Financial Topics Archives | Page 13 of 816

Feb

2025

Can You Negotiate Rent?

By Brian O'Connell | Budgeting & Goals, money | Comments Off

If you’re wondering whether you can lower your rent, the answer may be yes in some situations.

The prospect of bargaining down your rent may sound futile or intimidating. But, thanks to a little research and a well-planned approach, it may be possible to land a better deal.

The odds of successfully lowering your rent will probably depend on a few factors, including how much comparable rentals in your area cost, the value you represent to your landlord, and the general state of the economy and the rental market. Learn effective negotiating techniques here.

Key Points

• Negotiating rent can be a common part of the landlord-tenant relationship and might lead to significant savings for tenants.

• Timing negotiation during slow rental periods can increase success.

• Highlighting one’s value as a tenant can strengthen a negotiation position.

• Offering a lump sum payment or longer lease term can improve leverage.

• If rent reduction is not possible, consider asking for alternative perks.

The Benefits of Negotiating Rent

The obvious payoff of reducing your rent is more cash left over at the end of the month.

But you may also want to consider the longer term benefits. Say you’ve successfully negotiated your monthly rent down by $100. Over the course of a year, that monthly savings adds up to $1,200. There are many benefits to that:

• If you applied that $1,200 yearly savings to paying down credit cards or a student loan debt (rather than paying the minimum), you might be able to save significantly on interest payments and also build your credit score. That last factor could help you save money in the future by helping you to get loans and credit cards with better terms.

• You could funnel that monthly $100 saved into a high-yield savings account (these are often offered at online banks) and start building a down payment on a home (if you’d prefer to own vs. rent) or an emergency fund or working towards another savings goal.

• If you were to transfer money (the extra $100) into your 401(k) retirement fund or other retirement savings each month, it could yield a significant income stream decades from now. (If you’re already contributing to these accounts, be aware of the annual limits.)

In addition, by learning how to negotiate, you’re also developing a lifelong skill of standing up for yourself and cutting better deals as an experienced negotiator, which could pay off in other areas of your life.

9 Tips for Negotiating Rent

If you’re convinced of the value of negotiating and interested in giving it a try, here are some pointers to help you do so effectively. A quick word of caution: Simply saying “I can’t afford my rent” is unlikely to get your rent lowered. You want to illuminate for the landlord good reasons to reduce what you pay and keep you as a valued tenant.

1. Time it Right

Here’s an important tip for how to negotiate rent: As eager as you may want to cut a good deal and do so as quickly as possible, it can be wise to time your approach to maximize your chances of success.

That means negotiating at the right moments, when your landlord may be more amenable to cutting a deal.

Those times might include:

• The end of the month, when other tenants may have vacated the property and your landlord may enjoy the stability of a long-term tenant.

• 90 days or so before your current lease expires. That’s enough time to offer to sign another lease, but only at terms favorable to you. If you’ve been a good tenant, and the market is soft for new tenants, your odds of renegotiating a lower rent may be stronger.

• At the beginning of the calendar year. Typically, winter is a slow time for property rentals, especially in the colder climates when moving is more difficult, and it may be harder for landlords to find new tenants. Stepping into the vacuum with an offer to stay another year (even at a lower monthly rental price) might give you some new-found leverage.

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2. Do Your Market Research

The next pointer on how to haggle rent: To build your case when approaching your property owner about a rental reduction, it can help to know the lay of the land.

If you can prove that you could live more inexpensively in a nearby rental based on local housing trends, your landlord may be more inclined to grant a discount, rather than lose your business to the competition.

For that reason, it’s a good idea to do a little digging, consider the cost of living, and comb through online listings to find out the rents of comparable units or properties in the area.

If, however, you are living in an area with a tight housing market, this tactic may not yield the results you hoped for.

Perhaps a similar one-bedroom apartment for rent has an amenity that’s not offered at the apartment you’re currently in or considering. You might point out how these factors make the landlord’s current rental terms somewhat higher than the going market rate.

When you speak to the landlord, it may help to have data on comparable apartments that are slightly lower in rent and, if the unit has been unoccupied, have this information on hand as well.
You may also want to check what other apartments in the same complex or rented out elsewhere by the same landlord currently cost. This can help keep you from overpaying for an apartment and may also help you negotiate a lower rent, which could mean automatic savings for you.

Recommended: Reasons to Switch Banks

3. Offer a Lump Sum

If you can afford it, adding a lump-sum payment (say, three months of rent upfront) may strengthen your bargaining power and boost your odds of reducing your overall rent payment.

That’s because many landlords prefer having rent in hand and not having to worry about late or no rental payment from tenants.

What’s more, offering an upfront, lump-sum payment is one way to show a landlord that you’re serious about being a solid tenant. A landlord may be more amenable to doing business with a tenant who is willing to go the extra mile.

4. Consider a Longer Lease

If you particularly like the house or apartment you’re renting, you might consider offering the landlord a longer lease in exchange for lower rent payments.

If, for example, a landlord is offering a 12-month lease to a new tenant, at a fixed monthly rental price, and you agree to extend that lease to 18 or 24 months, you might be in a stronger position to ask for a rental discount.

All things being equal, landlords tend to favor tenants who’ll be around for the long haul, and may be more likely to green-light a lower rent for a longer lease arrangement.

Recommended: Can You Pay Rent with a Credit Card?

5. Cash in on a Referral

Landlords typically loathe empty apartments, so if you can help fill a rental unit with a referral or two, it might put you in a better negotiating position to ask for a rental price deduction for helping out.

Rental unit owners usually have to pay for classified ads to lease their open units. In addition, landlords often have to put some sweat equity into showing units, chasing down tenant leads, and vetting potential lease applicants.

By bringing your landlord qualified, stable tenants, you may be able to become a valuable asset for your landlord. This in turn can help build a more robust case for a rental deduction in the process.

6. Don’t Just Focus on Price

When working on how to negotiate rent, yes, the primary goal in a rental negotiation is to bring the price down.

But in case that conversation proves fruitless, you may also want to consider some other perks or benefits you could ask for in lieu or a rent reduction.

Some ideas:

A prime parking space (especially in urban areas)

• New appliances and/or fixtures in your home or apartment

• New or larger storage space

• “First dibs” on better apartments or homes in your complex, once they free up

• A waiver of fees and charges on things like gym memberships, parking privileges, community rooms, water or trash removal, or other services and amenities

• Extra parking passes for guests

• Allowing you sublet for the summer (if you plan to be away)

• One or two months free

Recommended: Passive Income Ideas to Build Wealth

7. Give Your Landlord a Heads-Up

Nobody likes to be ambushed on financial matters. That’s why you might have more success if you call your landlord well ahead of when you need to sign the lease. Politely let them know that you’d like to discuss the terms of the lease and are wondering if they would be open to a price reduction.

You might then suggest having a meeting (in person tends to be best, since it can be harder to say “no” to someone when you’re sitting face-to-face) some time in the next week or two.

This gives your landlord some time to consider the situation while also giving you some time to build your case.

In addition, giving your landlord some lead time shows you’ve put some thought into the matter. It also shows you respect your landlord’s time and schedule.

Keep in mind that you have a right as a renter to negotiate rent, but being diplomatic and respectful to your landlord will likely yield a better result than being aggressive.

8. Highlight Your Value as a Tenant

When you do meet with your landlord to negotiate the terms of your lease, it can be helpful to make a good case for keeping you on (or bringing you in) as a tenant.

For example, you might want to have a record of all your on-time payments or any history of providing referrals for this landlord.

You may also want to mention your willingness to extend your lease, that you’re courteous to other tenants, keep the property in good shape, and any other points in your favor.

Any and all of these factors could help persuade your landlord to give you a better deal.

Get Your New Rental Agreement in Writing

If you’ve successfully negotiated your rent downward or otherwise improved the terms of your lease and have a verbal agreement, it’s a good idea to get the deal in writing.

Having both parties sign off on the new rental agreement provides you with proof that you have a new deal in place, in the event there is any misunderstanding down the road. Congratulations: Getting a rent reduction can give you some breathing room in your budget.

The Takeaway

While rental leases may appear set in stone, they’re more flexible than many tenants think, especially if the rental market is soft in your area (meaning more rentals than renters). You may be able to negotiate a better price if you negotiate well, showing that the rent is higher than similar units in the area and that you are a model tenant who pays rent on time. If you’re successful, you could wind up with more money in your bank account.

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FAQ

Can you negotiate apartment rent?

You may be able to negotiate rent on an apartment or home; the possibility varies depending on your situation. You may be more likely to succeed in negotiating your rent if you can show that comparable rents in your area are lower and that you are a reliable tenant.

Can I pay my rent in a lump sum for a discount?

It’s possible that some landlords will accept rent in a lump sum at a discounted rate. This can have benefits: The landlord gets the cash upfront and doesn’t have to worry about potentially chasing a tenant for a past-due payment. But you would need to make this request from the landlord and hear their response.

When is the best time to negotiate rent?

There are a few times when you may have better luck negotiating rent. Those times include the end of the month, when many other tenants may be moving out; 90 days before your lease expires, which is when renewals are typically made available; and the start of a new year, when people may be moving and, since it’s winter, new tenants could be harder to find.

Is it in bad faith to negotiate rent?

It is usually not considered in bad faith to negotiate rent, provided it is done reasonably, respectfully, and honestly. It’s a practice that does take place in the rental market. That said, if a person were to invent reasons for a rent reduction, such as claiming the appliances don’t work when they do, that would be acting in bad faith.

Can a landlord kick me out if I try to negotiate my rent?

A landlord usually cannot kick you out for trying to negotiate rent. This is considered a typical aspect of the landlord-tenant relationship. In order to evict a tenant, the landlord must follow the guidelines for this process determined by the state. Causes for eviction might be non-payment of rent or violating the terms of the lease, such as damaging the property.

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Feb

2025

What Exactly Is a Rainy Day Fund?

By Krystal Etienne | Budgeting & Goals, Growing Wealth, money | Comments Off

The meaning of a “rainy day fund” is savings that help you get through bad weather, financially speaking. The bad weather could mean a medical expense that your insurance doesn’t cover, a car repair, or any number of other “uh-oh” moments.

Many people aren’t prepared to cover this kind of surprise expenditure, even if it’s just $100 or so. Perhaps they are living paycheck to paycheck; are focused on paying down debt; or are saving for a big goal such as a down payment on a house. Having funds set aside can keep little financial storms from wreaking havoc with your monthly budget and longer-term money aspirations.

With that in mind, here’s what you ought to know about rainy day funds, including how to start one and a good amount to save.

Key Points

• A rainy day fund serves as a savings buffer for minor unplanned expenses, typically ranging from $500 to $2,500.

• An emergency fund, in contrast, should cover major financial disruptions and hold three to six months’ worth of expenses.

• To determine the ideal rainy day fund amount, consider potential one-off expenses and adjust savings goals accordingly.

• Effective strategies for building a rainy day fund include cutting nonessential spending, earning extra income, using windfalls, saving change, and setting up automated transfers.

• High-yield savings or money market accounts can be ideal for storing a rainy day fund, offering accessibility and interest growth.

Examples of a Rainy Day Fund

A rainy day fund is a preset amount of savings set aside to cover extra, one-off expenses that may crop up throughout the year like a car or home repair.

They are called rainy day funds because, just as you need to have a backup plan to accommodate bad weather, you’ll also want to have a backup to accommodate sudden extra expenses.

Just like a thunderstorm, a broken dishwasher can occur out of the blue. Being prepared for little financial upsets can keep them from becoming major stressors and disrupting your financial life and/or causing you to go into debt to cover the costs.

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Rainy Day Funds Vs. Emergency Funds

You may wonder how rainy day money differs from an emergency fund. Typically, it’s an order of magnitude.

• A rainy day fund is generally a significantly smaller amount of savings meant to cover expenses that have a good possibility of coming up, you’re just not sure when. These could also be expenses that always come up once or twice a year, such as annual maintenance of your home heating and air conditioning systems.

You may also sometimes hear the term “cash cushion” when people refer to smaller savings vs. an emergency fund.

• An emergency fund is a larger back-up fund typically containing three- to six months’ worth of living expenses. An emergency fund is designed to be used for more extreme financial disruptions, such as a job loss, major medical bill, or the need for a new roof.

Here’s how this information looks as a table:

Rainy Day Fund	Emergency Fund
A small amount of cash to cover predictable, one-off expenses	A fund of three to six months’ worth of living expenses
Used to cover such expenses as home repairs and maintenance or a minor car repair or a special occasion (such as hosting a baby shower)	Used to cover major expenditures such as a large medical, dental, or car repair bill, or to pay bills in the event of job loss

Why Can’t I Use My Emergency Fund?

Technically, an emergency fund’s uses could include covering smaller, short-term expenses.

However, if you’re wondering when to use your emergency fund, depleting it on lesser expenses can chip away at your ability to cover the larger, truly unexpected expenses that could occur down the line. After all, having an emergency fund waiting when you need it is a cornerstone of good money management.

In that scenario, you might need to resort to using credit cards, a personal loan, or even a payday loan. Due to the high-interest rates on some of these types of loans, you would end up paying much more in the long run.

Or, you might have to withdraw from whatever kind of retirement fund you have or from your child’ s college savings, which could hurt your long-term financial health. Having a rainy day fund available can help you avoid that situation.

Do You Need a Rainy Day Fund?

Many people could benefit from having a rainy day fund. It’s a sum of money (often between $500 and $2,500) that’s available for expenses that pop up in a typical year and could otherwise throw a wrench in your budget.

If you have a very well-stocked emergency fund that you don’t mind dipping into, you may not feel as if you need an emergency fund. However, financial experts often advise that you not tap your emergency fund except for true emergencies.

Slowly but steadily, building a small rainy day fund (whether kept at an online bank or a traditional one) can give many people more financial security.

How Much Money Should I Put in My Rainy Day Fund?

As mentioned, a ballpark figure for a rainy day fund could be to have between $500 and $2,500 saved. That can be a reasonable amount to help cover unexpected costs.

How much you’ll want to set aside in your fund, however, is highly individual and will depend on your financial situation and potential upcoming expenses.

One way to figure out a target amount for your rainy day money is to create a list of some possible rainy day expenses that could come up.

For example, if your health care deductible is $1,500, you might want to keep at least that much in your rainy day fund. Car repair prices range, but common fixes on the brakes or alternator cost between several hundred dollars to a thousand (or more). Just in case two rainy days happen close together, it’s a good idea to increase your savings goal.

If you’d like guidance for your unique situation, consider paying the cost of a financial advisor for a bit of advice. They can look at your current finances and help you create an excellent savings plan. They can also help decide how much money to put in a rainy day or emergency fund.

Another way to figure out a target amount for your rainy day fund is to create a list of anticipated larger expenses. These are purchases, costs, and bills that arise only a few times a year, but aren’t always tied to an exact date. They can include:

•   Home gutter cleanings
•   Car maintenance
•   Back-to-school shopping
•   Annual subscriptions
•   Emergency Childcare
•   Emergency room visits
•   Parking tickets
•   Tax bills
•   Birthday and holiday gifts
•   Plane tickets
•   Appliance replacement

You may want to review this list, as well as look at large one-off expenses that came up last year, to come up with a ballpark figure for your rainy day fund.

How Do I Save for a Rainy Day Fund

The process of building up your rainy day fund is similar to saving money for any goal or major purchase. There are several different strategies to choose from, and you may want to combine a few.

• Cutting back on nonessential spending. You may want to take a look at your monthly outlay of money over the past few months. See if there are any simple places you can cut back, such as cooking a few more meals at home each week, getting rid of a streaming service you rarely watch or spending less on clothing each month. The funds you free up can get funneled into your rainy day savings account.

• Bringing in some extra income. Picking up a side hustle (like dog walking, babysitting, or food delivery), selling things you no longer use online, or doing some freelance work can help you build your rainy day savings fund.

• Take advantage of windfalls. A money windfall, or a sudden influx of cash, such as a bonus, cash gift, or tax refund, can be a quick way to build your rainy day fund.

• Keeping the change. Putting all your leftover change in a jar and watching it add up is an old-fashioned but still effective way to save. When the jar is full you can deposit the money in the bank to give your rainy-day fund a bump. Or use a rounding-up tech function (available at many banks) to add to a savings account.

• Setting up automated transfers. Establishing an automatic transfer from your checking into your rainy day savings account on a set day each month (perhaps after your paycheck gets deposited) can be one of the most effective ways to grow this fund. Even if the amount is small, it will add up quickly because the automatic savings will happen every month no matter what.

Recommended: Benefits of Automating Your Finances

Where Should I Keep My Rainy Day Fund?

You’ll want to keep your rainy day fund in an account that is separate from your spending (so you don’t accidentally spend it) but is still easily accessible.

Good options include a high-yield savings account, which are typically available at online banks, often with no or low fees and without deposit or minimum balance requirements.

Other options include a money market account, which typically offers higher interest than a standard savings account but allows you to access your money when you need it. That kind of liquidity is valuable, since you never know when a minor emergency will crop up.

The Takeaway

Setting up a separate rainy day savings account can help you manage those annoying but essential extra expenses that can crop up throughout the year that might otherwise throw you off balance.

As you use your rainy day fund to cover pop-up expenses, it’s a good idea to fill it back up, so you’ll have financial back-up the next time you need it. What’s more, keeping your rainy day fund in an interest-bearing account can help it grow as it sits there, providing you with a sense of security.

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FAQ

What is considered a rainy day fund?

A rainy day fund is a sum of cash, often between $500 and $2,500, held in an easily accessible account (preferably interest-bearing). The money is to be used for those expenses that crop up during the year, such as purchasing a new dishwasher or paying for holiday gifts.

Is a rainy day fund different from an emergency fund?

A rainy day fund is typically smaller than an emergency fund and designed for smaller-scale expenses, such as home maintenance issues. An emergency fund is usually a sum of three to six months’ worth of living expenses, and it can be used for major medical bills, say, or to pay bills after job loss.

Should I prioritize a rainy day fund over paying off debt?

Both paying off debt and a rainy day fund are important priorities for financial wellness. Some, however, might say that paying off high-interest debt is more urgent than accruing a rainy day fund.

How do I replenish my rainy day fund after using it?

A good way to replenish your rainy day fund after using it can be to set up automatic transfers into your checking account over time or to use a windfall, such as a job bonus or tax refund, to add to it.

Is a rainy day fund different from a sinking fund?

A rainy day fund is typically money that is set aside for fairly predictable (but often overlooked) expenses, such as vet bills or a new water heater. A sinking fund, on the other hand, describes money saved for a specific, planned purpose, such as a home renovation.

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SoFi members with direct deposit activity can earn 3.80% 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 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 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 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 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.

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.

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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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SOBNK-Q125-076

Feb

2025

How to Study for the MCATs

By Janet Siroto | Building Your Career, Fresh Out of School, Life & Career, Student Loans, student_loan | Comments Off

So you want to go to medical school and become a doctor? Then you know that the MCAT, a rigorous test, is likely in your future. Since it’s an important qualifying test for medical school and can be challenging, you likely want to arm yourself with info and prepare well for it.

Here, you’ll learn some of the most important information, such as:

• What are the MCATs

• How to start studying for the MCATs

• How to pay for the MCATs and medical school.

Read on, and hey: You’ve got this!

Key Points

• The MCAT is a challenging, standardized, multiple-choice exam taken to qualify for medical school admission.

• A competitive MCAT score is 514 or above, which results in a 70% acceptance rate to medical school.

• Preparing for the MCAT is important. The Association of American Medical Colleges (AAMC) offers free and paid practice tests for MCAT preparation.

• The registration fee for the MCAT is $335, with extra fees for changes or late registration.

• The cost of attending medical school is on the rise. The average debt for medical school graduates is $234,597.

What Are the MCATs?

MCAT stands for Medical College Admission Test® (MCAT®). The test, which the Association of American Medical Colleges (AAMC) creates and administers every year, is multiple-choice and standardized. Some important facts:

• Medical schools have been utilizing it for more than 90 years to determine which students should gain admission.

• Most medical schools in the United States and many in Canada will require that students take the MCATs. Every year, more than 85,000 prospective medical school students take it.

• There are four sections to the MCATs:

◦ Critical analysis and reasoning skills

◦ Biological and biochemical functions of living systems

◦ Chemical and physical foundations of biological systems

◦ Psychological, social, and biological foundations of behavior.

• Students will receive five scores: one for each section, and then one total score.

◦ In each section, they can get a score ranging from 118 to 132, and the total score ranges from 472 to 528.

◦ Generally, a competitive MCAT score is a total of 514 or above, which results in a 70% acceptance rate to medical school.

The average MCAT score for all medical school applicants is currently 506.3. Usually, students will receive scores 30 to 35 days after they take the exam.

Keep in mind that MCAT scores, while important, are just one part of a medical school application. Medical schools often review other factors, including things like:

• Your GPA

• Undergraduate coursework

• Experience related to the medical field, including research and volunteer work

• Letters of recommendation

• Extracurricular activities

• Personal statement.

Because of this array of inputs, If a student has a high GPA from a competitive undergraduate school, for instance, and they don’t score very high on the MCATs, they may still have a chance of getting into a medical school.

Getting a competitive score on the MCAT can give applicants an edge, especially when applying to ultra-competitive medical schools. One way students can help improve their chances of getting a desirable score on the MCAT is to learn how to study for the unique demands of this test.

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Studying for the MCAT

One of the first things a student can do when determining how to prepare for the MCAT is to create a study plan. A well-crafted study plan will review what materials the student should review in order to prepare for the exam.

That said, there’s no one best way to prep for the MCAT. Consider these options; you might use one or a variety of techniques.

The AAMC Website

One great place to get started is the AAMC website, which provides an in-depth outline of the test on their website. Obviously, the same questions students will see on the actual exam won’t be listed, but sample questions that are similar to the real questions are. Students may find helpful tutorials and other content as well.

Online Resources

There are a variety of other online resources students can explore to help them review. For example, the AAMC currently recommends students take a look at Khan Academy’s MCAT Video Collection, where there are more than 1,000 videos as well as thousands of questions that students can use to review.

There are also MCAT study apps like MCAT Prep by MedSchoolCoach and MCAT Prep by Magoosh that students can download and use to study.

Books, Textbooks, and Class Resources

How else to prep for the MCATs? It may also help to buy or borrow books from the library that go into detail on the MCAT. One word of advice: Students should just make sure that the books they’re reading are up to date. Information (and the MCAT) get refreshed often; you don’t want to be studying yesterday’s medical data.

It can also be helpful to review class notes and study guides from courses you’ve taken that are related to MCAT materials. Some schools have study groups and other academic support resources for students who are studying for the MCAT. If you’re currently enrolled in classes, take a look to see what might be offered at your campus. You might luck out with some great ways to learn more.

Practice Tests

AAMC offers official sample MCAT practice exams online. You can access two for free, and others for a cost of $35 each. Taking practice tests can help students familiarize themselves with the exam. Taking practice tests can also be important in helping students understand the timing of each section.

Study Groups and Tutors

Here are other ideas for how to start studying for the MCAT:

• Getting an MCAT tutor who has taken the test could also be helpful. A tutor will generally be able to provide guidance on what kind of questions a student can expect. Plus, they will likely have hands-on experience with effective methods and tips for studying.

If you decide that how to prep for the MCAT should involve a tutor, ask friends and fellow students who have taken the MCATs recently for recommendations. There are also test preparation companies that provide resources for students to find tutors online or in person. Do check reviews and references.

• Study groups can also be a tool to help students who are preparing for the MCATs. Students can find others who are on the same path and work together to build proficiency. If possible, find a group where each student has a different strength and weakness. This can maximize students learning from one another.

• It may help to use a shared calendar or another tool to make sure everyone is on the same page for dates, times, and locations for when the study group will meet.

• Want to find a study group as part of how to prepare for the MCATs? Search engines, professors’ recommendations, school bulletin boards/online groups, and fellow students are good bets.

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Important Dates to Keep in Mind

Now that you know the ins and outs of preparing for the MCAT, what about taking the test itself? Students can take the MCATs numerous times throughout the year, from January through September. There are hundreds of test locations around the U.S. and Canada as well as select locations around the globe.

If a student’s preferred MCAT test date or location is not available, they can sign up for email notifications to see if it becomes available down the line.

Paying for the MCATs and Medical School

As you explore the best way to prepare for the MCAT and plan your medical school journey, you’ll likely be keeping costs in mind and thinking about ways to pay for college. Here are details to note.

Paying for the MCATs

The registration fee for the MCAT exam is $335, and that includes distribution of scores. There may be additional fees for changes to a registration, a late registration, and for taking the test at international sites.

The AAMC does offer a Fee Assistance Program to students who are struggling to pay for the test and/or medical school applications. To be eligible for the Fee Assistance Program, students must meet the following eligibility requirements:

• Be a US Citizen or Lawful Permanent Resident of the US.

• Meet specific income guidelines for their family size.

Note that the Fee Assistance Program will review financial information of the student and the student’s parents, even if the student is considered independent.

Keep in mind that along with the MCAT fee, applying to medical school can be quite expensive. Most medical schools in the US utilize the AAMC’s American Medical College Application Service® (AMCAS®). To apply to medical schools, students will generally pay a first-time application fee of $175, as well as $46 for each additional school.

Some medical schools may require a secondary application, and those fees range depending on the school. Students may also need additional money to travel to and tour schools.

Recommended: Cash Course: A Student Guide to Money

Medical School Costs

The application process is just one portion of the expense of med school. After being accepted, there’s the cost of tuition, books, and more, and these medical school costs have been rising steeply lately.

• The average cost per year of medical school at a public school is $53,845, which includes tuition, fees, and living expenses.

• The average cost per year at a private medical school is $67,950. The average debt for medical school graduates is currently $234,597. Debt after medical school can go even higher when you add in undergraduate loans.

Obviously, that’s a significant number and can make you wonder how to pay for medical school. First, do remember that medical school is a path to a rewarding and challenging career, as well as potentially a lucrative one. The average medical school graduate earns more than $158,000, with high earners enjoying salaries above the $400K mark, according to ZipRecruiter data.

In addition, be sure to search for scholarships and grants you might be eligible for. This type of gift money generally doesn’t need to be repaid.

Paying for School with the Help of SoFi

Paying for the MCATs and medical school can be a challenge. SoFi understands this, which is why they offer students private student loans and the opportunity to refinance their current student loans.

Keep in mind, however, that if you refinance with an extended term, you may pay more interest over the life of the loan. Also note that refinancing federal student loans means forfeiting their benefits and protections, so it may not be the right choice for everyone.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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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.

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

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

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

SOSLR-Q125-005

Feb

2025

How Much Money Should I Have Saved by 40?

By Pam O’Brien | Budgeting & Goals, Growing Wealth, invest, Investing, Preparing for Retirement | No Comments

By the time you reach 40, your retirement savings should ideally be on track to support a comfortable lifestyle once you stop working. But how do you know if you’re saving enough? Exactly how much should you have for retirement by age 40?

The answer depends on various factors, including your income, current expenses, and long-term financial goals. Below, we’ll walk you through key retirement savings benchmarks, simple ways to calculate your retirement savings target, and how to play catch-up if you’re behind.

Key Points

• Aim to have three times your annual income saved for retirement by age 40.

• Prioritize paying off high-interest debt over saving for retirement in your 40s.

• Maximize contributions to 401(k) and IRA accounts to boost savings.

• Consider Roth accounts for tax-free withdrawals in retirement.

• Protect your retirement savings by building an emergency fund with at least six months’ worth of living expenses.

Understanding Your Retirement Savings at 40

Whether you have a full-time job or you’re self-employed, a smart way to save for retirement is in a retirement savings account, such as 401(k) or an individual retirement account (IRA). Unlike regular investment accounts, these accounts give you a tax break on your savings, either upfront or down the line when you withdraw the funds.

In the meantime, your money grows without being taxed.

A general rule of thumb is to save at least 15% to 20% of your income into your retirement fund. However, you may need to adjust this percentage based on your income and current monthly expenses.

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Retirement Savings Benchmarks for 40-Year-Olds

Financial experts provide benchmarks to help gauge whether you’re on track with retirement saving. A common guideline suggests having two to three times your annual salary saved in a 401(l) or IRA by 40. For example, if you earn $80,000 per year, you should aim for $160,000 to $240,000 in retirement savings.

If you haven’t reached this benchmark, however, don’t get discouraged. There are ways to boost retirement savings in your 40s, plus ways to play catch-up later (more on that below).

Analyzing Personal Financial Circumstances

As you enter your 40s, it’s likely that your income is increasing. However, your expenses and financial obligations may also be on the rise. You may be managing mortgage payments, still paying off student loans, and also trying to save for a child’s future college education. Here’s a look at how to balance it all.

Income and Earning Potential

Your income level directly affects how much you can save for retirement. If your income is modest and your expenses are high, it may be difficult to put 10%, let alone 15%, of each paycheck into retirement. The key is to save a consistent percentage of each paycheck, even if it’s small. As your income grows, so will your contributions. As you earn more, you can also gradually bump up the percent you put into retirement savings.

Current Debt and Financial Obligations

In your 40s, you may have debts, which can hinder your ability to save for retirement. Which is wiser — saving for retirement or paying off your debts?

A general rule of thumb is to prioritize paying off high-interest debts, like credit cards, over saving for retirement. This is because your investment returns likely won’t exceed the interest you’re paying on your balances. With other debts, like student loans and a mortgage, however, it’s generally a good idea to balance paying them off while consistently contributing to retirement savings.

Recommended: Money Management Guide

Calculating Your Retirement Savings Target

So how much 401(k) should you have at 40? There are two guidelines financial planners often use to help people determine how much they should have in retirement savings. Here’s a closer look at each.

Salary Multiplier Method

This approach recommends saving a multiple of your salary at different life stages. While this method doesn’t account for any unique lifestyle choices or financial needs, it provides a quick and easy way to assess your savings progress at various ages.

Retirement Savings By:

• Age 30: 1x your annual income

• Age 40: 3x your annual income

• Age 50: 6x your annual income

• Age 60: 8x your annual income

• Age 67: 10x your annual income

Income Replacement Ratio Approach

This method focuses on saving enough to replace 75% of your pre-retirement income annually once you stop working. So if you think you’ll be making $100,000 in the last few years before retirement, you would plan on needing $75,000 a year to live on once you stop working.

There are a few reasons you’ll likely need less than your full income after retirement:

• Your everyday expenses will likely be lower.

• You’re no longer a portion of your earnings into retirement savings.

• Your taxes may be lower.

How to Maximize Your Retirement Savings in Your 40s

Maximizing contributions to tax-advantaged accounts such as 401(k)s and IRAs can accelerate your retirement savings in your 40s.

Contribute to Retirement Accounts

If you have access to a 401(k) at work, you ideally want to contribute up to the max allowed by the Internal Revenue Service (IRS). For tax year 2024, the most you can contribute to a 401(k) is $23,000 if you’re under age 50. For 2025, the maximum rises to $23,500.

If you don’t have access to an employer-sponsored retirement plan, you can open an IRA and set-up automatic transfers from your checking account into the IRA each month — ideally up to max allowed for an IRA. For tax years 2024 and 2025, you can contribute up to $7,000 if you’re under age 50.

You can make 2024 IRA contributions until the unextended federal tax deadline.

Take Advantage of 401(k) Matching

Employer-sponsored 401(k) plans often come with matching contributions. If your employer offers this benefit, consider adjusting your contributions to get the full match, since this is essentially free money. Over time, compound returns (which are the returns you earn on your returns) on these extra contributions can lead to substantial growth.

Leverage Catch-Up Contributions

Once you reach age 50, you can make catch-up contributions to your 401(k), which could help you save even more for retirement.

For tax years 2024 and 2025, the 401(k) catch-up contribution is an extra $7,500 on top of the regular $23,000 limit for 2024 (for a total limit of $30,500) and $23,500 for 2025 (for a total limit of $31,000). Those aged 60 to 63 can contribute an additional $11,250 (in place of the $7,500) in 2025, if their plan allows it.

The IRA catch-up contribution is $1,000 for both 2024 and 2025, for a total contribution limit of $8,000 for those age 50 or older.

Expert Strategies to Increase Retirement Savings

There are a number of smart ways to maximize your savings and stay on track for retirement. Here are a few strategies experts advise.

Salary Negotiations and Their Long-Term Impact on Savings

If it’s been a while since you’ve received a raise, this may be a good time to ask for one. By age 40, you’ve probably developed skills that make you valuable to your employer. To increase your chances of success, it can be helpful to research industry standards, highlight your achievements, and demonstrate your value to the company.

Even small salary increases can have a compounding effect on long-term savings. If you need some incentive for negotiating for a higher salary, consider this: Increasing your retirement contributions by just $25 a month for the next 20 years can add an extra $13,023.17 to your retirement fund, assuming a growth rate of 7.00% and monthly compounding.

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Building a Solid Financial Foundation With a Six-Month Emergency Fund

Having an emergency fund that contains at least six months’ worth of living expenses is also critical to your retirement plan.

Why? While retirement is still a long way off if you’re 40, an emergency could happen at any time. For instance, you may get hit with an unexpected medical bill or your heating system might break in the middle of winter and need to be replaced. If you don’t have the emergency funds to cover these things, you might be forced to dip into your retirement fund early (and pay penalties) or run up debt that could limit your ability to save for retirement.

You might open a high-yield savings account for your emergency fund to help it grow. Consider automating your savings to make sure you’re contributing to your emergency fund regularly. Once it’s fully funded, you can allocate the money you had been contributing to the emergency fund to your retirement savings.

Recommended: Emergency Fund Calculator

Why Prioritizing Roth Retirement Accounts Can Pay Off

A Roth IRA or Roth 401(k) is a retirement account that taxes your contributions up front, but your withdrawals in retirement are tax-free, including all your growth. This differs from a traditional IRA, which involves tax-deferred contributions, meaning you’ll pay taxes every time you withdraw money, including on your growth. A Roth IRA or 401 (k) can be especially beneficial if you anticipate being in a higher tax bracket later in life.

Even if you have a 401(k) at work, you can add a Roth IRA to boost your retirement earnings. However, there are contribution and income limits with Roth IRAs that you’ll need to keep in mind.

The Role of Expenses in Retirement Planning

Figuring out how much your retirement living expenses will be is important for calculating how money you’ll need to save. These are some of the things you may want to consider and budget for when figuring out how much to save for retirement.

Planning for Health Care Expenses in Retirement

As people grow older, their health care needs and costs typically increase. For many, health care can be one of the biggest retirement expenses. Fidelity estimates that the average person may need $165,000 to cover health care costs in retirement.

If you have a high-deductible health insurance plan, you might want to set up a health savings account (HSA). An HSA is a tax-advantaged account that can be used to pay for medical expenses. You can invest the money in an HSA, and if you leave it untouched, it will grow and earn interest. When you make withdrawals in retirement, you won’t pay any taxes if you spend the money on qualified health care expenses.

Long-term care insurance is another option to consider for covering health care costs later in life. Researching Medicare options and potential out-of-pocket expenses ahead of time can help you prepare for future medical needs.

Incorporating Home Costs Into Retirement Savings

Housing costs are another major retirement expense. You may have mortgage payments, homeowner’s insurance, and home maintenance and repairs to pay for. If you rent, you’ll have to cover your monthly rental fee plus renters’ insurance.

If you’re planning on a move after you retire, where you choose to live can have a major impact on how much you pay for housing. In general, living on the coasts can be more expensive. You may want to take the cost of living into consideration when you’re thinking about where you want to live in retirement.

Family and Retirement: Balancing the Present and Future

Along with planning for retirement, you may be saving for important family milestones, such as college and a child’s wedding. Fortunately, with proper budgeting and planning, it is possible to help cover these expenses and save for retirement at the same time.

Budgeting for College Savings While Prioritizing Retirement

To help your children with the cost of college, consider opening a 529 plan. You fund this account with after-tax dollars, but your money grows tax-free and withdrawals for qualified education expenses are also tax-free.

Just keep in mind: Financial experts generally recommend that people in their 40s prioritize retirement savings over college savings. The reason? Financial aid can help fill a college funding gap, but there’s no financial aid for retirement, so you’ll want to ensure your retirement contributions remain consistent.

You might funnel extra funds toward college saving. You can also let family members know they can contribute to a child’s 529. For instance, instead of birthday gifts, you might ask loved ones to contribute to your child’s 529 instead.

Weddings and Other Major Family Expenses

If you’d like to help pay for your child’s wedding or first home purchase it’s a good idea to save for those goals separately, so they don’t disrupt your retirement savings progress.

If the wedding or home purchase is coming up in the next few years, you might open a high-yield savings account earmarked for that goal. If these family expenses are well off in the future, you might want to invest in mutual funds or a stock index fund, which could deliver more growth (though returns are not guaranteed).

The Takeaway

While there are several rules of thumb as to how much money you should have saved by 40, the truth is everyone’s path to a comfortable retirement looks different. One piece of advice is universal, however: The sooner you start saving for retirement, the better your chances of being in a financially desirable position later in life.

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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 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 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 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.

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.

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Feb

2025

What Is Dividend Yield?

By AJ Smith | Growing Wealth, invest, Investing, Terminology | Comments Off

Dividend yield concerns how much an investor realizes from their investments over the course of a year as a result of dividends. Dividends, which are payouts to investors as a share of a company’s overall profit, can help investors generate bigger returns, and some investors even formulate entire strategies around maximizing dividends.

But it’s important to have a good understanding of dividends, dividend yields, and other related concepts before going too far into the weeds.

Key Points

• Dividend yield represents the annual dividend paid to shareholders relative to the stock price, expressed as a percentage, which helps investors assess potential returns.

• Investors can calculate dividend yield by dividing the annual dividend per share by the stock’s current price, providing insight into a company’s attractiveness as an investment.

• A higher dividend yield may signal an established company, but it can also indicate slower growth or potential financial troubles, requiring careful evaluation.

• Considering the history of dividend growth and the dividend payout ratio can provide additional insights into a company’s financial health and dividend sustainability.

• Understanding the difference between dividend yield and dividend rate is essential, as dividend yield is a ratio while dividend rate is expressed in dollar amounts.

What Is Dividend Yield?

A stock’s dividend yield is how much the company annually pays out in dividends to shareholders, relative to its stock price. The dividend yield is a financial ratio (dividend/price) expressed as a percentage, and is distinct from the dividend itself.

Dividend payments are expressed as a dollar amount, and supplement the return a stock produces over the course of a year. For an investor interested in total return, learning how to calculate dividend yield for different companies can help to decide which company may be a better investment.

But bear in mind that a stock’s dividend yield will tend to fluctuate because it’s based on the stock’s price, which rises and falls. That’s why a higher dividend yield may not be a sign of better value.

How Does Dividend Yield Differ From Dividends?

It’s important to really drive home the difference between dividend yield and dividends in general.

Dividends are a portion of a company’s earnings paid to investors and expressed as a dollar amount. Dividends are typically paid out each quarter (although semi-annual and monthly payouts are common). Not all companies pay dividends.

Dividend yield, on the other hand, refers to a stock’s annual dividend payments divided by the stock’s current price, and expressed as a percentage. Dividend yield is one way of assessing a company’s earning potential.

How to Calculate Dividend Yield

Calculating the dividend yield of an investment is useful for investors who want to compare companies and the dividends they pay. For investors looking for investments to help supplement their cash flow, or even to possibly live off dividend income, a higher dividend yield on a stock would be more attractive than a lower one.

What Is the Dividend Yield Formula?

The dividend yield formula is more of a basic calculation than a formula: Dividend yield is calculated by taking the annual dividend paid per share, and dividing it by the stock’s current price:

Annual dividend / stock price = Dividend yield (%)

How to Calculate Annual Dividends

Investors can calculate the annual dividend of a given company by looking at its annual report, or its quarterly report, finding the dividend payout per quarter, and multiplying that number by four. For a stock with fluctuating dividend payments, it may make sense to take the four most recent quarterly dividends to arrive at the trailing annual dividend.

It’s important to consider how often dividends are paid out. If dividends are paid monthly vs. quarterly, you want to add up the last 12 months of dividends.

This is especially important because some companies pay uneven dividends, with the higher payouts toward the end of the year, for example. So you wouldn’t want to simply add up the last few dividend payments without checking to make sure the total represents an accurate annual dividend amount.

Example of Dividend Yield

If Company A’s stock trades at $70 today, and the company’s annual dividend is $2 per share, the dividend yield is 2.85% ($2 / $70 = 0.0285).

Compare that to Company B, which is trading at $40, also with an annual dividend of $2 per share. The dividend yield of Company B would be 5% ($2 / $40 = 0.05).

In theory, the higher yield of Company B may look more appealing. But investors can’t determine a stock’s worth by yield alone.

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Dividend Yield: Pros and Cons

Pros	Cons
Can help with company valuation.	Dividend yield can indicate a more established, but slower-growing company.
May indicate how much income investors can expect.	Higher yield may mask deeper problems.
	Yield doesn’t tell investors the type of dividend (ordinary vs. qualified), which can impact taxes.

For investors, there are some advantages and disadvantages to using dividend yield as a metric that helps inform investment choices.

Pros

• From a valuation perspective, dividend yield can be a useful point of comparison. If a company’s dividend yield is substantially different from its industry peers, or from the company’s own typical levels, that can be an indicator of whether the company is trading at the right valuation.

• For many investors, the primary reason to invest in dividend stocks is for income. In that respect, dividend yield can be an important metric. But dividend yield can change as the underlying stock price changes. So when using dividend yield as a way to evaluate income, it’s important to be aware of company fundamentals that provide assurance as to company stability and consistency of the dividend payout.

Cons

• Sometimes a higher dividend yield can indicate slower growth. Companies with higher dividends are often larger, more established businesses. But that could also mean that dividend-generous companies are not growing very quickly because they’re not reinvesting their earnings.

Smaller companies with aggressive growth targets are less likely to offer dividends, but rather spend their excess capital on expansion. Thus, investors focused solely on dividend income could miss out on some faster-growing opportunities.

• A high dividend yield could indicate a troubled company. Because of how dividend yield is calculated, the yield is higher as the stock price falls, so it’s important to evaluate whether there has been a downward price trend. Often, when a company is in trouble, one of the first things it is likely to reduce or eliminate is that dividend.

• Investors need to look beyond yield to the type of dividend they might get. An investor might be getting high dividend payouts, but if they’re ordinary dividends vs. qualified dividends they’ll be taxed at a higher rate. Ordinary dividends are taxed as income; qualified dividends are taxed at the lower capital gains rate, which typically ranges from 0% to 20%. If you have tax questions about your investments, be sure to consult with a tax professional.

The Difference Between Dividend Yield and Dividend Rate

As noted earlier, a dividend is a way for a company to distribute some of its earnings among shareholders. Dividends can be paid monthly, quarterly, semi-annually, or even annually (although quarterly payouts tend to be common in the U.S.). Dividends are expressed as dollar amounts. The dividend rate is the annual amount of the company’s dividend per share.

A company that pays $1 per share, quarterly, has an annual dividend rate of $4 per share.

The difference between this straight-up dollar amount and a company’s dividend yield is that the latter is a ratio. The dividend yield is the company’s annual dividend divided by the current stock price, and expressed as a percentage.

What Is a Good Dividend Yield?

dividend yield of sp500 vs dividend aristocrats

Two companies with the same high yields are not created equally. While dividend yield is an important number for investors to know when determining the annual cash flow they can expect from their investments, there are deeper indicators that investors may want to investigate to see if a dividend-paying stock will continue to pay in the future.

A History of Dividend Growth

When researching dividend stocks, one place to start is by asking if the stock has a history of dividend growth. A regularly increasing dividend is an indication of earnings growth and typically a good indicator of a company’s overall financial health.

The Dividend Aristocracy

There is a group of S&P 500 stocks called Dividend Aristocrats, which have increased the dividends they pay for at least 25 consecutive years. Every year the list changes, as companies raise and lower their dividends.

Currently, there are 65 companies that meet the basic criteria of increasing their dividend for a quarter century straight. They include big names in energy, industrial production, real estate, defense contractors, and more. For investors looking for steady dividends, this list may be a good place to start.

Dividend Payout Ratio (DPR)

Investors can calculate the dividend payout ratio by dividing the total dividends paid in a year by the company’s net income. By looking at this ratio over a period of years, investors can learn to differentiate among the dividend stocks in their portfolios.

A company with a relatively low DPR is paying dividends, while still investing heavily in the growth of its business. If a company’s DPR is rising, that’s a sign the company’s leadership likely sees more value in rewarding shareholders than in expanding. If its DPR is shrinking, it’s a sign that management sees an abundance of new opportunities abounding. In extreme cases, where a company’s DPR is 100% or higher, it’s unlikely that the company will be around for much longer.

Other Indicators of Company Health

Other factors to consider include the company’s debt load, credit rating, and the cash it keeps on hand to manage unexpected shocks. And as with every equity investment, it’s important to look at the company’s competitive position in its sector, the growth prospects of that sector as a whole, and how it fits into an investor’s overall plan. Those factors will ultimately determine the company’s ability to continue paying its dividend.

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Test your understanding of what you just read.

The Takeaway

Dividend yield is a simple calculation: You divide the annual dividend paid per share by the stock’s current price. Dividend yield is expressed as a percentage, versus the dividend (or dividend rate) which is given as a dollar amount. The dividend yield formula can be a valuable tool for investors, and not just ones who are seeking cash flow from their investments.

Dividend yield can help assess a company’s valuation relative to its peers, but there are other factors to consider when researching stocks that pay out dividends. A history of dividend growth and a good dividend payout ratio (DPR), as well as the company’s debt load, cash on hand, and credit rating can help form an overall picture of a company’s health and probability of paying out higher dividends in the future.

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).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

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Can You Negotiate Rent?

The Benefits of Negotiating Rent

Get up to $300 when you bank with SoFi.

9 Tips for Negotiating Rent

1. Time it Right

2. Do Your Market Research

3. Offer a Lump Sum

4. Consider a Longer Lease

5. Cash in on a Referral

6. Don’t Just Focus on Price

7. Give Your Landlord a Heads-Up

8. Highlight Your Value as a Tenant

Get Your New Rental Agreement in Writing

The Takeaway

FAQ

Can you negotiate apartment rent?

Can I pay my rent in a lump sum for a discount?

When is the best time to negotiate rent?

Is it in bad faith to negotiate rent?

Can a landlord kick me out if I try to negotiate my rent?

What Exactly Is a Rainy Day Fund?

Examples of a Rainy Day Fund

Rainy Day Funds Vs. Emergency Funds

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Why Can’t I Use My Emergency Fund?

Do You Need a Rainy Day Fund?

How Much Money Should I Put in My Rainy Day Fund?

How Do I Save for a Rainy Day Fund

Where Should I Keep My Rainy Day Fund?

The Takeaway

FAQ

What is considered a rainy day fund?

Is a rainy day fund different from an emergency fund?

Should I prioritize a rainy day fund over paying off debt?

How do I replenish my rainy day fund after using it?

Is a rainy day fund different from a sinking fund?

How to Study for the MCATs

What Are the MCATs?

Studying for the MCAT

The AAMC Website

Online Resources

Books, Textbooks, and Class Resources

Practice Tests

Study Groups and Tutors

Important Dates to Keep in Mind

Paying for the MCATs and Medical School

Paying for the MCATs

Medical School Costs

Paying for School with the Help of SoFi

How Much Money Should I Have Saved by 40?

Understanding Your Retirement Savings at 40

Retirement Savings Benchmarks for 40-Year-Olds

Analyzing Personal Financial Circumstances

Income and Earning Potential

Current Debt and Financial Obligations

Calculating Your Retirement Savings Target

Salary Multiplier Method

Income Replacement Ratio Approach

How to Maximize Your Retirement Savings in Your 40s

Contribute to Retirement Accounts

Take Advantage of 401(k) Matching

Leverage Catch-Up Contributions

Expert Strategies to Increase Retirement Savings

Salary Negotiations and Their Long-Term Impact on Savings

Building a Solid Financial Foundation With a Six-Month Emergency Fund

Why Prioritizing Roth Retirement Accounts Can Pay Off

The Role of Expenses in Retirement Planning

Planning for Health Care Expenses in Retirement

Incorporating Home Costs Into Retirement Savings

Family and Retirement: Balancing the Present and Future

Budgeting for College Savings While Prioritizing Retirement

Weddings and Other Major Family Expenses

The Takeaway

What Is Dividend Yield?

What Is Dividend Yield?

How Does Dividend Yield Differ From Dividends?

How to Calculate Dividend Yield

What Is the Dividend Yield Formula?

How to Calculate Annual Dividends

Example of Dividend Yield

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