Jul
05
2024
The Pros and Cons of Unpaid Internships

The Pros and Cons of Unpaid Internships

By | Building Your Career, Life & Career, money | Comments Off on The Pros and Cons of Unpaid Internships

Paid and unpaid internships can provide students with relevant work experience in their field of choice. But while both opportunities offer knowledge and training, only one rewards you with a paycheck.

Although paid internships are more common, it doesn’t mean everyone can land one. So if you want the experience and don’t want to pass up a chance to beef up your resume, you may have to work for free. Spending several months at an unpaid internship can be difficult, especially if you’re already carrying debt, dealing with high living expenses, or need to work a paying job.

Whether interns should be paid or not is an ongoing debate with a lot to consider before committing to one. Find out about the pros and cons of an unpaid internship to see if it’s worth the investment.

What Is an Unpaid Internship?

An unpaid internship is a temporary work arrangement offered to graduate or college students, or as internships for high school students, so they can gain training and knowledge by working in their area of interest. Interns are able to perform duties related to their chosen career, observe professionals in a workplace setting, and receive direct guidance from mentors.

These non-compensated arrangements differ from an apprenticeship, which is designed to provide hands-on training in a specific trade or industry. Apprenticeships are paid and wage increases occur as new skills are acquired.

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Are Unpaid Internships Legal?

Yes, according to the The Fair Labor Standards Act (FLSA), which states that “for-profit” employers must pay employees for their work. However, interns and students may not be “employees,” in which case the law doesn’t require payment for their work. If an internship qualifies as paid, companies must pay their interns at least minimum wage for their services plus any overtime.

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How Do Unpaid Internships Work?

Unpaid internships typically require you to work for a specific period of time during the school year or during the summer. The program may ask you to work on site, but with the increase in some employees working from home, remote internships have become more of a possibility.

Before you start your internship, you’ll likely discuss what you’ll be doing and when you’ll be able to work with your supervisor. Since you’re not being compensated, you’ll probably have more flexibility with scheduling.

It’s important to remember an unpaid internship isn’t volunteer work and should be more beneficial to you than the business or organization. After all, the reason you’re there is to receive training and education you simply can’t get by sitting in a classroom.

Pros of Taking Unpaid Internships

Building your professional resume can be priceless and let’s face it, your calling card once you hit the job market. Besides offering exposure to what it will be like working in your specialty, you’ll build potentially lifelong connections with people who may be able to open doors for you down the road.

There are many ways an unpaid internship can help prepare you for future career success. Here are some significant advantages:

Getting Valuable Experience

As an intern, you’ll get actual hands-on training that attracts future employers. According to the National Association of Colleges and Employers (NACE), applicants with industry internship experience have a leg up when it comes to employers’ hiring decisions.

Working as an intern allows you to develop crucial skills you’ll need in a professional setting, such as how to communicate effectively and collaborate with others. These abilities can make you even more of a stand out to prospective employers.

Valuable experience gained from an internship isn’t exclusive to undergrads. Already have your degree? You can still build upon your knowledge with an unpaid post graduate internship. These secondary education opportunities allow you to keep actively learning while you’re pursuing full-time employment or, if you want some down time after graduation.

Networking Equals Potential Opportunity

Making connections is one of the most important things you can do to grow your career. In fact, an estimated 80% of all positions are filled through networking. Many jobs aren’t publicly advertised so if you’ve left a positive impression, you may be the first person your past internship boss calls when a job opens up. Even if your internship doesn’t culminate in employment, building a solid network and maintaining relationships can pay off if you need a future job reference, letter of recommendation, mentoring, or career advice.

Companies Offering College Credit

Many companies will offer unpaid internships for college credits as compensation for your work. Knowing you’re receiving credits towards your degree, which can be a form of currency in its own right, may help justify the decision to take an unpaid internship.

Working in a Relevant Field

Internships give a preview of what it may be like working in your area of expertise, placing you in an environment where you’re exposed to the latest technology, industry norms, and business culture. With some concrete training spent working in your field, you may be more likely to be hired compared to someone with zero internship experience or those who have interned in an unrelated field.

Helps With Making Future Career Decisions

During an unpaid internship, you may come to the realization your selected career isn’t all you imagined. In this case, you could save yourself from wasting valuable time in the future and start exploring other career options. On the other hand, your internship could crystallize how much you love what you’re doing, validating you’ve made the right choice.

You may also decide to continue on with your education as something to do after college instead of entering the job market right away. This could be an ideal time to fit in an unpaid internship before pursuing a graduate degree.

Recommended: How to Make a Budget in 5 Steps

Cons of Taking Unpaid Internships

The main cons of unpaid internships center around the obvious: no financial compensation for your efforts. Unpaid internships can also create barriers for disadvantaged or low-income students, possibly eliminating some extremely qualified candidates from gaining training and having a shot at making a serious contribution to a company.

Consider these downsides when thinking about applying for unpaid internship:

No Money for Your Hard Work

Strapped with tuition and other college-related costs, many students simply can’t work without pay. Participating in an unpaid internship can require commuting or even relocation during the summer months, increasing your need to have money in a bank account or earning it at another job.

Often Not Receiving Company Benefits

As an unpaid intern and temporary worker, you’re not entitled to the same benefits of a paid employee, such as paid vacation days, medical insurance, or the ability to contribute to a 401(k). Performing duties similar to a permanent employee’s and not gleaning any of the perks may also lead to feeling resentful, unappreciated, or lonely, especially if you’re the only one working while employees get to leave early for a three-day holiday weekend.

Possible Inequalities in the Workplace

Student interns who aren’t paid may find themselves doing more menial tasks and feel looked down upon by other employees. Staffers may be dismissive, impatient, condescending, or exclude them from conversations because they’re the intern.

One major criticism of unpaid internships concerns the perpetuation of socioeconomic and racial inequities. For example, the National Association of Colleges and Employers 2023 study found that white students were more likely to have paid internships than Hispanic or Black students.

Potential Lower Future Income

Showing you’re willing to work for free may give employers the idea you might accept a lesser amount compared to someone who had a paid internship. Making this assumption on their part could lead to a lower salary offer.

Recent research by the Strada Education Network found having a paid internship as an undergraduate is linked with a predicted increase in annual wages of $3,096 just one year after graduation. Unpaid internships, practicums and cooperative learning aren’t associated with higher earnings post-graduation, the study reports.

Are Unpaid Internships Worth It?

Of course, it’s an individual choice based on a student’s particular circumstances, but unpaid internships can be worthwhile. Even if you’re not being compensated, these situations can provide training you can only get by working with professionals and mentors. Taking an unpaid internship could take the pressure off some of the expectations, duties, and necessary time commitment you’re more likely to have as a paid intern.

The Takeaway

An unpaid internship can pay off in significant ways such as offering college credits, meeting and networking with people in your field, and providing solid work experience to bolster your resume. Unpaid internships can also help you decide whether or not you’re on the right career path. But, interning without compensation can pose some major challenges for those who can’t afford to work for free. Before applying, think through the pros and cons to help you determine your best route to working toward your career and 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 4.00% APY on SoFi Checking and Savings.

FAQ

Are unpaid internships exploitation?

A criticism of unpaid internship programs is that they take advantage of a student’s free labor without providing any practical experience or educational benefits. While you may be asked to move some boxes or go on a coffee run, an unpaid internship that is not exploitative should mostly involve tasks that expand your skill set and teach you about your future career.

Is there a better workflow if interns are paid?

Interns help boost a company or organization’s workflow regardless, but paid interns may boost workflow more, since being financially compensated is associated with feeling satisfied and valued, which in turn is connected to productivity.

What percentages of companies offer unpaid internships?

Research shows that nearly 41% of interns in the U.S. are unpaid, and 59% are paid.

Photo credit: iStock/PeopleImages

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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Jul
05
2024
Getting a Second Job: The Pros and Cons

Getting a Second Job: The Pros and Cons

By | Financial Independence, Life & Career, money | Comments Off on Getting a Second Job: The Pros and Cons

Many of us have had that moment where we think, “I need to earn more money.” If you are feeling the pinch of rising expenses plus a static income, you might consider getting a second job to boost your monthly take-home pay.

You’re not alone. According to the Federal Reserve Bank of St. Louis, 8.4 million people in the U.S. have multiple jobs, which is more than 5% of the workforce. That figure, however, may not capture the full impact of the Gig Economy, and all of those who sometimes hop behind the wheel of an Uber or otherwise do freelance work.

Working more than one job can help you save money, but it can also be a challenge. To help better understand the pluses and minuses of moonlighting, read on.

What Is Moonlighting?

Moonlighting is defined as taking on a secondary job in addition to a primary full-time job. (Typically, second jobs were done at night, by moonlight, after one’s day job.) That extra job might require you to be on-premises, or it could be a project that can be done from home.

These days, some people use the term loosely. You might hear someone say, “I moonlight editing college application essays” or “I moonlight now and then at a catering company.” The hours may be variable and flexible, but it’s an additional form of employment that brings in money, potentially helping an individual to create financial freedom.

Generally, as long as moonlighting doesn’t impact an employee’s performance while they’re on the clock, employers will allow moonlighting. However, company rules, such as a non-compete policy, could bar full-time employees from moonlighting jobs in similar industries.

Having a second job can accomplish a variety of goals, from adding money to your bank account, to paying down credit card debt to funding a new car purchase to buying a home.

How Does Moonlighting Work?

Moonlighting jobs can take many different forms. Typically, it’s a part-time job in addition to full-time work. It may or may not be related to your primary job. For instance, it could include any of the following possibilities:

•   Waiting tables on the weekend, outside of a 9 to 5 job

•   Working as a music teacher in a school, but teaching private music lessons after hours

•   Taking on gig work, like food delivery, outside of working hours

In some cases, moonlighting may offer some of the best ways to make money from home. In your spare time, you might tutor, design websites, edit copy, make jewelry, analyze data, or do any number of other tasks.

Having a second job or moonlighting typically involves dedicating some time and energy to the pursuit on a regular basis. In this way, it differs from passive income ideas, which could include buying stocks and receiving dividends or renting out a room in your home.

Reasons Why People Take a Second Job

People may take on moonlighting work for any of the following reasons:

•   Financial. Bringing in more income could help pay off debt faster.

•   Personal. A moonlighting job may allow someone to explore an area of interest more seriously or provide an antidote to a boring but profitable day job.

•   Professional. People who moonlight may learn new skills that benefit them in their full-time work or help them switch industries entirely.

Recommended: How to Earn Residual Income

Pros of Working a Second Job

While working two jobs will take more of your time and energy, there are definitely benefits to doing so. Here’s a closer look at the pros:

More Money

No surprise here: One of the most immediate (and most sought-after) benefits of moonlighting is earning additional income. Having some extra cash can help when you’re budgeting for basic living expenses, especially in times of high inflation.

Beyond that, the additional cash can allow you to do anything from paying off debt faster to opening a high-yield savings account and building an emergency fund to starting a travel fund for vacations.

New Skills or Benefits

Have you been thinking about switching to another line of work, like retail? Working in a store on Sundays could let you see if it’s a good fit. Or is there a project, like web design, that you dream of making your full-time career? Freelancing at that pursuit a few nights a week might lay the foundation. Moonlighting work doesn’t necessarily have to be related to a person’s full-time job, so it can be a great tool to explore a hobby or interest with less risk. You can build your resume and hone your talents.

Moonlighting work may also provide benefits a full-time job doesn’t. If someone is passionate about art, they may take a moonlighting job at an art store to score an employee discount, saving them money on their hobby.

Less Financial Stress

If you’re anxious about money, join the club. One recent survey found that a stunning 65% of Americans say that money is their biggest source of stress. An additional job could be a way to achieve financial security, as you’re not relying solely on one employer for all of your income.

The money you make moonlighting might be a way to pay off debt faster without using savings, whether that means whittling down your student loans or a credit card balance. You could save it and decide where to keep an emergency fund in case an unexpected major bill comes along. Or you could funnel the funds into a retirement account. In any of these situations, the extra money can help increase your financial fitness as well as your peace of mind.

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.


Cons of Working a Second Job

Taking a second job can be enticing for the extra income alone, but that doesn’t tell the whole story. There are some cons to working two jobs that it’s wise to consider before you begin moonlighting. For some, the following downsides may prove to outweigh the benefits.

Less Time for Self, Friends, or Family

More work will mean less free time. Losing that free time could disrupt your ability to maintain work-life balance while increasing your stress. Not having time to see friends and family or pursue hobbies could have a negative effect on your wellbeing.

Increased Physical and Mental Tiredness

Working two jobs, whether physically demanding or not, can lead to exhaustion. Without the time to recharge and rest, moonlighters may experience burnout.

Reduced Focus at First Job

If moonlighting leaves you exhausted or distracted, it could cause you to be less successful at your primary job. This, in turn, could jeopardize your main income stream.

Violating company guidelines

Moonlighting can put your main job in danger if you go against existing guidelines. Let’s say you are a lawyer for one company, and you signed a non-compete agreement. If another company asks you to review some documents for them as a freelancer, doing so could be problematic.

More paperwork

As you begin earning income for your second job, you will need to keep track of that money, any expenses you incur while working, and what taxes you owe.

Tips to Make Working Two Jobs Work

There are pros and cons of working two jobs. However, if you choose your additional work carefully, moonlighting can be a successful endeavor. Consider these tips when searching for moonlighting work:

•   Pick a passion. When a second job is boring, it might be more exhausting. Instead, consider a gig you are passionate or excited about as your moonlighting gig.

•   Start small. Taking on too many hours of moonlighting work upfront can lead to burnout. Try starting small, with only a few additional hours a week or even a seasonal position. If it goes well, you can ramp up your hours.

•   Double-check employer policy. Before signing up for a moonlighting job, check with policies at your full-time position. There could be non-compete or conflict-of-interest clauses that prohibit employees from working in certain fields. It can be best to follow these guidelines when you’re pursuing additional hours elsewhere.

•   Keep good records. It’s possible that your moonlighting job will be handled as a W-2, meaning your employer takes out taxes, but it’s likely this is freelance or contract work that involves an IRS Form 1099. Keep careful track of earnings, expenses, and when estimated taxes are due and for how much.

The Takeaway

Taking on a second job, or moonlighting, can be a great way to earn some extra cash and bulk up your bank account when money is tight or you want to save towards a specific goal. This kind of additional work can also help you explore a personal interest that might blossom into a new career direction.

However, working a second job, even if it’s a small commitment of hours, can throw your work-life balance out of whack, so proceed with caution to avoid burnout. The goal is to amp up your earning power, not exhaust you.

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

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

FAQ

Is it unhealthy to work 2 jobs?

Moonlighting can be challenging for individuals who already struggle with work-life balance. With two jobs, it may be hard to pursue a personal life or relax. It might be wise to start a second job with a small commitment of time, see how it goes, and then gradually add more hours.

How do I survive 2 jobs?

Surviving two jobs may hinge on setting boundaries for both, as well as finding enjoyable work that’s not too physically or mentally taxing. Self-care is obviously important. Another consideration is making sure that you are not violating any non-compete or conflict-of-interest guidelines at your primary job so as not to jeopardize your status.

How does tax work for 2 jobs?

If both jobs are W-2, not contract, the employers will withhold taxes for the employees. However, if for your moonlighting job, you receive a 1099 as a contract worker, you should set aside and pay your own taxes. Also, taking on two jobs could boost you into a higher tax bracket, which could mean being taxed at a higher rate.

Is it illegal to work two jobs?

Unless explicitly stated in a job offer or contract, it is not illegal to work two jobs. Do make sure you are not violating any non-compete or conflict-of-interest stipulations at your primary job. Also know that most contracts are “at will,” meaning an employer has the right to fire an employee if a second job interferes with their performance.

Photo credit: iStock/Phynart Studio

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

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

This article is not intended to be legal advice. Please consult an attorney for advice.

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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Jul
02
2024
women walking on beach

Investment Strategies By Age

By | Growing Wealth, invest, Investing, Life & Career | No Comments

Your age is a major factor in the investment strategy you choose and the assets you invest in. The investments someone makes when they’re in their 20s should look very different from the investments they make in their 50s.

Generally speaking, the younger you are, the more risk you may be able to tolerate because you’ll have time to make up for investment losses you might incur. Conversely, the closer you are to retirement, the more conservative you’ll want to be since you have less time to recoup from any losses. In other words, your investments need to align with your risk tolerance, time horizon, and financial goals.

Most important of all, you need to start saving for retirement now so that you won’t be caught short when it’s time to retire. According to a 2024 SoFi survey of adults 18 and older, 59% of respondents had no retirement savings at all or less than $49,999.

Here is some information to consider at different ages.

Investing in Your 20s

In your 20s, you’ve just started in your career and likely aren’t yet earning a lot. You’re probably also paying off debt such as student loans. Despite those challenges, this is an important time to begin investing with any extra money you have. The sooner you start, the more time you’ll have to save for retirement. Plus, you can take advantage of the power of compounding returns over the decades. These strategies can help get you on your investing journey.

Strategy 1: Participate in a Retirement Savings Plan

One of the easiest ways to start saving for retirement is to enroll in an employer-sponsored plan like a 401(k). Your contributions are generally automatically deducted from your paycheck, making it easier to save.

If possible, contribute at least enough to qualify for your employer’s 401(k) match if they offer one. That way your company will match a percentage of your contributions up to a certain limit, and you’ll be earning what’s essentially free money.

Those who don’t have access to an employer-sponsored plan might want to consider setting up an individual retirement account (IRA). There are different types of IRAs, but two of the most common are traditional and Roth IRAs. Both let you contribute the same amount (up to $7,000 in 2024 for those under age 50), but one key difference is the way the two accounts are taxed. With Roth IRAs, contributions are not tax deductible, but you can withdraw money tax-free in retirement. With traditional IRAs, you deduct your contributions upfront and pay taxes on distributions when you retire.

Strategy 2: Explore Diversification

As you’re building a portfolio, consider diversification. Diversification involves spreading your investments across different asset classes, such as stocks, bonds, and real estate investment trusts (REITs). One way twentysomethings might diversify their portfolios is by investing in mutual funds or exchange-traded funds (ETFs). Mutual funds are pooled investments typically in stocks or bonds, and they trade once per day at the end of the day. ETFs are baskets of securities that trade on a public exchange and trade throughout the day.

You may be able to invest in mutual funds or ETFs through your 401(k) or IRA. Or you could open a brokerage account to begin investing in them.

Strategy 3: Consider Your Approach and Comfort Level

As mentioned, the younger an individual is, the more time they may have to recover from any losses or market downturns. Deciding what kind of approach they want to take at this stage could be helpful.

For instance, one approach involves designating a larger portion of investments to growth funds, mutual funds or ETFs that reflect a more aggressive investing style, but it’s very important to understand that this also involves higher risk. You may feel that a more conservative approach that’s less risky suits you better. What you choose to do is fully up to you. Weigh the options and decide what makes sense for you.

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Investing in Your 30s

Once you’re in your 30s, you may have advanced in your career and started earning more money. However, at this stage of life you may also be starting a family, and you likely have financial obligations such as a mortgage, a car loan, and paying for childcare. Plus, you’re probably still paying off your student loans. Still, despite these expenses, contributing to your retirement should be a top priority. Here are some ways to do that.

Strategy 1: Maximize Your Contributions

Now that you’re earning more, this is the time to max out your 401(k) or IRA if you can, which could help you save more for retirement. In 2024, you can contribute up to $23,000 in a 401(k) and up to $7,000 in an IRA. (If you have a Roth IRA, there are income limits you need to meet to be eligible to contribute the full amount, which is one thing to consider when choosing between a Roth IRA vs. a traditional IRA.)

Strategy 2: Consider Adding Fixed-Income Assets to the Mix

While you can likely still afford some risk since you have several decades to recover from downturns or losses, you may also want to add some fixed-income assets like bonds or bond funds to your portfolio to help counterbalance the risk of growth funds and give yourself a cushion against potential market volatility. For example, an investor in their 30s might want 20% to 30% of their portfolio to be bonds. But, of course, you’ll want to determine what specific allocation makes the most sense for your particular situation.

Strategy 3: Get Your Other Financial Goals On Track

While saving for retirement is crucial, you should also make sure that your overall financial situation is stable. That means paying off your debts, especially high-interest debt like credit cards, so that it doesn’t continue to accrue interest. In addition, build up your emergency fund with enough money to tide you over for at least three to six months in case of a financial setback, such as a major medical expense or getting laid off from your job. And finally, make sure you have enough funds to cover your regular expenses, such as your mortgage payment and insurance.

Investing in Your 40s

You may be in — or approaching — your peak earning years now. At the same time, you likely have more expenses, as well, such as putting away money for your children’s college education, and saving up for a bigger house. Fortunately, you probably have at least 20 years before retirement, so there is still time to help build your nest egg. Consider these steps:

Strategy 1: Review Your Progress

According to one rule of thumb, by your 40s, you should have 3x the amount of your salary saved for retirement. This is just a guideline, but it gives you an idea of what you may need. Another popular guideline is the 80% rule of aiming to save at least 80% of your pre-retirement income. And finally, there is the 4% rule that says you can take your projected annual retirement expenses and divide them by 4% (0.04) to get an estimate of how much money you’ll need for retirement.

These are all rough targets, but they give you a benchmark to compare your current retirement savings to. Then, you can make adjustments as needed.

Strategy 2: Get Financial Advice

If you haven’t done much in terms of investing up until this point, it’s not too late to start. Seeking help from financial advisors and other professionals may help you establish a financial plan and set short-term and long-term financial goals.

Even for those who have started saving, meeting with a financial specialist could be useful if you have questions or need help mapping out your next steps or sticking to your overall strategy.

Strategy 3: Focus on the Your Goals

Since they might have another 20-plus years in the market before retirement, some individuals may choose to keep a portion of their portfolio allocated to stocks now. But of course, it’s also important to be careful and not take too much risk. For instance, while nothing is guaranteed and there is always risk involved, you might feel more comfortable in your 40s choosing investments that have a proven track record of returns.

Investing in Your 50s

You’re getting close to retirement age, so this is the time to buckle down and get serious about saving safely. If you’ve been a more aggressive investor in earlier decades, you’ll generally want to become more conservative about investing now. You’ll need your retirement funds in 10 years or so, and it’s vital not to do anything that might jeopardize your future. These investment strategies by age may be helpful to you in your 50s:

Strategy 1: Add Stability to Your Portfolio

One way to take a more conservative approach is to start shifting more of your portfolio to fixed-income assets like bonds or bond funds. Although these investments may result in lower returns in the short term compared to assets like stocks, they can help generate income when you begin withdrawing funds in retirement since bonds provide you with periodic interest payments.

You may also want to consider lower-risk investments like money market funds at this stage of your investment life.

Strategy 2: Take Advantage of Catch-up Contributions

Starting at age 50, you become eligible to make catch-up contributions to your 401(k) or IRA. In 2024, you can contribute an additional $7,500 to your 401(k) for a total contribution of $30,500 for the year if you max out your plan.

In 2024, the catch-up contribution for an IRA is an additional $1,000 for a total maximum contribution of $8,000 for the year. This allows you to stash away even more money for retirement.

Strategy 3: Consider Downsizing

Your kids may be out of the house now, which can make it the ideal time to cut back on some major expenses in order to save more. You might want to move into a smaller home, for instance, or get rid of an extra car you no longer need.

Think about what you want your retirement lifestyle to look like — lots of travel, more time for hobbies, starting a small business, or whatever it might be — and plan accordingly. By cutting back on some expenses now, you may be able to save more for your future pastimes.

Investing in Your 60s

Retirement is fast approaching, but that doesn’t mean it’s time to pull back on your investing. Every little bit you can continue to save and invest now can help build your nest egg. Remember, your retirement savings may need to last you for 30 years or even longer. Here are some strategies that may help you accumulate the money you need.

Strategy 1: Get the Most Out of Social Security

The average retirement age in the U.S. is 65 for men and 63 for women. But you may decide you want to work for longer than that. Waiting to retire can pay off in terms of Social Security benefits. The longer you wait, the bigger your monthly benefit will be.

The earliest you can start receiving Social Security Benefits is age 62, but your benefits will be reduced by as much as 30% if you take them that early. If you wait until your full retirement age, which is 67 for those born in 1960 or later, you can begin receiving full benefits.

However, if you wait until age 70 by working longer or working part time, say, the size of your benefits will increase substantially. Typically, for each additional year you wait to claim your benefits up to age 70, your benefits will grow by 8%.

Strategy 2: Review Your Asset Allocation

Just before and during retirement, it’s important to make sure your portfolio has enough assets such as bonds and dividend-paying stocks so that you’ll have income coming in. You’ll also want to stash away some cash for unexpected expenses that might pop up in the short term; you could put that money in your emergency fund.

Some individuals in their 60s may choose to keep some stocks with growth potential in their asset allocation as a way to potentially avoid outliving their savings and preserve their spending power. Overall, people at this stage of life may want to continue the more conservative approach to investing they started in their 50s, and not choose anything too aggressive or risky.

Strategy 3: Keep investing in your 401(k) as long as you’re still working.

If you can, max out your 401(k), including catch-up contributions, in your 60s to sock away as much as possible for retirement. This can be especially helpful if you didn’t invest as much as you ideally should have at earlier ages. Contributing to your 401(k) could also help lower your taxable income now, when you may be in a higher income tax bracket than you were in previous decades.

Also, you can continue to contribute to any IRAs you may have — up to the limit allowed by the IRS, which is $8,000 in 2024, including catch-up contributions. If you have a Roth IRA, you will need to meet the income limits in order to contribute.

The Takeaway

Investing for retirement should be a priority throughout your adult life, starting in your 20s. The sooner you begin, the more time you’ll have to save. And while it’s never too late to start investing for retirement, focusing on investment strategies by age, and changing your approach accordingly, can generally help you reach your financial goals.

For instance, in your 20s and 30s you can typically be more aggressive since you have time to make up for any downturns or losses. But as you get closer to retirement in your 40s, 50s, and 60s, your investment strategy should shift and take on a more conservative approach. Like your age, your investment strategy should adjust across the decades to help you live comfortably and enjoyably in your golden years.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).


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Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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Guide to What Is (and Is Not) a Financial Emergency

By | Family Finances, Life & Career, money | Comments Off on Guide to What Is (and Is Not) a Financial Emergency

A financial emergency is any situation that you didn’t anticipate or plan for that affects you financially. Examples of financial emergencies can include a job loss, unexpected car repair, or medical bills resulting from an accidental injury.

Six out of 10 American households experience at least one financial emergency per year, according to the Federal Emergency Management Agency (FEMA). Financial experts recommend planning ahead for life’s curveballs by saving an emergency fund.

Knowing what is a financial emergency–and what isn’t–can help you decide when it makes sense to tap into your cash reserves or turn to credit to cover the gap.

What Is Considered a Financial Emergency?

FEMA defines a financial emergency as “any expense or loss of income you do not plan for.” There are a number of different scenarios that could fit the definition of a financial emergency, which is why it’s a good idea to make sure you have enough money in your bank account to cover them, if possible.

Here are some of the most common financial emergencies that a typical household may encounter that could cause financial hardship.

Home Emergencies or Repairs

In addition to the regular costs of home ownership, it’s also important to be prepared for unexpected expenses that may crop up from time to time. For example, you may need to replace your HVAC system if it stops working or get a new roof if yours springs an unfixable leak. Other financial emergencies examples include appliance repairs or needing to pay your deductible if you have to file a homeowner’s insurance claim for damages.

Car Emergencies or Repairs

If you own at least one vehicle for long enough, odds are that you’ll have a financial emergency at some point. Your transmission might give out, for example, or you find out that you need to replace all four tires in order to pass inspection. These are costs that you may not plan for that but need to pay to keep your car on the road.

Loss of Income

There are different scenarios where a loss of income might constitute a financial emergency. If you’re the sole breadwinner for your household, for instance, and you get laid off, fired, quit, or can’t work because of an illness or injury, this situation can directly impact your ability to pay the bills.

Emergencies That Affect Your Health

A health issue, major or minor, could end up being a financial emergency if it affects your ability to collect a paycheck. This kind of situation may also trigger a money emergency if you have to pay for some or all of your medical care out of pocket. Health insurance may cover some of your care if you get sick or injured, but it doesn’t always cover all of your costs. And a financial emergency of this nature can be made worse if you’re unable to work.

Unexpected Loss of a Loved

Losing a loved one can be upsetting enough on its own, but it can also create financial pressure. If you need to travel to attend the funeral or you’re expected to contribute to final expenses, you can find yourself in a scenario that’s a financial emergency.

Natural Disasters

Storms, droughts, floods, and earthquakes seem to be in the news more frequently these days. Any one of these events can disrupt your life and cause loss of income as well as unexpected expenses. If a huge storm floods your town, your home might suffer damage and, even if you’re insured, other expenses could quickly pile up. Also, if your place of business were to be flooded, you might be out of work and therefore out of income for a while.

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What Is Not Considered a Financial Emergency?

Now you know what a financial emergency is. There are some things, however, you might spend money on that don’t meet the strict definition of an emergency. Here are some examples of the kinds of situations that may feel necessary or urgent but aren’t actually financial emergencies.

Taking a Vacation

A vacation might feel like a “need,” especially if you could use some time away from a stressful job. But vacations generally are not considered to be examples of financial emergencies because they are not unexpected. Instead, you can plan and save for a trip at a pace that works for your budget.

Going to or Planning a Wedding

Being a guest at a wedding is optional, though you may feel social pressure to RSVP that you’ll be there. The costs of attending can add up, once you factor in gifts, new clothes to wear to the event, and other expenses. Still, those are not financial emergencies since you can always say no. Likewise, the cost of your own wedding is not a financial emergency either in that sense that you can plan and save for it.

Purchasing Gifts for Someone

Birthdays, holidays, graduations, and other special occasions might call for you to present someone with a gift. But a gift is not classified as a financial emergency since you usually have some advance notice that an occasion is coming up. Plus, it’s up to you how much you spend. While you might want to purchase something lavish, something more affordable (a book, going out for coffee or a drink) or simply a heartfelt card can suffice when money is tight.

Putting Down a Down Payment

If you plan to buy a car or a home, putting money down can reduce the amount you need to finance. This will then save you money on interest over the life of the loan. Down payments are money that you save over time, not funds that you have to come up with on short notice. While it may feel like an emergency when you find your dream house but haven’t yet saved enough money to buy it, this doesn’t meet the definition of a true financial emergency.

Replacing Items in the House That Are Not Essential

There are some things in your home that you may need to replace right away, especially if they break down. That includes HVAC systems and roofing that fails to do its job. As mentioned above, these common home repair costs can indeed qualify as financial emergencies. But other household expenditures, like new kitchen countertops or new furniture, are items you can budget and save for, so they’re not financial emergencies.

Determining How Much Emergency Savings to Have

The financial emergency examples listed above underscore why having an emergency fund is important. When you have ample emergency savings in place, it’s easier to handle unexpected expenses without stress and without having to use high-interest credit cards or loans to pay for them.

So if you’re thinking, Should I have an emergency fund? the answer is almost always going to be yes. The next question to tackle is how much to save.

One common rule of thumb is to have at least three to six months’ worth of expenses in your emergency fund. So if your monthly expenses are $3,000, you’d aim to save $9,000 to $18,000 for an emergency fund. An emergency fund of that size in a savings account should in theory be able to get you through a financial crisis.

Recommended: Ensure you’re prepared for the unexpected by using our emergency fund calculator.

Whether that amount is too high or too low will depend on several things. A few examples of important factors: the types of financial emergencies you’re most likely to encounter, how much you’d be able to cut expenses if you had to, and how quickly you’d be able to replace lost income should the need arise.

In the case of something like a job loss, for example, a smaller emergency fund might be sufficient if you can live leanly and no one else depends on you financially. Or you’ll likely be okay if you’re able to find a replacement job quickly and have one or more side hustles to supplement your income. On the other hand, if you’re married with three kids, a much larger emergency fund might be needed to sustain you until you can find another job.

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An emergency fund can save the day when a true financial emergency comes along. Knowing the difference between what is a financial emergency and what is not and when to use an emergency fund can help you to make the most of the money you’re saving.

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FAQ

What are some real life examples of financial emergencies?

Real life examples of financial emergencies include an unexpected job loss, an illness or injury that prevents you from working, or an unplanned home repair. A financial emergency may be a one-time expense, like a car repair, or an ongoing situation that requires you to rely on savings to cover expenses.

Why might I need an emergency fund?

Having an emergency fund is a good idea if you own a home or vehicle, have concerns about what might happen if you were to lose your job, or simply don’t want to be caught unprepared when an unexpected expense comes along. You may also want to have an emergency fund if other people (such as a partner, spouse, or children) depend on you for income.

Is it recommended that I build an emergency fund?

Yes, it is generally recommended that most people have some type of emergency fund in place to cover unanticipated expenses. Going without an emergency fund may only make sense for people who have already accumulated substantial savings or investments they can draw on to cover unplanned events.

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

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

By | Financial Independence, Life & Career, money | Comments Off on Guide on What to Do When You Get a Pay Raise: 12 Tips

If you received a raise at work, first things first: Congratulations! Your first impulse may be to celebrate with a big purchase or party. But rather than blowing your salary bump right away, it’s wise to be strategic. Take a little time and consider how you might use that extra cash. It could help you reach some short- and long-term financial goals.

There can be a lot to consider, but keeping a few things in mind may help you figure out the best course of action.

How to Financially Handle a Pay Raise

To help you decide what to do with a pay raise, you’ll want to think broadly, and about the future. Here are a dozen tips that may help you be better informed as you make your decision about what to do when you get a raise.

1. Using It to Get Rid of Debt

Your raise may be able to help you get rid of some debt that is dragging down your finances. It’s worth noting that some debt can be good, like a mortgage on your home, which tends to have a relatively low interest rate. Every time you make a payment, you are building equity and wealth.

But if you have debt that carries a high interest rate and doesn’t have a long-term benefit, you may want to pay it off as soon as you are able. Credit card debt is the classic example of this. Interest rates on new cards can be as high as 20% or more, which means this kind of debt can grow quickly. With a raise, you can pay that debt down sooner rather than later. This can help free up your finances to focus on other money goals.

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

2. Using It to Build Your Emergency Fund

Having extra cash is a perfect opportunity to build an emergency fund if you don’t have one or if yours could use a boost. Financial experts advise having at least three to six months’ worth of basic living expenses in the bank. This can tide you over if, say, a big medical bill or car repair hits or if your family were to endure a job loss. A raise can allow you to set a lump sum of money aside or motivate you to regularly allocate toward your emergency fund so you are financially secure in times of need.

3. Re-Evaluating and Updating Your Budgeting

When you get a raise, you may be wondering how to manage this extra cash. There are probably a lot of wish-list items tempting you to increase your spending. Instead of shopping, it may be a good time to reevaluate your budget to see how you can best put your money to work.

Typically, budgets recommend that you first allocate funds toward your mandatory monthly expenses like mortgage, rent and other bills. Next, don’t forget to pay down debt, followed by adding some money to your emergency stash if needed. Have you also thought about retirement funds?

Make sure to figure out how much to save every month and put some of your money to work in a 401(k) or another retirement fund. With the money that’s left, you can spend as you see fit, invest it in the stock market, make charitable donations, or decide other ways to use it.

If you need more guidance on budgeting, look online at different techniques, such as the 50/30/20 budgeting rule, or test-drive some apps that help you see where your money is going and determine how to best manage it.

4. Avoiding Lifestyle Creep

If you are contemplating what to do with a raise, one thing to sidestep is lifestyle creep. That happens when a person makes more money but also spends more of it, typically on luxuries. So if you get a raise and then rent a more expensive apartment or sign up for a luxury-car lease, that’s lifestyle creep. You have bought into some of life’s finer things, but you may wind up just breaking even. In fact, even with more money, you may feel as if you are living beyond your means.

It can be smart to try and avoid this behavior because you don’t want to spend every penny you make. That’s not a healthy financial habit; it doesn’t help you build wealth over time. Yes, you can allow yourself to enjoy some discretionary spending (more on that in a minute). But if you let lifestyle creep happen, it may be hard to make ends meet and find opportunities to save for longer-term goals.

5. Re-Evaluating Your Retirement

When you get a raise, you have a prime opportunity to increase your retirement savings. It may not sound like fun compared to taking a vacation, but allocating money this way can be a good financial strategy to reach your goals.

If you have, say, a 401(k) plan with your employer, you can increase your monthly contribution and possibly snag the employer match, too, which is akin to free money. While it may not feel like a fun use of your raise now, your future self will thank you when you see how well your retirement savings are growing.

Earn up to 4.00% APY with a high-yield savings account from SoFi.

No account or monthly fees. No minimum balance.

9x the national average savings account rate.

Up to $2M of additional FDIC insurance.

Sort savings into Vaults, auto save with Roundups.


6. Invest in Yourself

Consider how your raise might help your long-term wellbeing, your mood, and your quality of life. Would it be wise for you to get in better shape? Have you been having trouble sleeping for a while? Do you feel hungry to learn a new skill? A bit of extra money might help you resolve those situations. Sometimes, not having enough money is a common and valid reason for not doing more of this kind of self-care.

Maybe, with your raise, you can now afford to take a few fitness classes and learn some moves you can do on your own. Perhaps you can work with a therapist on what’s keeping you up at night. Or maybe it would bring you joy to take some guitar lessons or pursue a continuing-ed class in a topic that has always fascinated you. Putting a portion of your raise to work this way can be rewarding on so many levels.


💡 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.

7. Considering Inflation

Inflation has been very much in the spotlight lately. In recent years, inflation has reached highs not seen in decades. When inflation is high, your purchasing power declines. Simply put, your dollar doesn’t go as far.

If you get a raise during a period of high inflation, do the math. If you receive a 5% raise and inflation is 3.6%, then you are staying (just barely) ahead in terms of your finances. That raise is helping to protect your money against inflation but unfortunately it won’t stretch much further. This perspective is good to keep in mind so you don’t overspend and wind up with debt.

8. Preparing for Taxes

Getting a bump in your salary may impact your tax liabilities; it may nudge you into a higher tax bracket. If this is the case, your tax rate will rise, and you may need to pay out a higher percentage in taxes. Typically, this will only take your effective tax rate up a couple of percentage points, but it can make a difference to your bottom line.

To offset that, you may want to adjust your withholdings with your employer. If more money is withheld during the year, you could owe less or get a refund at tax time. This could help you avoid an unpleasant surprise (namely, a tax bill) come April.

9. Saving up More for a Large Expense

Are you saving for a vacation, a wedding, a home renovation, or a new car? If you have a big-ticket item on the horizon, you may want to put part of your raise towards that goal. It can be a good move for your finances in the long-run. The extra money can help you afford what you are saving toward. You can sidestep debt as you make your dream a reality. By doing so, you’re likely improving your credit and building wealth — it’s a win-win situation.

10. Investing Your Money

Investing your hard-earned money is historically one of the best ways to build wealth. For some, that can be a good reason to allocate some of your raise to increasing their investments.

A good place to start is by creating an investment portfolio with stocks, bonds, exchange-traded funds (ETFs) and other assets. This can be a vital part of making your financial plan.

11. Funding and Starting a Side Hustle

If you dream of building your own business from a hobby someday, you could use money from your raise to start a side hustle. If, say, you love making pastry, you might invest in cookware that will take your game up a notch. Or if creating apps is your passion, perhaps there’s a weekend class that could boost your skills. Keep tabs on how much money you allocate toward this side hustle and make sure these funds put you on a path to building a business.

12. Enjoying Your Financial and Career Successes

Many of these tips for using your raise wisely revolve around paying down debt, achieving long-term financial goals, and building wealth. But of course, do use a portion of your raise to reward yourself. You’ve received a financial award because of your hard work and dedication. You deserve to treat yourself! Whether that means having a fantastic dinner out with a couple of close friends or buying a coat you’ve been eyeing for a while now, you should find a way to mark this happy moment.

Managing Your Finances with SoFi

Getting a raise is an exciting life event. It shows that your hard work has paid off and your career is making progress. But it also means that you need to make some decisions about what to do with your money – it can be both exciting, and nerve-wracking.

Making some smart decisions about saving, investing, or even investing in yourself may be a good path. But again, it’ll come down to you, your goals, and your preferences. It may be helpful to speak with a financial professional, too.

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 I avoid spending too much after I get a raise?

Create and stick to a budget. Even though you are making more money, you still have to be conscious over where your cash goes and avoid lifestyle creep, which involves spending more as you earn more. This can make it harder to achieve your financial goals.

Is it okay to treat myself when I get a raise?

It’s definitely reasonable to treat yourself when you get a raise; you earned it! But it’s not a habit that you want to get out of hand. You want to make sure you’re spending within your means and not accumulating debt.

Can a pay raise be a negative?

A raise can potentially be a negative if you spiral into unreasonable spending. You could wind up with debt to deal with. Also, take note if your raise pushes you into a higher tax bracket, which still means you’re making more money, but you’d be paying a higher tax rate on a portion of your earnings.

Photo credit: iStock/fizkes

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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