Financial Topics Archives | Page 112 of 822

Feb

2025

Business vs Personal Checking Account: What’s the Difference?

By Jamie Cattanach | Budgeting & Goals, money | Comments Off

While both business and personal checking accounts allow you to safely store money and utilize those funds to pay bills and expenses, a business checking account can be a good idea for most folks who work for themselves or for other enterprises. In fact, depending on the structure of your business, you may be legally obligated to open a business bank account vs. a personal checking account, which is geared for an individual’s daily financial needs.

Key Points

• Business accounts manage the flow of an enterprise’s earnings and spending, while personal accounts cater to individual daily needs.

• Business accounts may provide payroll and bookkeeping integration, enhancing operational efficiency.

• Personal accounts often come without fees, whereas business accounts might incur charges for transactions.

• Business accounts may impose transaction and deposit limits, unlike many personal accounts.

• Separating business and personal finances can protect assets, simplify tax reporting, and enhance professional credibility.

🛈 While SoFi does not offer business bank accounts at this time, we do offer personal checking and savings accounts.

What Is a Business Checking Account?

A business checking account is a checking account specifically designed for business owners. As such, they often include business-specific features, such as payroll or bookkeeping integrations, the ability to assign debit cards to employees, or simplified credit card payment processing.

In many other ways, however, a business checking account is a lot like the personal checking account you likely already have. It’s a safe place to stash cash and use it for regular, day-to-day expenses by way of writing checks, using a debit card or initiating transfers. For example, it can allow you to:

• Pay suppliers

• Deposit payments from customers

• Pay employees

But it’s only to be used for business-related expenses.

How Does a Business Checking Account Work?

When thinking about a business checking account vs. a personal checking account, you’ll find many similarities. You open the account, fund it with some money, and, hopefully, go on to deposit more cash as profits from your business roll in.

You’ll likely have access to the account via a debit card and/or a checkbook, and will likely also be able to log into the account and manage it online. (Both brick-and-mortar and online banks may offer business bank accounts these days, and most feature some kind of virtual account management option.) Business banking products often bundle both a checking and savings account, so you can start creating a cushion for a rainy day.

However, as mentioned above, a business bank account may come with some additional, business-specific features. It may also come with higher fees and minimum account balance requirements than a personal checking account, not to mention requiring documentation to prove you do, in fact, have a business.

What Is a Personal Checking Account?

A personal checking account is, well, a checking account used for personal expenses. Just like a business checking account, it’s a place where you can stash your cash with relatively few worries and use it to pay bills and expenses using a debit card, checkbook, or transfer services. Many banks also make it easy to bundle a personal checking account with a personal savings account, which is a great place to stash your emergency fund.

Unlike business checking accounts, though, a personal account won’t include those business features we were talking about. On the bright side, though, it’s very possible to find free personal checking accounts, which can help you save cash on those pesky monthly maintenance fees.

What Are Personal Checking Accounts Used For?

Personal checking accounts are commonly used for:

• Storing money earned through employment or other income streams

• Paying bills using transfer services or paper checks

• Making transfers to friends, family, and businesses

• Making point-of-sale purchases using a debit card

As their name suggests, personal checking accounts are designed to help you manage personal expenses and attend to your everyday money needs. Typically, a personal checking account is the hub of someone’s daily financial life. (It’s often paired with a savings account, which can allow you to earn interest and grow your money.)

What’s the Difference Between Business and Personal Checking?

Here’s a recap of the differences between business and personal checking accounts.

Business Checking Accounts	Personal Checking Accounts
A place to safely store money and access it for regular business expenses	A place to safely store money and access it for day-to-day personal expenses
May come with additional business-friendly features, such as payroll and bookkeeping integration	Designed for personal use; may offer person-to-person transfers and other useful features
May come with a bundled business savings account	May come with a bundled personal savings account
Often come with minimum opening deposit or minimum monthly balance requirements and fees; you’ll need to offer documentation proving you have a business	Many personal checking accounts are available for free
Helps entrepreneurs separate out their business expenses for ease of accounting and remaining compliant with regulations	Makes paying bills and other regular expenses more manageable, regardless of your source of income

Are Business Checking Accounts FDIC-Insured?

Any business checking account worth its salt should be insured by the Federal Deposit Insurance Corporation (FDIC) or NCUA, the National Credit Union Administration, if it’s opened and held at a credit union. The FDIC is a government agency that protects deposit accounts, such as checking accounts, and reimburses lost funds up to the $250,000 standard insurance amount in the event your bank fails. (Some banks participate in programs that extend the FDIC insurance to cover millions.) The NCUA is a similar agency, but specifically geared toward credit unions.

The FDIC and NCUA insure business and personal accounts alike, but it’s always important to double-check and make sure the bank or financial institution you’re hoping to open an account with explicitly states that deposits are insured.

When Does Someone Need a Business Checking Account?

If you’re a small business owner — or even a freelancer — a business checking account might be a good idea, even if it’s not technically required. Keeping your business and personal expenses separate can help make accounting easier, simplify your tax reporting process, and help make your business look more legitimate to the IRS.

In addition, if you’re incorporating (i.e., operating as LLC, S corp, or other type of business entity), separating your business expenses from your personal expenses can help protect your assets in the event you get sued. Even if it’s not legally required, many accountants and law professionals recommend their clients open a business bank account for this reason.

A business bank account can help you:

• Separate your business and personal expenses, which can both protect your assets and make bookkeeping easier

• Help make your tax reporting easier, as all of your deductible expenses will be in one place

• Make it easier to see your business’s cash flow and make adjustments to your business model as needed, or value the business for other purposes

• Make your business look more legitimate to both the IRS and potential customers, vendors, and other parties you interact with professionally

Establish a relationship with a bank that could allow you to more easily take out a business loan or business line of credit in the future.

Recommended: APY Calculator

Can I Use the Same Bank for Personal and Business Banking?

In most cases, you are prohibited from using personal bank accounts for business purposes. This is typically noted in the account agreement. If it’s not prohibited, it’s still risky to mix account uses this way.

Case in point, the IRS explicitly recommends keeping separate business and personal bank accounts for record-keeping purposes. It’s easy to let it go by the wayside if you’re just starting up as a small business owner or entrepreneur, but consider whatever expenses the account incurs as part of your business start-up costs. It’s worth it in the long run.

Choosing the Right Business Checking Account

When you are shopping for a business checking account, there are a few features that should be considered to help ensure that you find the right match. These include:

• Fees. Many business accounts have fees associated with them, and if you are able to get them waivered, the financial requirements (say, the amount you have held in the account) tend to be higher than for personal accounts.

• Cash deposit limits. Your bank may set a limit in terms of the amount of money you can put in the account per billing cycle. If you hit that amount, you may accrue a cash-handling fee.

• Transaction limits. Your business checking account may have a limit on the number of transactions they will handle for free per billing cycle. Go over that amount, and you may be charged.

• Interest. There are business accounts that offer interest on your balance. Do the math though to see if this should be a deciding factor in your choice of a bank. If fees are higher at the bank offering interest, you might wind up losing money in the long run.

• Bundled services. Your bank might offer some free features, like a business credit card or merchant services along with your checking account.

Depending on the nature of your business and how you handle your banking, some of these factors may matter more than others. Find the bank that gives you the most features and perks you are seeking with the lowest fees possible.

Recommended: How to Make Money From Home

The Takeaway

If you own your own business or earn freelance income, keeping your business expenses separate from your personal expenses can help simplify your life in many ways. A business bank account will help keep these finances differentiated, streamlining accounting and tax preparation, and protect you if you were ever faced business liability.

While SoFi doesn’t currently offer business accounts, see what we offer for personal accounts.

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

What documents are required to open a business checking account?

In order to open a business checking account, you’ll need your regular, basic documents — like your government-issued picture ID — as well as business-specific documents such as your EIN and business license. Check with the bank you’re considering directly for full details on which documents are required

Can I open a business checking account without an LLC?

It depends on the financial institution, but yes, business accounts are available that don’t require the business owner to be incorporated in any way

Can I use a personal checking account for business?

Account holders are typically prohibited from using a personal checking account for business purposes. Check your account agreement for details. Even if this wasn’t explicitly prohibited, it can cause confusion and issues, especially in terms of paying your taxes. What’s more, there are special business banking features you might get if you opt for a business-specific account, simplifying your life.

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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.

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/.
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Feb

2025

Investing for Retirement: Popular Options to Consider

By Dan Miller | invest, Investing, Preparing for Retirement | Comments Off

Saving steadily for retirement is important, but how you invest that money also matters. These days, you can choose from DIY investing options like a portfolio of stocks and bonds or other securities you select yourself. You can invest in mutual funds or exchange-traded funds (ETFs). There are also types of pre-set retirement funds and automated platforms like robo advisors that use technology to help manage a portfolio.

It’s wise to understand how the different strategies work to help decide which ones are best suited to your financial goals and personality. Below, you’ll learn about some popular retirement investment options.

This article is part of SoFi’s Retirement Planning Guide, our coverage of all the steps you need to create a successful retirement plan.

Key Points

• Opening a retirement savings earlier than later allows for the possibility of compounding returns and recovery from market volatility.

• In general, younger investors might choose more aggressive high-risk, potentially high-reward investments like stocks, while those nearing retirement are likely to opt for more conservative options.

• Investment options include DIY investing, in which the investor is in control of their portfolio; index funds that track a specific market index; automated investments; and working with a financial advisor.

• Employer-sponsored plans like 401(k)s and IRAs provide savings automatically deducted from paychecks, certain tax benefits, and potential employer matches.

• Regularly reviewing your portfolio and rebalancing when necessary may help manage risk and align with retirement goals.

The Importance of Investing for Retirement

Retirement may be a long way off or a short way down the road, depending on your age and stage of life. Either way, developing an investment strategy that can help your savings grow is essential. For many people, retirement might last 20 or 30 years — or even longer. A solid long-term investment strategy can help you build the amount you need for the years where you’re no longer in the workforce.

Benefits of Starting Retirement Investing Early

The earlier you start saving for retirement, the more time your money has to grow. One reason for this is the potential for compounding returns. Compounding means that if your money sees a return from investments, and that profit is reinvested, you’re earning money not only on your original investment, but also on your returns. In other words, over time, both your savings and your earnings could see gains.

In addition, the longer your time horizon, the more time you may have to recover from market volatility. If you have a time horizon of 30 or 40 years before you retire, you might be able to afford to weather some short-term losses, knowing that your investment returns could balance themselves out over time.

¹Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

Understanding Retirement Accounts

The type of retirement accounts you have is important. Different types of accounts have different contribution limits and tax implications. Since both the amount you can save and how it will be taxed can have an impact on your nest egg, be sure to spend time strategizing about which types of accounts make the most sense for you.

For instance, you may have a workplace retirement account like a 401(k) or 403(b). In addition, you might decide to set up an Individual Retirement Account (IRA), like a traditional IRA or a Roth IRA that you manage yourself, to save even more for retirement.

Choosing Between Roth and Traditional IRAs

There are many types of IRAs, but two of the main options to choose from are a traditional and Roth IRA. Both can be helpful for saving for retirement, and you can contribute the same amount to each — up to $7,000 annually in 2024 and 2025, with a catch-up contribution of $1,000 each year if you are age 50 or older.

However, there are some key differences between a Roth and traditional IRA, especially when it comes to taxes. With a traditional IRA you contribute pre-tax dollars, and you get an upfront deduction on your taxes. But you’ll pay taxes on the money when you withdraw it in retirement.

A Roth IRA allows you to contribute after-tax dollars. In other words, you pay the taxes on the money upfront, and you’ll withdraw your savings tax-free in retirement.

Another difference between the two types of IRAs: With a traditional IRA you will need to take required minimum distributions (RMDs) starting at age 73 (assuming you turned 72 after December 31, 2022). A Roth IRA does not have RMDs.

If you’d like to open an IRA, think about which type makes the most sense for you. If you expect to be in a lower tax bracket in retirement, a traditional IRA might be a good choice. But if you think you’ll be in a higher tax bracket, a Roth IRA may be a better option.

Understanding Employer-Sponsored Accounts

Retirement accounts such as 401(k)s, 403(b)s, and 457 plans are examples of employer-sponsored plans.

401(k)s are one of the most common types of employer-sponsored plans. An employee signs up for the plan at work and their contributions are automatically deducted from their paychecks. Employees choose how to invest their 401(k) funds, and employers may match the employees’ contribution up to a certain amount, depending on the plan.

Your employer may offer a Roth 401(k) in addition to a traditional 401(k). With a traditional 401(k), contributions are taken from your paycheck before taxes, lowering your taxable income for the year, and you pay taxes on your withdrawals in retirement. With a Roth 401(k), contributions are taken after taxes, and your withdrawals in retirement are tax-free.

Other employer-sponsored plans like 403(b)s are for those who work in education, health-care, and other tax-exempt organizations, and the way they work is similar to a 401(k). Another type of employer sponsored plan, a 457 plan, is offered to some government employees and those who work for certain tax-exempt organizations.

All of these employer-sponsored plans have the same annual employee contribution limits: up to $23,000 in 2024, and $23,500 in 2025 for those under age 50. For both years, individuals age 50 and up can contribute an additional $7,500 in catch-up contributions. (In 2025, those ages 60 to 63 can contribute an additional $11,250 instead of $7,500, thanks to SECURE 2.0.)

Total contributions limits (including employer contributions) are $69,000 in 2024, and $76,500 for those 50 and up. In 2025, the total contribution limit is $70,000, and $77,500 with the standard catch-up, and $81,250 with the SECURE 2.0 catch-up.

Investment Options

While investing for retirement can seem overwhelming, it doesn’t have to be. There are various retirement strategies suited to different personality types and risk-tolerance levels, as well as a number of investment options, so you can choose methods and plans that are the best fit for you.

Here are a few options for retirement investing to consider:

DIY Investing

For investors who feel confident in managing their own retirement portfolio, taking a DIY approach may be an option.

You can open an investment account and purchase stocks, bonds, commodities, mutual funds, or any other types of securities for your long-term portfolio. While the term “active investing” brings to mind day traders, active investing can also mean taking a hands-on approach to managing your own portfolio.

This strategy isn’t for everyone. It’s time and energy intensive, and it requires a certain amount of expertise. For instance, anyone interested in something like IPO investing, which can be risky and speculative, according to the Securities and Exchange Commission (SEC), should be a very experienced investor.

In addition, if you go the DIY route, bear in mind that the same rules apply to all long-term investors.

• Be mindful of the contribution limits and tax implications of the retirement account you choose.

• Consider the cost of your investments, as fees can reduce your earnings over time.

• Consider using a strategy that includes some portfolio diversification, as this may, over time, help mitigate unsystematic risk, which is the type of risk unique to a particular company or industry (something that’s due to the management of a specific company, say). But remember, risk is inherent in all investing.

Index Funds

An index fund is a type of fund that tracks a broad market index. One of the most popular types of index funds tracks the S&P 500 index, for example, which mirrors the performance of the 500 largest U.S. companies.

There are hundreds of indexes, and many have corresponding funds that track different sectors of the market, such as smaller companies, technology companies, sustainable or green companies, various types of bonds, and more. Most are index funds.

Index funds don’t rely on a live team of portfolio managers, so they tend to be less expensive than actively managed funds. However, they have a downside which is that your money is pegged to the securities in that sector.

Mutual Funds

Mutual funds are a type of pooled investment. Mutual funds may include stocks, bonds, commodities, and other securities that are in what you might think of as a basket. An investor buys shares or fractional shares of a mutual fund, which gives them exposure to a variety of different companies or assets and may help with portfolio diversification. Unlike stocks and ETFs, mutual funds trade just once a day, at the end of the day.

Mutual funds were designed to get people started with investing. Buying even just a few shares of a mutual fund invests an individual in all the individual securities the fund holds.

Mutual funds may be actively or passively managed. Passively managed funds track an index, while actively managed funds attempt to beat the performance of an index with careful investment selection. Actively managed funds typically cost more than passively managed funds, so you’ll want to watch for transaction and operating fees.

Automated Options

In the world of investing there isn’t a truly automated “set it and forget it” strategy that will work on its own, without any input, for decades. But there are some options that are more hands-off than others.

• Target Date Funds

One such option is a target date fund. A target date fund is designed to be an all-inclusive portfolio option for people that are looking to retire on or near a certain date. For example, a 2050 target date fund is intended for people that will be ready for retirement in 2050.

Target date funds use a set of calculations to adjust a portfolio’s asset allocation over time. When a target date fund is decades away from the specified date, it might invest 80% in equities and 20% in fixed income or cash/cash equivalents, for instance. As the date draws nearer, it will automatically move more of its investments away from equities towards bonds, cash, or other investments with lower risk. This automatic readjustment is referred to as the glide path.

• Robo Advisors

Another option is automated investing, commonly known as a robo advisor (although these services are not robots, and don’t typically offer advice).

A robo advisor platform offers a questionnaire for investors to gauge their time horizon (years to retirement or another financial goal), their risk level, and so forth.

The platform then uses sophisticated technology to recommend a portfolio of low-cost index and exchange-traded funds (ETFs).

While automated options do offer the convenience of managing a portfolio on your behalf, they also have some drawbacks. The cost can be higher than other types of investment options. And there is limited flexibility. Investors typically have less control to adjust the securities in these funds.

Hire an Advisor

If you don’t feel comfortable investing for retirement on your own, you may want to consider using a financial advisor. Talk with your trusted friends or family members to get a recommendation.

Because an advisor introduces a new level of cost, be sure to ask how the person is compensated. Some advisors charge a flat fee or an hourly rate, and some earn commissions — or combinations of the above.

Tips When Investing for Retirement

As you start investing for retirement, here are a few things that you’ll want to keep in mind:

Ask About Fees

Many investments come with fees that are charged by the advisor or company that manages the investment. These investment fees may be explicitly charged to your account, or they may be captured as part of the investment’s returns. Make sure to check any fees that are charged before you invest. There are many low-cost mutual funds that offer investment fees under 0.1% as compared to a financial advisor who may charge 1% or more. Even a small difference in the fees charged can make a huge difference on your returns when compounded over decades.

Plan for Taxes

You’ll also want to account for how your retirement investments will be taxed.

• Tax-Deferred Accounts

If you contribute to a traditional 401(k) or IRA, you may be eligible for a tax deduction in the tax year that you make the contribution (meaning a contribution for tax year 2025 can typically be deducted on your 2025 taxes).

These accounts are called tax-deferred because you will owe taxes on your withdrawals.

• After-Tax Accounts

If you contribute to a Roth 401(k) or Roth IRA, you won’t get a tax deduction when you contribute because you deposit after-tax dollars. Instead, your qualified withdrawals will be tax-free.

There are other differences between tax-deferred and after-tax accounts that can impact your nest egg. For example, once you reach the age of 73, you’re required to take RMDs from a traditional IRA or 401(k) every year. That doesn’t apply to Roth accounts.

• Taxable Investment Accounts

If you invest for retirement in a non-retirement or taxable account, such as a brokerage account, you’ll owe income taxes on your gains whenever you sell those securities, which will affect your portfolio’s overall performance.

Setting a Retirement Goal

Setting a retirement goal can help you establish a road map for your future and get you to the place you want to be financially and personally.

To get started, decide at what age you’d like to retire. Next, determine what you’d like to do in retirement. Travel? Visit family frequently? Move to a new city? Think about what suits you best. Then figure out how much money you’ll need for a comfortable retirement based on what you want to do in your after-work years, the costs associated with the goal, and your life expectancy.

Setting goals can motivate you to take action and step up your retirement savings. Revisit your goals periodically to make you’re on track to reach them.

Rebalancing Your Portfolio Over Time

It’s generally considered a good idea to periodically adjust your investments by rebalancing your portfolio. Portfolio rebalancing is a way to adjust the mix of your investments. It means realigning the assets of a portfolio’s holdings to match your desired asset allocation.

How Often Should I Adjust My Investments?

Investors who are managing their investments themselves can rebalance when they like, based on their personal preferences. Some choose to do it at certain points, such as quarterly or annually. Others do it when their target asset allocation changes.

If you have a robo advisor or investment advisor, they likely have you set up with a specific target of different types of investments. Over time, the advisor will typically rebalance your portfolio to keep it in line with your target percentages. Check in periodically and review what’s going on to make sure everything is on track.

Signs It’s Time to Rebalance Your Portfolio

There is no one answer for when to rebalance your portfolio —it is up to each investor and what they are comfortable with. However, there are certain situations that indicate it might be time to consider a portfolio rebalance. These typically include:

• Major life changes that affect your financial goals or risk tolerance. For instance, perhaps you lost your job or got divorced. Or on a happier note, maybe you inherited some money or had a baby.

• Market volatility has caused your asset allocations to stray from your target goals.

• You’re concerned your portfolio isn’t diversified enough.

Strategies for Adjusting Investments with Age

The mix of assets in your portfolio will likely shift with age. When you’re younger and you have a longer time horizon until retirement, you may want to have more assets that are considered riskier with more potential for growth, like stocks, because you have more time to ride out any market volatility.

As you get older and closer to retirement, however, you will likely want to shift your allocation to have fewer riskier assets and more assets considered less risky, such as bonds, to help protect your money from any drops in the market.

Each investor’s financial situation is different, so individuals’ asset allocation will vary. Every investor needs to determine the best allocation for their age and circumstances.

The Takeaway

Investing for retirement is important as part of an overall financial plan. And with some research, picking the right investment options doesn’t have to be overwhelming.

You can learn about different types of retirement plans, including employer-sponsored plans and IRAs, and investment options. Then, you can weigh the pros and cons and pick those that suit your financial situation, risk tolerance, and goals. Make sure you are aware of any fees involved, along with tax implications.

If you don’t feel comfortable managing your own portfolio, you might want to consider such alternatives as working with an advisor or using an automated portfolio. Whatever you do, start saving as soon as you can so that you’ll have more time to work toward your retirement goals.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Easily manage your retirement savings with a SoFi IRA.

FAQ

Can I invest for retirement if I have limited funds?

It is possible to invest for retirement if you have limited funds. In fact, if you have limited funds, that may be one reason it’s even more important to invest for retirement as soon as you can. Especially if you are younger and have a long time before retirement, even a small amount can potentially grow to be a sizable nest egg when investment returns are compounded over many decades.

Should I adjust my investment strategy as I approach retirement?

How you choose to invest will depend on a number of factors, one of which is how close you are to retirement. One common strategy is to be more aggressive with your investment strategy when you are years or decades away from retirement. This type of higher-risk, potentially higher-rewards strategy can possibly lead to higher overall returns while you have a long time to weather the ups and downs of the market. Then, as you get closer to retirement, you’ll likely want to be more conservative with your investments in an attempt to better preserve capital.

What investment options are suitable for conservative investors?

Choosing your investment options will depend on your overall financial situation and tolerance for risk. Some examples of more conservative investments include bonds, cash, CDs, and Treasury bills. As you get closer to retirement, it likely makes sense to choose more conservative investments. You may give up some possible returns, but you may also be better insulated against large losses.

How much should I save monthly to reach my retirement goal?

How much you should save monthly to reach your retirement goal depends on what your goal is, your time frame for reaching it, and your financial situation. One guideline is to put 15% to 20% of your income toward your retirement, and aim for specific targets based on your age, such as having 1 times your salary saved by age 30, 3 times your salary by age 40, and 10 times your salary saved by the time you are 67. Those are just rough guidelines, but they can give you a point of reference.

Is it safe to rely on Social Security for retirement?

Typically, Social Security doesn’t provide enough of a retirement income for most people. For instance, in 2023, retirees received about $1,900 per month, on average. That’s why it’s a good idea to start saving for retirement as early as possible, through an employer-sponsored retirement plan or an IRA, or both, and not rely on Social Security as the main source of your retirement income.

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SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
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For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

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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.

SOIN-Q125-053

Feb

2025

Guide to Options Prices: How are Options Priced?

By Colin Dodds | Growing Wealth, invest, Investing | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Options are derivative financial instruments that give buyers the right (but not the obligation) to buy or sell an underlying security, such as a stock, at a predetermined price (the strike price) within a set time frame. The price of an option, known as the premium, is determined by factors like the underlying asset’s market price, intrinsic value, time until expiration, and volatility.

Understanding how options are priced can help investors decide when to enter or exit a trade, manage risk, or evaluate potential returns.

Key Points

• Option pricing may be based upon factors including market price, intrinsic value, time value, and volatility.

• The Black-Scholes model is used for European options, factoring in stock price, strike price, interest rates, time to expiration, and volatility.

• The binomial model suits U.S. options, valuing an option based on whether the underlying asset’s price moves up or down at each step before expiration.

• The trinomial model extends the binomial model by adding an unchanged price outcome, suitable for complex options.

• Options are high-risk investments that allow traders to seek profit from the price movements of stocks, or to hedge against potential losses.

How is an Option Price Determined?

There are two main types of options: call options and put options. An investor who buys a call option acquires the right to buy the underlying asset at the strike price price, while, conversely, an investor who buys a put option acquires the right to sell the option’s underlying asset at the strike price.

Options traders analysts take many factors into account to determine the price, or premium, of call options and put options. The most widely known method for determining the value of an option is the Black-Scholes model. But other models — such as the binomial and trinomial options pricing models — are more commonly used to determine stock option prices.

All of those options pricing models are complex, but they all draw on a few primary factors that drive the investment value of an options contract:

• The market price of the stock that underlies the option

• The current intrinsic value of the option

• The time until the option expires

• Volatility

Market Price and Intrinsic Value

Market price first is easy to understand — it’s the price at which the underlying stock is trading. The second factor — the intrinsic value of the option — is the value of the option would be worth if sold at that moment. This only applies if the price of the underlying stock has moved to where the option is “in the money,” meaning the owner of the option would make a profit by exercising it.

Time Value

The time until expiration is more complex. This so-called time value reflects the amount of time before expiration of a contract in options trading. It represents the possibility that an out-of-the-money option could eventually become profitable.

It’s the one part of an option’s value that only goes down — and which goes at an increasingly rapid rate as the options contract approaches expiration. As the expiration date approaches, larger price movements in the underlying stock are required to create significant changes in the option’s price.

💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

Volatility

Time value reflects the potential for price movement from the underlying asset, influenced by factors such as volatility and market expectations of future price fluctuations. As a general rule, stocks with a history of high volatility underlie options with a higher likelihood to be in-the-money at the time of their expiration.

Volatility, in many pricing models, is represented by a measure of price fluctuations of the underlying asset. Beta, on the other hand, measures the asset’s volatility versus the volatility of the overall market. Options on stocks with higher historic or expected volatility typically cost more than options contracts on stocks that have little reputation for dramatic price swings.

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the
OCC Options Disclosure Document.

What Are the Different Option Pricing Models?

There are several models that investors and day traders consider when figuring out how to price an option. Here’s a look at a few of the most common:

The Black-Scholes Merton (BSM) Model

The best-known options pricing method is the Black-Scholes model. The model consists of a mathematical formula that can be daunting for people without a math background. That’s why both institutional and retail investors employ online options calculators and analysis tools.

The economists who created the formula published their findings in 1973, and won the 1997 Nobel Prize in economics for this new method for arriving at the value of financial derivatives.

Also known as the Black-Scholes Merton (BSM) model, the Black-Scholes equation takes the following into account:

• The underlying stock’s price

• The option’s strike price

• Current interest rates

• The option’s time to expiration

• The underlying stock’s volatility

In its pure form, the Black-Scholes model only works for European options, which investors can not exercise until their expiration date. The model doesn’t work for U.S. options, because U.S. options can be exercised before their expiration date.

The Binomial Option Pricing Model

The binomial option pricing model is less well-known outside of financial circles, but it’s more widely used. One reason it’s more popular than the Black-Scholes Model is that it can work for U.S. options. Invented in 1979, the binomial is based on the assumption that, in any pricing scenario, an underlying asset’s price will move either up or down. As a method for calculating an option’s value, the binomial pricing model uses the same basic data inputs, such as the underlying asset’s price, strike price, time to expiration, the interest rate, and volatility, and its equation may be updated as new information emerges.

In comparison with other models, the binomial option pricing model is very simple at first, but it becomes more complex as investors take multiple time periods into account. For a U.S. option, which the owner can exercise at any point before it expires, traders often use the binomial model to decide when to exercise the option.

By using the binomial option pricing model with multiple periods of time, the trader has the advantage of being able to better visualize the change in the price of the underlying asset over time, and then evaluate the option at each point in time. It also allows the trader to update those multi-period equations based on each day’s price movements and emerging market news.

Recommended: What Is a Straddle in Options Trading?

The Trinomial Option Pricing Model

The trinomial option pricing model is similar to the binomial model but it allows for three possible outcomes for an option’s underlying asset within a given period. Its value can go up, go down, or stay the same. As they do with the binomial model, traders recalculate the trinomial pricing model over the course of an option’s life, as the factors that drive the option’s price change, and as new information comes to light.

Its simplicity and acknowledgement of a static price possibility makes it more widely used than the binomial option pricing model. When pricing exotic options, or any complex option with features that make it harder to calculate than the common calls and puts on an exchange, many investors favor the trinomial model as a more stable and accurate way of understanding what the price of the option should be.

The Takeaway

Options pricing isn’t just about a single number — it’s the result of multiple factors, from market price and volatility to the passage of time. Investors rely on models like Black-Scholes, binomial, and trinomial pricing to estimate an option’s value, each offering different insights depending on the type of contract.

Although these calculations can seem complex, the core idea remains the same: an option’s price reflects both current conditions and future possibilities. Understanding these mechanics can help traders make more informed decisions, whether they’re managing risk or seeking new opportunities in the market.

Investors who are ready to try their hand at options trading despite the risks involved, might consider checking out SoFi’s options trading platform offered through SoFi Securities, LLC. The platform’s user-friendly design allows investors to buy put and call options through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.

Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors. Currently, investors can not sell options on SoFi Active Invest®.

Explore SoFi’s user-friendly options trading platform.

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SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q125-118

Feb

2025

Five Strategies for Overcoming Your Money Fears

By Emma Diehl | Budgeting & Goals, Financial Independence, money | Comments Off

Many of us are worried about money. According to a 2024 study, almost half (47%) of adults say money worries negatively impact their mental health, including causing them stress.

But you don’t have to let your money fears control the way you save or spend. In fact, you can learn to face these fears head on, which could help you conquer them with such habits as building and maintaining an emergency fund and paying down debt.

Here are five common fears about finances, and potential ways to overcome them.

Key Points

• Money concerns can cause stress among almost half of Americans surveyed, but there are ways to help lessen that.

• Building an emergency fund can create a sense of security and accomplishment, working up to saving three to six months’ worth of expenses.

• Saving for retirement, even in small amounts, is crucial.

• Debt repayment strategies like the avalanche or snowball method can provide paths to reducing money stress.

• Negotiating a lower APR with credit card companies can help lower debt faster.

Drowning in Debt

American household debt hit $18.04 trillion at the end of 2024, according to the Federal Reserve Bank of New York. And while that number is scary, also frightening are the interest and late payment charges you might accrue if you don’t pay off your debt.

While you might be tempted to avoid thinking about your student loans or credit card debt, they’ll still be there month after month, accruing interest. What’s worse, neglecting debt can adversely affect your credit score, haunting you long after that late credit card payment is resolved.

Exploring Debt Repayment

Instead of ruminating, it’s best to take action. These are a few strategies for debt repayment you may want to consider:

• Avalanche or snowball method. The avalanche method to pay off debt involves making minimum payments on all your debts while putting as much extra money you have, like your tax refund, toward tackling the debt with the highest interest rate. Once that debt is paid off, you use the same strategy on the debt with the next highest interest, and so on.

With the snowball method, you pay off the smallest debts first, while continuing to make the minimum payments on all your other debts. Once you pay off the first debt, it may give you the confidence and motivation to approach the more daunting ones.

Regardless of which strategy you use, adopting a plan to pay down your debt can give you a clear course of action, outweighing monthly dread when payments come due.

• Consider a personal loan. If credit card debt has you overwhelmed, you might consider taking out a personal loan to consolidate debt from multiple credit cards into a single monthly payment. This could even lower your interest rate, which could also decrease your stress.

• Ask for a lower APR. Sometimes, simply asking for help can bring relief. If you’re struggling with credit card debt, call the financial institution or credit card company and request a lower APR (annual percentage rate). If they agree, it would mean lower interest on the debt you carry, which could get you debt-free faster.

Unemployment

If you don’t feel solid financially, worrying about your job can cause major stress. The fear of losing your paycheck could even lead to ignoring your savings account balance. Instead of avoidance, work on giving yourself a financial cushion. Preparing for the worst could offer relief.

Face Your Fear: Building an Emergency Fund

Establishing an emergency fund can be a good place to start. Setting aside even a small amount of money each month can create a sense of security — and accomplishment.

Many experts recommend putting away three to six months’ worth of living expenses. But you can start smaller than that, if necessary, and work your way up. Look for a high-yield savings account (often found at online banks) to help your money grow more quickly.

Preparing for Retirement

With monthly bills looming, it can be difficult to think ahead for the long-term. Retirement seems far away, while your rent is due right now.

Understanding retirement funds may be intimidating, but opening an account may be easier than you think. And saving for your future is undeniably important.

Face Your Fear: Filling Your 401(k) or IRA

If you haven’t started saving for retirement, don’t beat yourself up. Direct your energy toward saving what you can each month, no matter how small.

See if your employer offers a 401(k), and sign up for it. Or consider opening an IRA. Though it may feel insignificant, putting away even a small sum each month may make a large difference over time.

Recommended: Savings Calculator

Fear of Spending Money

Anxiety around spending may make some people fret over the smallest purchases. If you fear overspending, a dinner out could lead to cold sweats as you calculate the cheapest menu item. Or it might keep you from going out altogether as you attempt to preserve the balance in your checking account.

Face Your Fear: Sticking to a Budget

Knowledge is power. By creating a budget, you can alleviate the stress that comes with everyday purchases.

Knowing exactly how much money enters and leaves your account each month can be empowering. With an automated app, you can track all your spending in one place. You might begin by checking out what kind of tools your bank offers.

It’s Too Late

You might think you’re too far along in your career to start saving for retirement, or too busy to keep up with an emergency fund. Finances, especially when you’re afraid, can seem complicated, intimidating, or overwhelming.

Face Your Fear: Getting a Fresh Look at Your Finances

Sometimes just pushing yourself to start is all you need. It’s never too late to adopt good personal finance habits like paying off debt, budgeting, and saving.

While you’re at it, consider an easier way to earn while you’re saving, such as opening a high-yield online bank account, so that your money might grow even faster.

The Takeaway

Worrying about money is common for many people, but it’s possible to overcome your fears. Paying down debt, setting up an emergency fund, contributing to a retirement fund, and putting money into a bank account where it can earn interest, could help you take charge of your situation — and your future.

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

How can I stop stressing about money?

One way to stop stressing about money is to face your fears and take proactive steps to improve your financial situation, such as paying down debt and saving for retirement.

How can I overcome the fear of money?

To overcome your fear of money, it can be wise to challenge your belief that money is frightening and take steps towards improving your outlook. You might, for instance, research personal loans to pay down credit card debt or try using a budgeting app to help you rein in spending.

How can I stop worrying about money?

You can work to lower money worries by educating yourself about financial topics, finding a budget that suits you, and using technology to keep in touch with and on top of your money.

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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.
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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/.
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*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOBNK-Q125-044

Feb

2025

Improving Your Relationship With Money

By Walecia Konrad | Budgeting & Goals, Financial Independence, Money & Life | Comments Off

It might seem strange to think about having a relationship with money. But it makes sense when you consider that everyone has feelings about money and those feelings can deeply impact our financial behavior.

Your parents, friends, and life experiences have likely helped you develop different perceptions and biases about money. Those attitudes can influence the financial decisions — both large and small — that you make throughout your life. These decisions, in turn, can have a significant impact on your financial health.

When you have a healthy relationship with money, you feel confident, in control, and satisfied with your financial situation. An unhealthy relationship with money, on the other hand, can lead to avoidance, impulsiveness, anxiety, and increased levels of stress. Indeed, in a March 2024 Bankrate survey, 47% of U.S. adults said money has a negative impact on their mental health, including effects like stress, anxiety, depression, and loss of sleep, at least occasionally.

Exploring and understanding your relationship with money can be the first step to improving that relationship and enhancing your financial (and overall) well-being.

Why the Psychology of Money Matters

It’s almost impossible to separate money and emotions. Those feelings may come from the way we grew up and what our parents showed us and told us about money. Or they may come from what we’ve learned about money over the years. Regardless of their roots, negative emotions — like fear, guilt, jealousy and shame — can get in the way of making smart financial decisions. Some examples of how this can play out:

• The market plummets and fear tells you to get out — which is likely the opposite of what up should do.

• You’re living paycheck to paycheck but guilt tells you that you should take the kids on vacation anyway.

• You’ve racked up a lot of credit card debt but feel so ashamed about overspending, you freeze up and avoid your finances altogether.

• A friend posts photos of their beautifully decorated home on social media and jealousy prompts you to buy furniture you can’t afford.

Emotions aren’t necessarily bad, however. Positive emotions, such as gratitude, serenity, and compassion, can inform our financial habits and decisions in positive ways. Feeling grateful for the money we earn can help us establish a disciplined savings plan. A sense of responsibility and optimism helps motivate long-term financial planning.

The more you understand how emotions impact your relationship with money, generally the easier it is to manage your wealth to achieve your goals.

Finding Your Money Personality Type

Money management habits tend to fall into five financial personality types. Your money “type” can impact your relationship with money and the decisions you make about how to spend, save, and invest it. Often, we fall into a combination of types and not just one. You may find you identify with one or more of these money mindsets.

The Spender

Spenders have no qualms about buying things. They like spending money on material items and experiences that bring them joy, whether it’s the latest iPhone or a vacation in Hawaii.

Spenders are generous with their friends and likely to support charitable causes. However, they often make spontaneous spending decisions and tend to live beyond their means. Many spenders are also investors and aren’t afraid of a risky portfolio.

Potential pitfalls: If you spend everything you make, you can end up going broke. Also, if you spend impulsively (rather than plan your purchases), your spending may not line up with what you truly value.

The Saver

Unlike spenders, savers don’t like to part with money. They continually sock away their paychecks, sometimes with no actual goal in mind. Saving simply makes them feel more secure in life.

Savers don’t keep up with the latest trends and will happily shop around, comparing prices to find the best deal. They will often drive used cars, pay their credit card balance in full each month, and watch their bank accounts grow. Savers tend to be conservative investors.

Potential pitfalls: If you save everything you make, you’re going to miss out on a lot of experiences that can bring happiness and purpose to your life. You could possibly live your whole life without spending much of what you’ve worked so hard to save.

The Avoider

Avoiders don’t like to deal with finances and don’t spend much time thinking about money. It isn’t because they don’t care about money — their head-in-the-sand approach to finance often stems from anxiety about money or a feeling that they don’t deserve to have money.

Avoiders will generally ignore their accounts so that they don’t have to think about money. They tend to let bills pile up and have difficulty making money decisions. Just the idea of going through their financial statements and budgeting makes them feel uneasy.

Potential pitfalls: That lack of attention can result in overdrawn accounts, late payments, and racked-up debt. Avoidance may also mean missed long-term opportunities such as not signing up for a 401(k) match.

The Gambler

These folks are willing to make giant leaps of faith with their money, whether it’s investing in crypto or spending more than they can afford on a home (because it’s bound to go up in value). The thrill of risk and the promise of reward bring them pleasure.

Gamblers also tend to be instinct-driven and don’t pay much attention to sound financial advice. Their risk-taking doesn’t necessarily come from a place of irresponsibility but rather strong gut feelings and a sense of optimism that everything — including their finances — will turn out fine in the long run.

Potential pitfalls: Gamblers are willing to lose it all – and they just may, which can be a huge problem if they are the primary earner in a household. They may also compensate for losses by borrowing against their retirement money or children’s college fund.

The Risk Averse

Unlike gamblers, risk-averse people prize security, financial stability, and planning. Fear of losing money or that they are not doing a good enough job managing their money is at the heart of this money type. A volatile stock market stresses them out, and they’ll spend hours finding the source of a $1.90 error on their bank statement. Above all, the risk-averse wants to be in control.

This group is usually very organized about money, which serves them well. They also tend to prefer safe investments and will be thorough in their research prior to investing.

Potential pitfalls: A more conservative, risk-averse approach can hold you back from worthwhile opportunities to grow your money. Problems can arise if you are too risk-averse to make sound long-term investments.

6 Ways to Improve Your Relationship with Money

Like all relationships, cultivating a good relationship with money takes time and effort. Below are six tips that can help you build a better relationship with money and feel more satisfied — and less stressed — about your financial situation.

1. Examine Your Behaviors

Take a look at your money patterns in the past few months to a year. Are you spending more than you are taking in each month? Have you been making impulsive purchases or investment decisions? Are you avoiding financial decisions, such as how much to contribute to your retirement account?

If you’re unsure what your patterns look like, you may want to track your spending for a few months to get an idea of what money is coming in and going out of your accounts. An easy way to do this is to link your accounts to a budget planning or money tracker app. These tools automatically categorize your spending and provide a bird’s eye view of your finances. This can help you quickly spot trends in your financial behavior.

2. Consider How Emotions Have Impacted Your Financial Decisions

For many people, emotions surrounding money are most acute when they are faced with a big financial decision. It might be when you’re buying a home or making another major purchase, such as a car, or when choosing how to invest your money.

Think back to what emotions you’ve felt while making important financial decisions. Were you focused on what you wanted when you made a large recent purchase, as opposed to what you actually needed? Did your decision line up with your long-term financial goals? Were you gambling on the next big investment trend hoping for a huge reward?

If you see that your emotions are causing you to make poor choices, consider how you can work through those emotions in future scenarios.

3. Set Some Financial Goals

One of the best ways to manage your relationship with money is to know what you want to accomplish financially. If you aren’t working towards anything specific, you may spend more than you should, or the opposite — never reap the rewards of your hard work.

Keep in mind that you can have multiple financial goals with different timelines. Consider where you’d like your finances to be in one year, three to five years, and 10 or more years. Here are some examples of goals you might set:

• Short-term: Building an emergency fund, buying a new car, or going on vacation

• Mid-term: Paying off credit card and student debt or putting a downpayment on a home

• Long-term: Saving for a child’s education or growing your nest egg with retirement planning

Once you’ve come up with a list of achievable and measurable goals, you’ll want to create an action plan to make them happen. This could mean cutting cable to save extra monthly cash, setting up a recurring monthly transfer from your checking to your savings account, and/or contributing more to your 401(k).

4. Communicate with Your Partner

Talking honestly and positively about finances with your significant other can help you have a healthier relationship with that person and also with money. Sharing how you feel about money and the attitudes you learned from your own family can help you and your partner understand each other better.

To get started, you may want to sit down together and talk about what money means to you, what your parents taught you about money, what you want to accomplish with it, and what your fears about money are. Having an understanding of your partner’s beliefs and perceptions can help you avoid conflict and set the stage for healthy discussions about your joint finances. You and your partner can then work together towards shared goals.

You may also want to set up a weekly or monthly money meeting with your partner to go over current challenges and anticipate future needs

5. Talk to a Financial Planner

Working with a professional can be an effective way to take emotions out of your financial decision-making. A financial planner will generally assess your current financial situation, then work with you to develop an individualized financial plan. They can help you set and work towards long-term financial goals, create a budget, build wealth through an investment portfolio, and put protections in place to help secure your future.

6. Review What Resources Your Employer Might Offer

Many companies now offer a range of financial wellness tools and resources that workers can use to strengthen their finances and make sure they’re on the right path for long-term goals. These benefits might include help with student loan repayment, a 401(k) with employer matching, and access to free financial planning and coaching.

If you work for a company that has a benefits portal, that can be a good place to start to see what’s open to you. Ideally, you don’t want to leave anything (money or support) on the table.

The Takeaway

Everyone feels emotions about money. Exploring and understanding your relationship with money can help you take steps to overcome emotional obstacles, reduce money stress, and build a more secure financial future.

Sofi at Work offers a variety of financial wellness and financial education resources to help employees make objective decisions about money and build a positive foundation for financial success.

Photo credit: iStock/stockfour

Products available from SoFi on the Dashboard may vary depending on your employer preferences.

Advisory tools and services are offered through SoFi Wealth LLC, an SEC-registered investment adviser. 234 1st Street San Francisco, CA 94105.

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