist on.

With a $40,000 salary, it’s important to follow smart financial strategies, like budgeting and cutting expenses, as well as finding the right banking partner.

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 3.80% APY on SoFi Checking and Savings.

FAQ

Can you live comfortably on $40,000 a year?

Individuals may be able to live comfortably on $40,000 a year. Families, however, may struggle with this salary, especially in areas with a higher cost of living.

What can I afford making $40K a year?

If you are an individual living on $40,000 a year in an area with a low to moderate cost of living, you can afford typical monthly expenses like food, housing, and utilities and still have enough for some fun expenditures, like entertainment. If you are frugal and build a budget, you may also be able to pay down debt, build your savings, and even invest a little.

Is $40,000 a year considered middle class?

According to Pew Research’s most recent figures, a middle-class household’s median income was $106,100. An individual making $40,000 a year could qualify as middle class, especially if there were another wage earner in the household.

Photo credit: iStock/Prostock-Studio

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 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 Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://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.

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.


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.


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOBNK-Q424-060

Read more
Dec
04
2024
How Much Does it Cost to Refinance a Mortgage?

How Much Does It Cost to Refinance a Mortgage?

By | Budgeting & Goals, Home Ownership, mortgage | Comments Off on How Much Does It Cost to Refinance a Mortgage?

Expect to pay 2% to 5% of the new mortgage amount in closing costs when you refinance your mortgage.

If you have sufficient equity in your home and you’re tempted by a rate-and-term refinance or a cash-out refi, here’s what you need to know.

What Is the Average Cost to Refinance a Mortgage?

Refinancing isn’t free, because you’re taking out a new home loan and paying off your current one, and doing so brings on a host of costs, though not as many as purchase loans incur.

The main difference between average closing costs for refinances vs. home purchases is that owner’s title insurance and several inspection fees common for purchases are not typically required for refinances, according to ClosingCorp, a provider of residential real estate closing cost data and technology. But there is evidence that fees have been creeping up in recent years. From 2021 to 2023, median total loan costs for home mortgages increased by over 36%, according to the government’s Consumer Financial Protection Bureau.

Common Mortgage Refinance Fees

Some fees to refinance are flat fees that vary by lender. Other fees are based on a percentage of the loan amount.

Then there are recurring closing costs like homeowners insurance and property taxes. Six months of property taxes are usually due at closing.

Here are common fixed closing costs, though in some cases, a borrower may not need an appraisal.


Typical Fixed Refinance Closing Costs
Fee Average cost
Loan application up to $500
Credit report $10 to $100 per borrower
Home appraisal $300 to $400
Abstract fee $200 to $1,000
Lender’s title search $75 to $200

And here are common percentage-based closing costs. Not all borrowers will need mortgage insurance (PMI or MIP: private mortgage insurance for conventional loans, and mortgage insurance premium for FHA loans).

PMI is usually needed for a conventional loan exceeding an 80% loan-to-value ratio.

An FHA loan can be refinanced to another FHA loan or to a conventional loan if the borrower meets credit score and debt-to-income requirements for a nongovernment loan.

USDA and VA loans can also be refinanced.

Typical Percentage-Based Refinance Closing Costs
Refi cost Average amount
Loan origination fee 1% of loan amount
Mortgage points 1% of the mortgage amount per point
Mortgage insurance Varies by type of loan

Are You Eligible to Refinance?

Most mortgage lenders want a homeowner to have at least 20% equity in the house in order to refinance, although those numbers are not universal.

What is home equity? Here’s an example. If your home is worth $350,000 and the current mortgage balance is $250,000, you have $100,000 in equity. The loan-to-value ratio is 71% ($250,000 / $350,000). This scenario fits the parameters of many lenders for a refinance to take place.

You’ll typically need a minimum FICO® credit score of 620 to refinance a conventional loan and 580 to refinance an FHA loan. A score of 740 or above often ushers in the best rates.

Besides credit score, lenders normally review recent credit applications, on-time payments, and credit utilization.

Check to see if your current mortgage has a prepayment penalty. These days they’re fairly rare.

Recommended: 7 Signs It’s Time for a Mortgage Refinance

Benefits of Refinancing a Mortgage

The most common type of refi is a rate-and-term refinance, when you take out a new loan with a new interest rate or loan term (or both). Some people will choose a mortgage term of less than 30 years when they refi, if they can manage the new monthly payment.

Then there’s cash-out refinancing, which provides a lump sum to the homeowner.

In general, refinancing may make sense if interest rates fall below your current mortgage rate. Here are some times when a mortgage refinance could be beneficial.

If You Can Break Even Within a Suitable Time Frame

Calculate how long it would take to recoup the closing costs. Find the break-even point by dividing the closing costs by the monthly savings from your new payment.

Let’s say refinancing causes a payment to decrease by $100 a month. If closing costs will be $2,500, it would take 25 months to recoup the costs and start to see savings.

If you plan to sell the house in two years, refinancing may not be the right strategy. If you intend to stay long term, it may be an idea to explore.

If You Can Reduce Your Rate Even a Smidge

You might read or hear that refinancing is worth it if you can reduce your mortgage rate by 1% or 2%. But for a big mortgage, a change of just a quarter of a percentage point, or half of one, could result in significant savings, especially if you can minimize lender fees.

Again, consider the break-even point and how long you plan to keep the home.

You’d Like to Tap Home Equity

With a cash-out refinance, a percentage of your equity can be issued in a lump sum for any purpose. You will need to have at least 20% equity remaining after the transaction.

Be aware that the higher loan amount of a cash-out refinance usually results in higher closing costs.

(If your main goal is to access cash and not to change your rate or term, a home equity loan or home equity line of credit may be less expensive than paying the closing costs on a cash-out refinance.)

An ARM’s Teaser Rate Is Appealing

Refinancing a fixed-rate mortgage to an adjustable-rate mortgage could make sense for a homeowner who plans to move before the ARM’s initial rate adjustment.

A 5/1 ARM, for example, will come with a rate for five years that is lower than that of most fixed-rate mortgages.

In other rate environments, it could make sense to refinance an ARM to a fixed-rate mortgage.

You Want to Reduce Your Repayment Term

Some people may decide to enjoy a lower rate and shorten their mortgage term, say from 30 years to 15. Monthly payments may well go up, but a lower rate and a shorter term mean paying much less over the life of a loan.

The amortization chart of this mortgage calculator shows how much interest may be saved.

You’d Like to Get Rid of FHA Mortgage Insurance

FHA loans come with the mortgage insurance premium (MIP) that costs the typical borrower $850 per year for every $100,000 borrowed. Unless you put down more than 10%, you must pay those premiums for the life of the loan. The only way to get rid of the MIP is to get a new mortgage that isn’t backed by the FHA.

Tips to Lower the Cost of a Mortgage Refinance

When preparing to refinance, the most important action is to shop around.

Comparison Shop and Try to Negotiate

You need not apply for a refinance with just your current lender — and doing so would be a missed opportunity, the Consumer Financial Protection Bureau notes. Then again, your current lender may offer loyalty incentives.

Apply with as many lenders as you wish; you’ll receive a loan estimate from each. Compare the costs, including those of the lender’s preferred vendors.

Ask potential lenders which fees can be discounted or waived. Remember, each lender wants your business.

Typical non-negotiable closing costs found under Section B of each loan estimate include credit reports and appraisals.

Keep Your Credit Shipshape

Having at least a “good” credit score can help you get a more attractive rate, and if your credit score has improved since the initial mortgage was taken out, that could be a reason to refinance all by itself.

A good FICO score on the credit rating scale of 300 to 850 falls in the range of 670 to 739. VantageScore®, a competitor developed by Experian, Equifax, and TransUnion, considers a score between 661 and 780 good.

If your credit profile could use some polishing, consider ways to build credit over time.

Use the Same Title Insurance Company

Save money on the lender’s title insurance policy by asking for a reissue rate from the title insurance company that was used for the original loan.

Consider a Streamline Refi for Government Loans

If you have an FHA, USDA, or VA loan, you may want to see if you’re eligible for an FHA Streamline, USDA Streamlined Assist, or VA Interest Rate Reduction Refinance Loan. The programs charge a lower mortgage insurance fee than regular government refinance programs and usually do not require an appraisal.

Think About a ‘No-Closing-Cost Refi’

A no-closing-cost refinance allows borrowers to roll the closing costs into the mortgage or accept a slightly higher interest rate on the new loan.

Rolling the closing costs into the refinance loan will increase the principal and total interest paid. But if you’re going to keep the loan for more than a few years, this move could be worth it.

Accepting a slightly higher rate could work for borrowers who can skip the upfront payment and who plan to keep their new loan for only a few years.

Recommended: Guide to Buying, Selling, and Updating Your Home

The Takeaway

Refinancing your mortgage could cost anywhere from 2% to 5% of the loan amount but might make financial sense if you are able to capture a lower interest rate, shorten your payment term (and thus lower the amount of interest you pay), or escape paying a mortgage insurance premium on an FHA loan. To contain costs, always compare offers from multiple lenders and don’t forget to include both interest and closing costs (and fees) in your calculations.

SoFi can help you save money when you refinance your mortgage. Plus, we make sure the process is as stress-free and transparent as possible. SoFi offers competitive fixed rates on a traditional mortgage refinance or cash-out refinance.

A new mortgage refinance could be a game changer for your finances.

FAQ

Is refinancing your mortgage free?

No. A whole new loan must be approved and processed.

Is refinancing a mortgage worth the closing costs?

It might be. You’ll want to calculate your break-even point: Divide your closing costs by whatever your monthly savings will be to find the number of months it will take you to break even. Beyond that point, the refinancing benefits kick in.

Is it worth refinancing to save $100 a month?

Refinancing to save $100 a month could be worth it if you plan to keep your home long enough to cover the closing costs. Divide your closing costs by 100 to calculate how many months it will take you to break even.

Will refinancing cost me more in the long run?

If you get a new 30-year mortgage several years into your original 30-year loan, you are, in essence, lengthening the term of your loan, and that can cost you. It makes more sense to shorten the term to 20 or 15 years.

Is it cheaper to refinance with the same bank?

Your lender might offer a slightly lower rate, but it’s a good idea to still see what competitors are offering by comparing loan estimates.

Can you negotiate closing costs when refinancing?

Yes. Many lender fees and third-party vendor fees are negotiable. On each loan estimate, Section A lists the lender charges. Try to negotiate the lowest total lender charge, keeping the rate in mind. And third-party fees in Section C are negotiable.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.


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.



*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.


¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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.

Checking Your Rates: 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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .


External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

SOHL-Q424-125

Read more
Dec
03
2024
Does Paying Rent Build Credit?

Does Paying Rent Build Credit?

By | Budgeting & Goals, Credit, credit card | Comments Off on Does Paying Rent Build Credit?

Paying rent can be a path to build credit. That is, as long as your rent payments are being reported to the major credit bureaus — Equifax®, Experian®, and TransUnion®. Or there are some methods of paying with a credit card which can potentially build your score. You will also need to make sure you’re regularly making on-time payments, as late or missed payments can have a negative effect on your credit.

While it may not feel as automatic as other methods, with some effort, you can use your rent payments to build your credit. Here’s a closer look at how to do so.

Key Points

•   Rent payments build credit if reported to major credit bureaus like Equifax, Experian, and TransUnion.

•   Paying rent with a credit card can help build credit if payments are reported.

•   Rent reporting services ensure rent payments are reported to credit bureaus, often for a fee.

•   Late or missed rent payments negatively impact credit scores if reported.

•   Unreported rent payments don’t affect credit scores; other methods like credit-builder loans can help build credit.

How Paying Rent Affects Your Credit

Paying rent has the potential to affect your credit in two major ways: through your traditional credit history or through alternative data.

•  If you use your credit card to make rental payments, then your account activity will get included in your credit report. If you’re making timely payments in full, then this can positively impact your credit score. Late or missed payments, on the other hand, can lead to negative effects on your credit score.

•  Alternative data refers to sources that are not typically used to calculate credit scores. However, some lenders may consider them to determine creditworthiness. Rental payments are one example of alternative data — though for this information to count, you’ll usually have to enroll in a rent reporting service. And again, in order to build your credit through rental payments, it’s necessary to make those payments on time.

Can Your Rent Payments Appear on Your Credit Report?

Rent payments can appear on your credit report if your payment activity is reported to the major credit bureaus. To find out if your rent gets reported, ask your landlord or the property management company.

Your method of payment also affects whether your rental payments will show up on your credit report. For example, if you’re able to pay rent with a credit card, your payment should show up on your credit report. However, if you pay with a check or bank transfer, your payment most likely will not appear on your credit report.

Can You Manually Report Rent Payments to Credit Bureaus?

Unfortunately, you can’t report your rent payments to the credit bureaus on your own. Your landlord usually won’t be able to either, unless your building is managed by a property management company that does.

The good news is that there is a workaround to getting your rent payments reported, but it involves using a rent reporting service.

Tips for Getting Credit for the Rent You Pay

There are two main ways to get your payment activity added to your credit report: enrolling in a rent reporting service or using a method of payment that’s guaranteed to show up on your credit report.

Sign Up for a Rent Reporting Service

You can sign up for a rent reporting service yourself, or you can ask your landlord to do so if you’re hoping to use your rent payments to establish credit. If you sign up yourself, you may have to go through some verification procedures, such as having your landlord verify your rent payments.

In most cases, you’ll pay a fee for using the service. You may pay a set-up fee only, or you could owe a monthly fee. If your landlord signs up, they could incur a fee that they may then pass onto you. Still, it could be worth it if you want your rent payments reported to the credit bureaus.

Use Your Credit Card

If your landlord or property management company accepts this method of payment, then using your credit card could get your rent payment put on your credit report. Keep in mind that like rent reporting services, you may be charged a processing or convenience fee for using your card to pay for rent.

Also know that, while there are different types of credit cards, many charge high interest. Make sure you can pay off your bill for your rent promptly; otherwise you could wind up with high-interest credit card debt.

Recommended: What Is a Charge Card?

Does Missing Rent Hurt Your Credit Score?

Missing even one payment could affect your credit score negatively if your rent payments are reported to the credit bureaus. Considering that payment activity is one of the major factors used in calculating your credit score — your payment history makes up 35% of your FICO® score — it’s best to try and make on-time payments each month.

However, if you don’t use your credit card to make rental payments, you aren’t signed up for a rent reporting service, and your landlord doesn’t report your payment activity, then your credit score will most likely not be affected by missing rent. Still, missing rent payments can have other serious implications down the road, from making it harder to negotiate rent in the future to possible eviction.

Other Ways to Build Credit

While paying rent can build credit, there are other ways to go about doing so. If you’re hoping to establish your credit, here are some alternatives to consider.

Take Out a Personal Loan

Here are two options:

•  There are many loans that are specifically geared toward those looking to build their credit. Sometimes marketed as credit-builder loans, these loans approve you for a specific amount that you then make payments on in monthly installments until the amount is paid off in full.

  Unlike a traditional personal loan, the money borrowed is held in a savings or escrow account — think of it as forced savings — and your payment activity is reported to the credit bureaus. Once you pay off the loan, you’ll receive the funds, minus any applicable fees.

•  You can also choose to take out a traditional personal loan, where you’ll receive a lump sum upfront. The amount you qualify for and the terms of the loan will depend on your creditworthiness. In fact, if you’re in a bind and have strong credit, you can even use personal loans for rent.

With either of these options, make sure to shop around for lenders and compare offers. Also take the time to read the fine print carefully, so you understand exactly what you’re getting into.

Become an Authorized User

Another option to build credit is to ask someone you trust — such as your spouse or a relative — who has good credit to make you an authorized user on their credit card. Doing so means that this account gets added to your credit history.

This can allow the primary cardholder’s credit activity to help you build your credit, as long as they continue to be responsible with their credit card. In turn, this could help you to secure the necessary credit score to rent an apartment or qualify for loans.

Use a Credit Card

Another way to build credit is through responsible credit card usage. Depending on your credit history, you can choose from a secured or unsecured credit card. A secured credit card may be easier to qualify for, since many are geared toward those with limited or no credit history. You’ll need to put down collateral (usually a refundable deposit), which will serve as your credit limit.

Or, you can try to apply for an unsecured credit card if you believe your approval changes are high.

Whichever route you go, make sure to stay on top of making your payments on time, and avoid using too much of your available credit limit. You could even consider paying your bills with a credit card to build up your payment history.

Recommended: Does Applying for a Credit Card Hurt Your Credit Score?

The Takeaway

You can build credit with your rent payments if you make them using your credit card or if your payments get reported to the credit bureaus. Ask your landlord or rental company if payments already get reported to the bureaus. If they don’t you can sign up for a rent reporting service, though you’ll most likely pay a fee to do so. From there, rent can affect your credit score positively or negatively, depending on whether your payments are made on time.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How soon will my rent payments appear on my credit report?

Typically, credit reports are updated monthly. That said, how soon your rent payments will appear on your credit report depends on several factors, including when you made your payment, how you paid, and whether you did so through a credit reporting service.

Can I build my credit by paying rent?

You may be able to build your credit by paying rent if you use a method of payment that gets reported to the credit bureaus or if you sign up for a rent reporting service. Otherwise, if your landlord or property management company doesn’t report your payment activity, it won’t affect your credit.

How long does unpaid rent stay on credit?

If you missed a rent payment and your rent payments do get reported to the credit bureaus, the negative remark may stay on your credit report for up to seven years.

Photo credit: iStock/miniseries

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .


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.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

SOCC-Q424-006

Read more
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