May
03
2023
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The Risks of Playing the Stock Market

By | Growing Wealth, invest, Investing | Comments Off on The Risks of Playing the Stock Market

Playing the stock market is a common but misleading phrase: The stock market is not a game and it does come with investment risks.

To some degree, those risks can be mitigated by using certain strategies, including using a more long-term, buy-and-hold strategy and embracing diversification, among other things.

And while investing is a serious business, playing the stock market can have an element of fun to it in the sense that investors who do their research — and tune into the news and business cycles — can take advantage of trends that might enable them to earn better returns on investment.

Playing the Stock Market: What Does It Mean?

Despite the phrase “playing” the stock market, it’s important to make the distinction between investing and gambling up front.

While both gambling and investing involve risk, investing actively attempts to manage various forms of risk, rather than relying on blind luck. Second, smart investing involves a strategy, something that a gambler pulling the lever on a slot machine can’t employ.

But because all investing involves an element of risk — there is no 100% safe investment — in a way each investment can feel like a gamble. However, it’s important to keep in mind that the market is not a casino, and just because there’s risk involved doesn’t mean that “playing the market” is the same as playing roulette.

Playing the Market: Risks and Rewards

Learning how to play the stock market — in other words, become a good investor — takes time and patience. It’s good to know the basics of the risks and rewards.

Potential Risks

In a broad sense, the most obvious risk of playing the market is that an investor will lose their investment. But on a more granular level, investors face a number of different types of risks, especially when it comes to stocks. These include market risk, liquidity risk, and business risks, which can manifest in a variety of ways in the real world.

A disappointing earnings report can tank a stock’s value, for instance. Or a national emergency, like a viral pandemic, can affect the market at large, causing an investor’s portfolio to deflate. Investors are also at the mercy of inflation — and stagflation, too.

For some investors, there’s also the risk of playing a bit too safe — that is, they’re not taking enough risk with their investing decisions, and as such, miss out on potential gains.

Potential Rewards

Risks reap rewards, as the old trope goes. And generally speaking, the more risk one assumes, the bigger the potential for rewards — though there is no guarantee because risk always entails the possibility of losses as well. Investors may earn returns in a couple of different ways:

•   By seeing the value of their investment increase. The value of individual stocks rise and fall depending on a multitude of factors, but the market overall tends to rise over time, and has fully recovered from every single downturn it’s ever experienced.

•   By earning dividend income. Dividends from stocks can also be reinvested, in order to further grow your investments.

•   By leaving their money in the market. It’s worth mentioning that the longer an investor keeps their money in the market, the bigger the potential rewards of investing are.

How to Play the Stock Market Wisely

Nobody wants to start investing only to lose money or see their portfolio’s value fall right off the bat. Here are a few tips regarding how to play the stock market, that can help reduce risk:

Invest for the Long-term

The market tends to go up with time, and has recovered from every previous dip and drop. For investors, that means keeping their money in the market for the long haul can be one strategy to mitigate the risks of short-term market drops.

As another common saying has it: “Time in the market beats timing the market.”

Consider: If an investor buys stocks today, and the market falls tomorrow, they risk losing a portion of their investment by selling it at the decreased price. But if the investor commits to a buy-and-hold strategy — they don’t sell the investment in the short-term, and instead wait for its value to recover — they effectively mitigate the risks of short-term market dips.

That said, you can’t rule out the risk of a downturn from which the markets never recover. It’s never happened, but no one has a crystal ball.

Do Your Research

It’s always smart for an investor to do their homework and evaluate a stock before they buy. While a gambler can’t use any data or analysis to predict what a slot machine is going to do on the next pull of the lever, investors can look at a company’s performance and reports to try and get a sense of how strong (or weak) a potential investment could be.

Understanding stock performance can be an intensive process. Some investors can find themselves elbow-deep in technical analysis, poring over charts and graphs to predict a stock’s next moves. But many investors are looking to merely do their due diligence by trying to make sure that a company is profitable, has a plan to remain profitable, and that its shares could increase in value over time.

Diversify

Another risk-mitigation strategy that investors can employ is diversification. Diversification basically means that an investor isn’t putting all of their eggs into one basket.

For example, they might not want their portfolio to comprise only two airline stocks, because if something were to happen that stalls air travel around the world, their portfolio would likely be heavily affected. But if they instead invested in five different stocks across a number of different industries, their portfolio might still take a hit if air travel plummets, but not nearly as severely as if its holdings were concentrated in the travel sector.

Use Dollar-cost Averaging

Dollar-cost averaging can also be a useful strategy. Essentially, it means making a series of small investments over time, rather than one lump-sum investment. Since an investor is now buying at a number of different price points (some may be high, some low), the average purchase price smooths out potential risks from price swings.

Conversely, an investor that buys at a single price-point will have their performance tied to that single price.

The Takeaway

While playing the market may be thrilling — and potentially lucrative — it is risky. But investors who have done their homework and who are entering the market with a sound strategy may be able mitigate those risks to a degree.

By researching stocks ahead of time, and employing risk-reducing strategies like dollar-cost averaging and diversification when building a portfolio, an investor is more likely to be effective at mitigating risk.

Ready to invest in your goals? It’s easy to get started when you open an Active Invest account with SoFi invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here). Members can access complimentary financial advice from a professional.

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

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.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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May
02
2023
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How Often Should You Review Your Personal Finances?

By | Budgeting & Goals, Financial Independence, money | Comments Off on How Often Should You Review Your Personal Finances?

If the money in your bank account always seems to be low, you may need to review your personal finances on a more regular basis.

Keeping a close eye on your spending, saving, and investing can provide a more accurate picture of where your money is going. It could help you understand what you’re doing right and what you might want to change, and keep you on track with short- and long-term financial goals.

That doesn’t mean a full-on personal financial review every day. And some categories (spending vs. saving, for example) might require more attention than others. Here’s a breakdown of how often a review might make sense.

Ways to Review Your Personal Finances

1. Tracking Spending

When the money from your paycheck seems to slip away, it’s often because there’s no household budget in place. That means there’s no priorities set for where the money should go and no guidelines to follow.

Before putting together a budget, it can help to track what you spend money on. That includes everything from rent to groceries to prescriptions and subscriptions. To simplify the process you can use a budget and spending tracker.

Once you see how much you spend and on what, you can use that information to set up a budget. During this time you may want to keep checking your spending daily, or at least weekly, to see if your expectations were realistic and if you’re staying on target.

If you want quick feedback on your spending, you may choose to do frequent spot checks using a mobile app. If you make reconciling bank and credit card statements a monthly routine, you may have a better chance of catching any errors, possible fraud, or forgotten subscriptions.

You also may find that there are accounts you can consolidate — including credit cards and other debts — to manage your money better.

2. Reviewing the Budget

When you’re trying to get your finances under control, you might decide to check your budget every day to be sure you’re following through on the plan or if it needs adjusting. This can also help you avoid budgeting mistakes. But there may come a time when you feel as though you’ve got a solid, doable strategy, and you can cut back on how often you check your stats.

Some people do an annual budget review using information from the past year to adjust for the year ahead. They might also do a quarterly or annual review as part of a larger financial evaluation that includes checking their credit report.

Others are more comfortable with a monthly checkup so they can nimbly make changes as new expenses and life changes come up. Decide what time frame works best for you.

3. Monitoring Savings

It can be tough to stay motivated to reach a savings goal, whether it’s putting aside money for a vacation, building an emergency fund, investing for the future in an IRA, or all of the above.

Just as reviewing your spending regularly may help you stay on track, checking our savings monthly, or even weekly or daily, can reinforce the effort. It can be satisfying and rewarding to watch your bank balance increase. You might also want to look into opening a high-yield online bank account so that your savings can grow and earn even more for you.

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4. Following Investments

How often you check your investments depends on your personal preferences and what you’re comfortable with.

If your money is in an IRA or 401(k), it’s meant for the long haul — a retirement that could be decades away. A monthly, quarterly or twice-a-year check-in could be enough to spot any disturbing trends.

That regular check-in could be a good time to do some rebalancing, either by selling investments or redirecting future investments if necessary to stay on target for your goals.

5. Attending to Taxes

It’s easy to put off thinking about income taxes until it’s time to file, but this is another slice of financial planning that can benefit from a little more evaluation. And if you wait until you’re filling out tax forms, you may miss out on some savings.

Taxpayers usually have until the April 15 filing deadline to make tax-deductible contributions to a traditional IRA or 401(k) for the prior tax year.

But many tax strategies must be implemented by the end of the calendar year to have an impact on federal taxes, so November can be a good time to take a look at charitable contributions, converting money from a traditional IRA to a Roth account, making health savings account contributions, and using the money left in health savings and flexible savings accounts.

6. Evaluating Goals

When it comes to goal setting, it may help to think in terms of big goals and little goals.

Big goals might be things like sending your kids to college, buying a home, or retiring to a beach house. Smaller goals might include paying down credit card debt or taking a special vacation.

Both types of goals may require regular evaluations and financial checkups — to see if you’re on track and determine if it’s still something you want. After all, circumstances and personal priorities can change.

But the check-in schedule might be different for big goals (once or twice a year could be enough) and small goals (monthly, combined with your budget once-over, may be more appropriate).

Life events — a new job or job loss, a baby, a move — also may trigger the need to reevaluate some goals, big and small. And you might want to do a review of all your goals whenever you achieve something on your list. Rejoice and then refocus!

Wrapping It All Up

If you’re doing lots of small check-ins throughout the year, it might not seem necessary to do one big annual personal finance review.

But a yearly evaluation offers the opportunity to pull everything together — all those separate slices — to see what’s working and what isn’t. It also may be a good time to make any necessary updates to insurance policies and other documents and to gather up the paperwork you’ll need to file your taxes.

And if you do your review in November or December, you can make some financial resolutions to keep you motivated through the new year.

You also can examine if the way you’re managing your money suits your needs, or if it’s time to make some changes and perhaps update, consolidate, and automate some facets of your finances, or open new investment or banking accounts.

If you’re considering a high-yield savings account, check out SoFi Checking and Savings. You’ll earn a competitive APY and pay no account fees.

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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

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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.

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May
01
2023

Can You Buy a Second Home Without a Down Payment?

By | Financial Independence, Home Ownership, mortgage | Comments Off on Can You Buy a Second Home Without a Down Payment?

While it is possible to buy a second home without a down payment, the scenarios where you can do so are quite rare.

Traditional zero-down payment programs may not be available to you because you’re no longer a first-time homebuyer. Lenders are also hesitant to offer second home mortgages with low down payments. The down payment requirements for a second home are usually 10% or more.

But you may be in luck: Sometimes you can figure out how to buy a second home with no down payment. Read on to learn:

•   What does buying a second home involve?

•   What are the usual down payment requirements for a second home?

•   How can you buy a second home with no down payment?

What to Know About Buying a Second Home

Buying a second home comes with a different set of guidelines and rules than purchasing your first home. You’re no longer considered a first-time homebuyer, which disqualifies you from many down payment assistance programs. However, your situation will be treated differently depending on how you want to use the property. Consider the following possibilities:

Moving into the Second Home

If your plan is to keep your first home as a rental property and move into the second home, you may have some options. A low interest mortgage loan may be available in one of two ways.

•   USDA loans in approved areas have zero down payment options. You’re allowed to get a second home with a zero-down USDA loan if you meet certain requirements involving citizenship, income, and other factors. You must live in the property as your principal residence, and you cannot have a USDA loan on your first property. In addition, you must financially qualify for both homes. To count rental income for the first home, USDA requires 24 months of rental income history.

Other qualifiers for this kind of loan include:

•   The current home no longer meets your needs for certain reasons (for example, if your family is growing and you live in a two-bedroom home, you’re relocating for a new job, or you’re getting divorced).

•   You don’t have another way to obtain the property without the USDA loan.

•   You can only keep one other house besides the new second home.

If, say, you’re moving from to a new region for a job opportunity and USDA loans are available in the area you’re moving to, it’s possible to keep your first home and buy a second if you meet the above conditions.

Worth noting: An obstacle for borrowers can be that lenders need a way to verify rental income. A signed lease and bank statements may not be enough. Your lender may want to see the rental income reported on your taxes for two years to count.

•   VA Loans may also offer zero down payment options. Available to veterans, service members, and surviving spouses, these government-backed loans can only be used to purchase property that will be a primary residence. So, if you’re moving from one place to another and qualify, you can use a VA loan to purchase the next property with no money down.

Buying the Second Home as a Vacation Home or Rental

Is there a way to buy a second home with no down payment if you plan to use it as a vacation home or rental? Options are few and far between if you’re not planning to use the property as your principal residence. When you’re looking at non-owner-occupied financing, lenders usually want a bigger down payment, not a smaller one.

That said, here are a couple of options that could answer the question of how to buy a second home with no down payment:

•   Private loans: If you finance through a relative or other private source, it’s possible to obtain a no-money-down mortgage. Terms are agreed upon by both parties.

•   Seller financing: Much like a private loan, the conditions of seller financing (aka owner financing) a loan are whatever the two parties agree on. If the seller is willing to let you buy the property with no money down, you might be able to make this work. However, seller financing usually comes with a bigger down payment, not a smaller one.

Do You Need a Down Payment on a Second Home?

Down payment requirements for a second home are usually higher. Lenders also look for a higher credit score. The loftier down payment requirement and credit score reflect the fact that the lender is taking on elevated risk since borrowers are more likely to default on a second home than a first home. A lender may expect your down payment to be right around the average down payment on a house, which is currently 13%.

Yet, your mortgage lender is also looking for a loan that accommodates your unique situation to help you to buy a second home. Though no down payment options are rare, your lender may have access to financial products that allow for a smaller down payment.

Can You Buy Another Home When You Have a Current Mortgage?

If you financially qualify, buying another house when you have a mortgage is possible. Generally speaking, lenders look for a strong credit history and enough income to cover your debts (including the cost of the new mortgage) to determine if you qualify for an additional mortgage.

Recommended: What Is a Second Mortgage?

Using Home Equity as a Down Payment Source

If you don’t have enough cash for a down payment on a second home, you may be able to tap your home equity. A home equity loan or a home equity line of credit (HELOC) can help you access money to use for a down payment on a second home.

Though not all lenders will permit this, using home equity may be possible if you want to keep your first home and have no other way of obtaining enough money for a down payment on your second.

It may be advisable to get a home equity loan or HELOC while you are still living in your first house. This allows you to qualify for owner-occupant rates, which are typically much lower than non-owner-occupied rates.

Recommended: HELOC vs. Home Equity Loan: How They Compare

The Takeaway

While there aren’t many options for financing a second home with no down payment, you may be in luck. There are some no down payment loans available to qualified buyers, and these loans can help you preserve cash for renovations, improvements, and other expenses. Even if you can’t find a no down payment mortgage for a second home, you will likely have a number of financing options you can tap into that may allow you to snag another property.

When you’re thinking about home financing options, whether for a mortgage or a HELOC, you’ll want a flexible, helpful partner to help you through the process. SoFi can do just that. In addition to mortgage loans, we offer a home equity line of credit that can help you tap into your home’s value and use the funds for a variety of purposes. You can access up to 95% of your home’s equity up to $500,000, enjoy low interest rates, and have a dedicated SoFi Mortgage Loan Officer to guide you.

Unlock your home’s value with a home equity loan brokered by SoFi today.

FAQ

What is the minimum down payment for a second home?

For a second that is not going to be your primary residence, most lenders look for at least a 10% down payment.

How do I buy a second home without 20% down?

With a higher credit score and other financial qualifications, you may be able to find a lender or a program with a required down payment less than 20%.

Can I buy another house if I already have a mortgage?

If you’re a qualified buyer with good debt and income levels with a strong credit history, a lender may be able to approve you for a second mortgage.

Can I use my equity to buy another house?

It may be possible to use home equity to buy another home. Contact a lender to go over your unique situation.

Photo credit: iStock/Nuttawan Jayawan

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

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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.

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May
01
2023
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What Is Panic Selling & How Does it Work?

By | Growing Wealth, invest, Investing | Comments Off on What Is Panic Selling & How Does it Work?

Panic selling is when a large number of investors want to sell their holdings at the same time and it creates a drop in prices. That drop scares other investors into selling, which causes prices to fall still further, which frightens more investors, and so on.

The resulting panic can erase vast amounts of wealth. It can take weeks or even years for the markets to recover from a serious panic-selling event.

For years, the popular advice on panic selling for most investors was simple: Don’t panic. The logic being that over time, and through major financial crises, the equity markets have tended to rebound and rise.

But even if an individual investor resists the urge to sell, a bout of panic selling in the markets could still have an impact on their wealth, and their plans. The more an investor knows about panic selling, the more informed they will be when and if panic sets in.

Panic Selling and Stock Market Crashes

Stock markets — and the market for anything from housing to basic commodities — go down when there are more people selling than buying. And sometimes in the stock markets, the sellers outnumber the buyers to such a degree that sellers panic and are willing to take almost any price to get cash for their investment.

When panic grips enough investors, the markets can crash.

Recommended: What Is Active Investing?

Throughout the history of every kind of market, panic occasionally sets in. Sometimes it’s a major global event that sets it off, like what happened with the stock markets in March of 2020 as the global COVID-19 pandemic picked up speed and countries entered lockdown.

Other times, it’s a matter of a given asset — like housing and real estate in 2008 — being bid up to unrealistic levels, followed by the mass consensus of what it’s worth changing seemingly overnight. The history of U.S. recessions is full of these highly emotional market changes.

What Causes Panic Selling?

While panic is a very human response to the prospect of major financial loss, there are also other factors that can trigger investors to start panic-selling stocks, including: margin calls, stop-loss orders, and algorithms.

Panic Selling and Margin Calls

In the Great Crash of 1929, there were many investors who had borrowed heavily to invest in the stock market. When the markets dropped, they received something known as a margin call, requiring that they pay back the loans they took out to invest.

Those margin calls required that they sell potentially even more stock to pay back the loans, which caused the markets to fall even further.

Panic Selling and Stop-loss Orders

Similarly, there are trading programs that can throw fuel on the fire of a bout of panic selling. These can be as simple as a stop-loss order, a standing order to buy or sell a particular security if it ever reaches a predetermined price, which investors commonly use in their brokerage accounts.

A stop-loss order can be a way to take advantage of price dips to buy a stock at a discount. But during a sudden drop in the markets, stop-loss orders often lead to automatic sales of stocks, as investors try to lock in their gains.

These automatic sales — in large enough numbers, can accelerate the decline in a market, and contribute to the panic.

Panic Selling and Algorithms

There are algorithms employed by major financial institutions and professional investors that will automatically sell if the price of a given stock falls to a certain level. The crash of 1987 was caused in part by some of the first computerized trading programs.

And in 2010, one trader who lost control of his highly sophisticated trading software was responsible for the “flash crash,” which caused roughly a trillion dollars of market capitalization to disappear in under an hour.

The system-wide risk presented by these tools is one reason that most major stock exchanges have installed a series trading curbs and “circuit breakers” in place to slow down panic selling and give the traders who use these programs to recalibrate them before a full-fledged selling spree can run out of control.

The Risks of Panic Selling

When markets drop suddenly, it can be scary for investors. And one of the biggest risks may be to give into that fear, and join in the selling.

But one thing to remember is that markets go up and down, but an investor only loses money when they sell their holdings. By pulling their money out of the stock market, an investor not only accepts a lower price, but also removes the chance of participating in any rebound.

Loss is a big risk of panic selling. People who invest for goals that are years or decades away can likely weather a panic. But if a person is investing for retirement, a sudden panic just before they retire can create a major problem, especially if they were planning to live off those investments.

The danger of sudden, panic-driven drops in the market is one reason it makes sense for investors to review their holdings on a regular basis, and adjust their holdings away from riskier assets like stocks, toward steadier assets like bonds, as they get nearer to retirement.

That risk is also why most professionals recommend people keep 6-12 months of expenses in cash, in case of an emergency. That way, even if a financial crisis causes a person to lose their job, they can stay in the market. It’s a way to protect their long-term plans from being jeopardized by everyday expenses.

Finding Opportunities in Panic Selling

During a panic, there are typically enough scared people making irrational decisions to create valuable buying opportunities. The stock-market crashes in 1987 and in 2008, for instance, were each followed by a decade in which the S&P 500 rewarded investors with double-digit annual returns. (As always, however, past performance is no guarantee of future success.)

The problem is that there’s no way to know when a panic has reached its end, and when the market has fallen to its bottom. Professional traders with complex mathematical models have had mixed results figuring out when a market will rebound. But for most investors — even savvy ones — it’s a guessing game at best.

There are two ways an investor can try to take advantage of a bout of panic selling:

1.    The first is not to panic.

2.    The other is to keep investing when the market is down, while stocks are selling for much lower prices.

Dollar Cost Averaging

One way to take advantage of panic selling is with dollar cost averaging. With this long-term plan, an investor buys a fixed dollar amount of an investment on a regular basis — say, every month. It allows an investor to take advantage of lower purchase prices and limits the amount they invest at when valuations are higher. As such, it’s a strategy for all seasons — not just during a panic. Most investors already employ some form of dollar-cost averaging in their 401(k) plans.

The Takeaway

Steep drops in the stock market are usually headline news. The causes aren’t always clear or easy to understand. So it makes sense that a sudden drop in the markets can cause even seasoned investors to make mistakes. This is a real risk. But it can also create opportunities.

That’s why it’s important for investors to revisit their financial plan regularly, to make sure they can weather the storm, and still be on track to reach their goals — even if a market decline means they have to take a few steps back.

Ready to invest in your goals? It’s easy to get started when you open an Active Invest account with SoFi invest. You can invest in stocks, exchange-traded funds (ETFs), and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here). Members can access complimentary financial advice from a professional.

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.

SoFi Invest®

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

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For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.

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May
01
2023
How Families Can Afford to Travel on Vacation: Budget Friendly Travel Tips

How Families Can Afford to Travel on Vacation: Budget Friendly Travel Tips

By | Budgeting & Goals, Family Finances | Comments Off on How Families Can Afford to Travel on Vacation: Budget Friendly Travel Tips

Family vacations are the stuff memories are made of. Maybe it’s a week spent at a beach an hour from your home, a long weekend at a theme park, or an amazing two-week jaunt around national parks or Europe: No matter what the details, the fact that you and your loved ones are together, amid new surroundings, and perhaps having an adventure can make it worth the time, energy, and money you spend ten times over.

That said, few people have unlimited funds for getaways. And no one wants to rack up a bunch of travel-triggered debt. So here’s a game plan to help you afford a family vacation, including:

•   How to calculate the cost of a family vacation

•   Ways to make a family vacation affordable

•   Tips for avoiding debt from a family vacation

Calculating the Cost of Family Vacations

In one recent survey by the Family Travel Association and NYU’s School of Professional Studies, 85% of American parents said they were planning to take a trip with their kids in the year ahead.

If you’re among their ranks, you know that cost is a big consideration when planning this kind of trip. When calculating the total cost of your next family vacation, make sure to consider the following expenses:

•   Airfare (roundtrip) plus transfers and any train or bus fare

•   Car rental (and/or gas plus taxes and related expenses)

•   Accommodations (including taxes and fees)

•   Food and drinks (whether dining out or meal prepping)

•   Activities, attractions, and entertainment

•   Souvenirs

•   Travel insurance

•   Miscellaneous costs (parking fees, passport fees, currency exchange, etc.)

Additionally, you’ll want to account for expenses incurred at home, such as pet-sitting costs, and lost wages if you don’t have paid time-off available for some or all of your vacation days.

By having the total cost of your family vacation in mind, you can better plan ahead and ensure you budget appropriately to cover all of your costs. Another smart move can be to review the different credit card rewards you’ve accrued and see how those can bring down the price of your vacation (more about this below).

How to Take a Family Vacation on a Budget

Being a frugal traveler with your family in tow is, of course, an added challenge. No one wants to deny the kids that ice cream or souvenir T-shirt, for instance. But there are many ways to make your next vacation more affordable.

1. Have a Strict Budget

After tallying up your essential monthly expenses, such as your rent or mortgage payment, bills, and other household expenses, see how much of your discretionary income is left.

Using that number, break down how much you’re able or willing to allot toward the travel categories listed earlier. Although your budget in each subcategory can be somewhat fluid, make sure your total family travel costs don’t exceed your maximum budget.

2. Keep a Dedicated Vacation Savings Account

An important part of creating a travel fund is ensuring that your vacation savings isn’t accidentally tapped into for anything other than your trip goal. One way to avoid this is by opening a high-yield savings account that holds savings exclusively for your next trip.

Not only will you be stashing money far from your checking account so it doesn’t get spent, you’ll also be earning some interest to pump up your fund. Online banks often offer the best annual percentage yields (APYs).

3. Use Credit Card Bonuses and Miles

If you already use a cash back rewards credit card for many of your day-to-day purchases, applying your earned cash-back rewards and miles toward your trip is a must. This can help shave down your costs, especially if you stash your rewards earnings for a while in preparation for your trip.

As another bonus, your card may offer credit card travel insurance, which can help protect you against any unexpected financial losses when you’re away.

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

4. Be Flexible With Travel Dates

The travel dates you choose for your trip can greatly affect the total price of your family vacation. If you’re willing to be flexible about when you travel, you might be able to save a chunk of change.

Compare flight costs on weekends versus weekdays to find travel deals. Also consider traveling during the shoulder season or off season, if possible. An example: Heading to London (and the world of Harry Potter) not in the summer, but the spring. This can be more affordable than traveling during peak season when other families are arriving in high volumes. Also, if your kids aren’t yet school age, you can avoid the usual school holiday dates and travel when you please, potentially saving money.

5. Explore All-Inclusive Cruises

Exploring cheap cruises is another way to afford a family vacation. All-inclusive cruises offer families a package deal that generally includes food and non-alcoholic drinks, as well as activities that adults and children can enjoy on board.

Some cruises even offer “kids sail free” promotions that offer a complimentary pass for children under a certain age on specific booking dates. (Taxes and fees will still apply though.)

6. Find Ways to Budget on the Trip

Once your family arrives at your destination, cut costs on variable expenses, like food and beverages, as well as activities. Instead of dining out for every meal, you might assemble sandwiches for lunch while on vacation, or focus on shareable meals, like pizza, that can be split with the family. Packing granola bars or fruit from the supermarket can help you avoid pricey snack stops, too.

Additionally, research free or low-fee activities to do ahead of time. For instance, you could take a free walking tour of the city, visit tourist attractions that offer free children’s or elderly admission, and more.

7. Travel in Groups With Other Families

Coordinating a vacation with other families (or relatives) can be an effective budget travel option. For example, as a group, you might rent a large Airbnb with a pool or one that’s near a theme park. You could then split the cost of food, gas, and accommodations for the trip. If your group is large enough, certain attractions might also offer group discounts for admission.

8. Be Flexible With Your Destination

Perhaps your dream is to spend a week in New York City or at a seaside Maldives resort, but the cost is a real budget-buster. Think about alternatives that give you some of the same vibe (a dynamic city or a chic place by the sea) for a lower price.

Family beach options in Mexico, for example, might be more affordable than a beach trip to the Maldives. And a trip to Philadelphia or Boston (both of which have plenty of history, museums, great food, and more) could help you shave down the price of a big-city getaway.

9. Work a Side Gig for Extra Income

Bringing in supplemental income is another way to afford a family vacation, if you plan ahead of time. Consider your own skills and expertise, such as tutoring, crafting, or freelancing. There are plenty of low-cost side hustles you might pursue.

Offer your services through platforms, like UpWork, or within your local community for a fee. Use the extra money you earn toward your family trip.

10. Leverage the Sharing Economy

Innovative sharing communities are another way that families afford to travel. For example, to save money on hotels, there are also domestic and international house-sitting opportunities that your family can participate in through sites like Nomador and Mind My House.

Are Timeshares Worth it in 2023?

One option that some families consider for future travel is a timeshare. A timeshare is a vacation property wherein you — and other people — purchase the right to use it at a specific time. Generally, when it comes to budget family travel, timeshares are not the best option.

Although a timeshare simplifies certain aspects of your travel planning, such as deciding on a destination or finding accommodations, it can be restrictive in other ways. For example, your timeshare dates might not align with your available days off or children’s school vacations (when many people want to travel). In addition, timeshares can be difficult to sell when the time comes.

Recommended: How to Avoid Interest On a Credit Card

Tips to Avoid Debt While Going on a Family Vacation

Although you can pay for your family vacation on a rewards credit card and earn credit card points in the process, proceed with caution. Like any large expense put on a credit card, your total debt can balloon if you don’t have the savings or income to pay it back quickly. In that case, you start to rack up interest charges.

As much as possible, avoid putting your next family vacation on your credit card. Instead, give yourself ample time to save up toward your trip. Also, don’t forget to apply any credit card miles or cash back that you’ve earned toward your travel bookings to immediately cut your out-of-pocket travel expenses toward flights, accommodations, or car rentals.

The Takeaway

Creating amazing memories with your family through travel doesn’t mean you have to spend a bundle. By crafting a solid budget and using smart, strategic tips to cut travel costs, like using credit card rewards to travel for less, you can plan a vacation that fits your needs and your financial situation.

SoFi Travel has teamed up with Expedia to bring even more to your one-stop finance app, helping you book reservations — for flights, hotels, car rentals, and more — all in one place. SoFi Members also have exclusive access to premium savings, with 10% or more off on select hotels. Plus, earn unlimited 3%** cash back rewards when you book with your SoFi Unlimited 2% Credit Card through SoFi Travel.

SoFi Travel can take you farther.

FAQ

How do people afford to travel every year?

You can dedicate a portion of your budget each year toward travel. Calculate how much discretionary income is left after you’ve allocated funds toward non-negotiable expenses, like monthly rent and bills. Once you have an approximate number, explore your options based on your budget.

How much does it cost to travel the world with a family?

The cost to travel the world with your loved ones varies greatly. Factors like the number of adults and children in your party, your destination, the duration of your trip, when you travel during the year, and your travel activities will all determine how much you’ll spend.

How much does the average family spend on travel per year?

The average one-week vacation for two people in the U.S.costs about $3,156. Bringing along more family members will of course add to that cost, but how much will depend on variables such as whether the kids stay in the same hotel room as the parents, if you upgrade to a suite, and if many activities and attractions are on your schedule.

How do I get enough money to travel?

Taking on extra shifts at work, selling things you no longer use, earning extra income through a side hustle, and cutting your existing non-essential expenses are all popular ways to save money for travel. However, you’ll need to find a tactic that works for your financial situation and lifestyle.

Photo credit: iStock/Nutthaseth Vanchaichana

**Terms, and conditions apply: The SoFi Travel Portal is operated by Expedia. To learn more about Expedia, click https://www.expediagroup.com/home/default.aspx.

When you use your SoFi Credit Card to make a purchase on the SoFi Travel Portal, you will earn a number of SoFi Member Rewards points equal to 3% of the total amount you spend on the SoFi Travel Portal. Members can save up to 10% or more on eligible bookings.


Eligibility: You must be a SoFi registered user.
You must agree to SoFi’s privacy consent agreement.
You must book the travel on SoFi’s Travel Portal reached directly through a link on the SoFi website or mobile application. Travel booked directly on Expedia's website or app, or any other site operated or powered by Expedia is not eligible.
You must pay using your SoFi Credit Card.

SoFi Member Rewards: All terms applicable to the use of SoFi Member Rewards apply. To learn more please see: https://www.sofi.com/rewards/ and Terms applicable to Member Rewards.


Additional Terms: Changes to your bookings will affect the Rewards balance for the purchase. Any canceled bookings or fraud will cause Rewards to be rescinded. Rewards can be delayed by up to 7 business days after a transaction posts on Members’ SoFi Credit Card ledger. SoFi reserves the right to withhold Rewards points for suspected fraud, misuse, or suspicious activities.
©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender. NMLS #696891 (Member FDIC), (www.nmlsconsumeraccess.org).


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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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