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Sometimes, home sweet home is right under our noses. Buying a house from a relative may be the perfect solution, but everyone should be aware of how to negotiate and seal the deal.

An adult child may have her heart set on buying her parents’ home because of the memories it holds. Another might want to purchase Grandma’s home so he can retire in Florida. Others may have a relative who wants to give them a good deal.

Whatever the case, if you’re buying a house from family, you’ll want a harmonious handoff.

Buying a House From a Relative

It’s important to understand the home buying process before making any real estate purchase.

And knowing what is needed to buy a home is useful before, erm, buying a home.

Buying a house from family, though, is a bit different than a deal between strangers. First of all, whether you’re a first-time homebuyer or not, it’s important to consider how crafting the deal can affect familial relationships.

Not hiring real estate agents might keep negotiations and planning all in the … family. If that’s the case, it’s a good idea to have regular check-ins to ensure that both parties feel good about the next steps and are ready to move forward.

It can be helpful to take notes about the arrangement after an initial meeting and make a copy for everyone involved so that all important details are in writing and available for review. That way, everyone is clear on what is expected of them.

Do We Need Real Estate Agents and Other Pros?

Even though buying a house from family is a personal affair, it can be helpful to bring in professionals to make sure the process goes smoothly, everything is done legally, and both parties walk away feeling satisfied and respected.

A lawyer or real estate agent can help make sure the purchase contract is done properly, state-required property disclosures are made, and the house sells for fair market value — what the property would sell for on the open market.

A title company can protect the buyer from any liens and ensure that no one else has a claim on the home. Even with a high level of trust between family members, this can be a smart step to take to protect the buyer.

And it can be helpful to consult a tax professional in order to be aware of any tax implications of the agreement.

Determine the Purchase Price

Deciding on the fair market value can be done by reviewing comps or hiring an appraiser to conduct an objective property valuation. Keep in mind that lenders usually require an appraisal.

Once both parties have an idea of the market value, they can decide how much the buyer will pay. In some cases, this will be the fair market value. In other scenarios, a family member may offer to pay closing costs, or provide a cash gift or gift of equity (described below).

Draw Up the Purchase Agreement

When both parties are ready to move forward, it’s time to draw up a purchase agreement. The legally binding real estate purchase contract will outline the price and payment terms.

Buyers who need a home loan can send the contract to their lender when applying for a mortgage.

Prepare for Scrutiny

There are two main types of real estate transactions: arm’s length and non-arm’s length.

In an arm’s-length transaction, the buyer and seller do not have a relationship and are acting in their own self-interest.

When someone buys a home from a family member, it’s a non-arm’s-length transaction. These deals may be subject to more scrutiny because the chance of mortgage fraud increases.

The sale price of the home must equate to what it would be between strangers unless a gift of equity is on the table.

A heads-up for anyone whose elder family member needs to go to an assisted living facility or nursing home and plans to fund their stay with Medicaid: To prevent Medicaid applicants from simply giving away a home or other resources to qualify for the low-income medical program, the federal government has a “look-back period” of five years (the exception is California, which has a 2.5-year look-back period). A Medicaid applicant is penalized if assets were gifted or sold for less than fair market value during that time.

Know How the Gift of Equity Works

One thing sellers may want to consider is giving the relative a gift of equity, or selling for less than fair market value.

The maximum amount of the discount without reporting it as a gift to the IRS is $16,000 per recipient in 2022.

Spouses “splitting” gifts may contribute $32,000 a year. Spouses splitting gifts must always report the gift.

That doesn’t mean sellers have to pay a gift tax; they can apply it to their lifetime gift exclusion. The lifetime gift and estate tax exemption is $12.06 million, or $24.12 million for a couple, in 2022.

So for the vast majority of people, the gift and estate tax exemption allows for the tax-free transfer of wealth from one generation to the next. Homeownership in general helps build generational wealth.

Here’s another plus for buyers: Most lenders allow the gift to count as a down payment.

A lender will require a gift letter signed by the sellers for a cash gift or a gift of equity sale. The letter will confirm that the gift is not a loan.

Know How to Finance the Home

When buying a home from a family member, many buyers will still need to take out a home loan. Even with a discount or a special offer from a family member, it can be hard to purchase a home outright.

Go with a mortgage broker or direct lender? Each has pluses and minuses.

Any mortgage loan officer or broker should be willing to answer your mortgage questions, including those about fees, points, and mortgage insurance.

Weighing different types of mortgage loans (including conventional conforming mortgages, jumbo loans, and government-backed loans) and loan terms (usually 30 years) can help you make a more informed decision.

After applying for mortgages, you’ll receive loan estimates. It’s important to compare mortgage APRs, fees, and closing costs.

After you choose a mortgage and close on the home, your mortgage servicing outfit will handle your payments.

The Takeaway

How to buy a house from a family member? For starters, consider calling in professionals and understand the gift of equity. Buying a house from a relative can be seamless.

As you shop for a mortgage, see what SoFi offers. Why SoFi? Because the terms are flexible, the down payments are low, the closing time is guaranteed, and the rates are competitive.

Get a rate quote in just minutes.

SoFi Mortgages
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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.

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

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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In addition to typical banking and lending services, some credit unions also offer student loan refinancing opportunities. Refinancing student loans means that you pool all or some of your existing federal or private student loans into a new loan with a new, private lender. The goal is to achieve some sort of advantage when you refinance: for example, a lower interest rate or a lower monthly payment by extending your loan term.

It’s important to note that if you refinance federal student loans, you will forfeit access to federal repayment plans, such as the Standard, Graduated, and Extended Repayment plans.

Keep reading to learn more about how credit unions differ from traditional banks and why you may want to consider a credit union for student loan refinance.

How Credit Unions Differ from Traditional Banks

A credit union is a financial services cooperative that exists to serve its members. Products and services of a credit union typically include member education, financial planning help, mobile and online banking, checking and savings accounts, and the usual menu of loans.

Banks deliver many of the same types of services as credit unions. Their main goals are to benefit stakeholders and customers. But credit unions differ from traditional banks in one main way — they are nonprofit, whereas traditional banks are for-profit. Take a look at the comparison table below to learn more about the differences between credit unions vs. banks.

Pros and Cons of Refinancing Student Loans With a Credit Union

Credit unions can offer benefits that other lenders might not give you, but there are some downsides to watch out for as well. It’s a good idea to take a look at both the pros and cons before refinancing student loans with a credit union.

If you’re looking for more in-depth information, SoFi offers a comprehensive student loan refinancing guide.

Finding a Credit Union That Refinances Student Loans

Which credit unions refinance student loans? It’s a good idea to consider a wide variety of lenders before you land on a credit union, including national credit unions, local credit unions, alumni credit unions, and even church credit unions. Not every credit union offers student loan refinancing, so you’ll have to do a little homework based on where you’re likely to be able to tap into membership opportunities.

By the time you finish comparing and contrasting all of your options (including interest rates), you’ll have a better idea of what type of lender you should choose. In addition to searching around for the right lender, you can do a few other things to strengthen your overall profile.

Review your FICO® credit score, the three-digit number that tells lenders how well you handle debt. Your credit score can reveal the rate and terms you will likely receive. It’s a good idea to try for the highest credit score you can get. The higher your credit score, the more favorable your terms will be, which can help you save a significant amount of money over time.

Consider paying down other debts you have, such as personal loans or credit card debt. Lenders take a look at your debt-to-income (DTI) ratio, which compares your monthly debt to the income you bring in. The lower your DTI, the better your opportunities may be.

You can also assemble the types of documents that you know your lender may need, including government-issued identification (such as your driver’s license), pay stubs from your employer, and recent tax returns. It may speed up the process of loan approval once you apply for a student loan refinance with the credit union.

Recommended: What Is a Bad Credit Score?

Comparing Credit Union Loan Terms

Loan terms refer to all the conditions and options available to you when borrowing money. The key elements you should look for in a refinance lender are:

•   Interest rate: What interest rate will you receive from the lender? You want to be able to get a lower interest rate than what you have on your current loan(s). The lower the interest rate, the more money you’ll be able to save on your loan over time.

•   Payoff amount: Know the total “payoff amount” for each loan offer. Getting a round figure from each lender will let you determine the interest amount you’ll pay over your entire loan period. A student loan refinancing calculator can also help you calculate your final costs. You can also find out whether a 20-year student loan refinance or 30-year student loan refinance makes sense for your needs.

•   Fees. Some lenders charge fees to help cover the cost of servicing a loan. These may include origination fees, prepayment penalties, and late fees.

Besides loan terms, consider asking about flexible repayment options and customer service:

•   Flexible repayment options: What happens if you have trouble making your payments? Will your lender work with you? It’s a good idea to ask questions about the types of repayment options they offer in the case of a job loss or a demotion, for example.

•   Customer service: Will you get good customer service from the credit union you’re considering? Ask for references from current customers. You may also know of student loan refinance customers in your community who already use a particular credit union and who can talk to you about their experiences.

Recommended: When Should I Refinance My Student Loans?

Alternatives to Credit Unions for Student Loan Refinancing

What alternatives to credit unions do you have, and should you refinance student loans in the first place? You can refinance with banks, online lenders, and other financial institutions.

Some online banks and lenders differ in that they cannot accept cash deposits (to savings or checking accounts) from customers. Or they may only offer loans, lines of credit, and credit cards. Because they don’t accept cash deposits, online lenders face less stringent government requirements than traditional banks and credit unions.

Before you make a final decision about a credit union student loan refinance or alternative banking solution, take a look at the interest rates, overall payoff amounts, repayment options, and customer service reviews.

The Takeaway

You can refinance private student loans with a credit union (as well as federal student loans), but it isn’t your only option. Credit unions differ from traditional banks due to their nonprofit status, membership requirements, dividends offered to members, limited product offerings, and backing by the NCUA rather than the FDIC. Shop around to find the best loan terms (interest rate, repayment period, and fees) before you settle on a lender.

If you think refinancing might make sense for your situation, consider refinancing your student loans with SoFi. You can refinance online and pay zero fees.

Photo credit: iStock/SDI Productions

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Getting laid off? Not great. Getting laid off with student loans? Even worse. Although the payment pause for federal student loans has been extended well into 2023, now is a good time to plan ahead and rethink your payment plan.

Fortunately, there are options for borrowers to lean on when they lose their jobs or experience another change in circumstances.

While many of these repayment plans can increase the amount you pay over time, including interest, they can make your student loans more affordable during a temporary period of financial hardship.

How COVID Affected Student Loans

COVID-19 led to pretty major derailments for some of us. Whether you were just starting your career or had a rapidly growing resume, there’s a good chance your job situation looks different now than before the pandemic.

Unemployment filings reached a record high at the end of March 2020, meaning a slew of people wondered how to pay their student loans with no job. Educational debt can be difficult to keep up with under the best of circumstances, let alone in the midst of a crisis. Fortunately, the government made some moves to offer federal student loan borrowers some solace.

The Trump administration suspended both principal and interest payments on federal student loans through January 2021. President Biden then extended the forbearance several times, most recently until the second half of 2023. Payments automatically stopped on March 13, 2020, and the suspension doesn’t affect the borrower’s eligibility for student loan forgiveness programs.

To be clear, the ruling doesn’t affect privately held student loans, like the ones through lenders like Sallie Mae® or smaller providers. However, private loan holders may still have options that can help keep their loans from becoming financially overwhelming.

Recommended: How Do Student Loans Work? Guide to Student Loans

Talk to Your Student Loan Servicer

If your loans haven’t been automatically suspended, you can still reach out to your student loan servicer about a modified repayment agreement if you’ve lost your job or are otherwise experiencing trouble with your current plan.

Sallie Mae, for instance, has “instituted additional options for customers experiencing financial difficulty” due to COVID-19. The company invites borrowers to contact them via online chat or phone to discuss alternatives and assistance.

No matter who your lender is, there’s a good chance they can offer you a temporary solution if you’re unable to make your payments. You may be able to pause your payments, for instance — though you’ll probably still accrue interest during the pause.

Either way, it’s worth reaching out to lenders to update them on your situation and hear what they might be able to offer.

File for Unemployment

Unemployment insurance — commonly referred to simply as “unemployment” — is a joint federal-state benefit that offers cash relief to eligible workers who lose jobs through no fault of their own.

Each state has its own requirements and filing processes, which you can learn more about by selecting your state in the drop-down menu .

Unemployment benefits may offer you enough cash flow to make some payments toward your student loans, especially if you were able to modify your payment plan with your servicer. But if not, there are alternatives to consider.

Options for Paying Off Student Loans While Unemployed

Life moves in unexpected ways. Student loan servicers know that, which is why most have specific protocols in place for borrowers whose plans change in one way or another.

Here are some that might be helpful in the case of sudden joblessness.

Forbearance

Student loan forbearance allows borrowers to pause student loan payments or make a smaller payment for a set period of time. It’s available for both federal and private student loans, and it can take a big load off your monthly budget.

In many cases, it’s worth exploring other options before turning to forbearance. You may still be accruing interest during the forbearance period, which can drive up your total debt quickly.

You also may not be making any progress toward potential student loan forgiveness programs.

Recommended: Will Pausing Payments Affect My Credit Score?

Deferment

Another option that may be right for you is student loan deferment, which works similarly to forbearance: You won’t be required to make payments for a temporary period, but you’ll still be responsible for the interest that will accrue during that time.

The main difference between forbearance and deferment is that deferments are usually granted in response to a certain life change, such as going back to school at least half-time or actively serving in the military, whereas you can always apply for forbearance (though it may not be granted).

Losing your job is another life change that may make you eligible for student loan unemployment deferment. Again, it’s important to understand that you’ll likely still be responsible for the interest generated during the deferment period, which could mean you pay more for your loan overall.

Certain types of federal student aid may not incur interest during the deferment, such as Direct Subsidized Loans, but you’ll want to double-check with your servicer before you make any decisions.

Income-Driven Repayment Plans

If you have federal student loans, you can look into income-driven repayment programs, which allow borrowers to adjust their payments based on what they can afford.

The government offers a variety of income-driven repayment plans, including the Pay As You Earn Plan (PAYE), the Income-Contingent Plan (ICR), and the Income-Based Repayment Plan (IBR).

Income-driven repayment plans generally reduce your payments to 10% of your discretionary income, which could bring your payments down to $0. The plans adjust once you’re making money again, ensuring that your payments are affordable. But because they might extend your overall repayment period, you can also end up paying significantly more interest in the long run.

In August 2022, President Biden proposed changes to some income-driven repayment programs as part of his forgiveness plan. Payments for undergraduate borrowers would be reduced to 5% of discretionary income instead of the current 10%.

Recommended: REPAYE vs PAYE: What’s the Difference?

Student Loan Forgiveness

A variety of programs allow certain borrowers to have their student loans forgiven, canceled, or discharged if they meet certain requirements.

In many cases, you will be required to have made a certain number of qualifying monthly payments on the loan and meet the terms for the specific forgiveness program you’re considering.

Many student loan forgiveness programs are contingent on the borrower being employed in a specific industry or by a nonprofit organization. That means this option might not help you during unemployment. But it’s worth keeping in mind over the life of your student loan. You might want to bookmark our guide to student loan forgiveness.

Dealing With Late Student Loan Payments

When you’re late making a federal student loan payment, your account quickly becomes past due or “delinquent.” You’ll likely face a late fee, which is usually a percentage of the missed payment.

If you cannot make the payment, it’s important to call your loan servicer right away to make arrangements, such as deferment, forbearance, or a new repayment plan. Otherwise your account will remain delinquent, even if you continue to make subsequent payments on time.

If you are delinquent on your federal student loan for 90 days or more, your lender will report it to the three major national credit bureaus. Your credit score will take a hit, making it more difficult to qualify for good terms on loans and credit cards.

After 270 days, your loan will go into default. Defaulting on your student loan has serious consequences. First, the entire amount you owe on your loan, including interest, becomes due immediately. You won’t be able to take out any other student loans, and you’ll no longer qualify for deferment or forbearance. The government may take your tax refund and federal benefits and garnish your wages to pay off your loan.

Terms and fees for private student loans vary by lender, but the fallout from missed payments is essentially the same.

All you have to do to avoid delinquency and default is talk to your lender or loan servicer as soon as you can. The worst thing you can do is ignore the problem and hope it goes away.

Paying It Off: New Jobs, Side Hustles, and More

Although COVID led to layoffs, furloughs, and hiring freezes, many companies are now actively recruiting again. If you’re back at work but still struggling to make payments, consider ways to bring in some extra money each month.

That’s where the side hustle comes in. Many people have turned their crafting hobby into a small business on Etsy. Others are delivering groceries or pre-made meals with a service like Instacart. Check out our roundup of 9 ways to pay off student loans.

Once you’re back on your feet, refinancing student loans is one way to reduce your debt burden. It can be difficult to refinance while unemployed: Income is one of the factors lenders look at when assessing potential borrowers. But when you’re ready, refinancing private student loans, or a combo of private and federal loans, can lower monthly payments, the interest rate, or both. And that can make loans more affordable in both the short and long term.

It is important to remember that if you refinance your loans with a private lender, you forfeit all of federal benefits, including student loan forgiveness and deferment.

The Takeaway

After a job loss, student loan borrowers have options. Deferment and forbearance allow you to pause payments during times of financial hardship. Just be aware you’ll still be responsible for the interest that accrues during the payment pause. Income-driven repayment plans are another option that can lower your monthly loan bill to as little as $0. Talk to your lender as soon as you foresee a problem paying your bill. That way you can protect your credit score and reduce the stress that comes with loan delinquency or default.

^*If you become involuntarily unemployed, deferred payments may be applied for a maximum of 12 months, in aggregate, over the life of the loan. Additional terms and conditions apply; see SoFi.com/faq-upp for details.
SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.

Finding the right budgeting system to help you manage your money is a valuable step toward financial wellness, and one system to consider is the envelope budgeting system. This is a very tangible, physical system in which you divide up a month’s worth of cash to be spent into good old-fashioned envelopes, organized by category.

This method can be a great way to literally get in touch with your money and see how it’s spent.

What Is the Envelope Budgeting Method?

There are many different budgeting methods to choose among. The envelope method for budgeting money (also sometimes called the envelope saving method) is a system that helps you track your spending by limiting it to cash transactions. In this way, an otherwise fairly abstract concept — your spending — is turned into something you must literally hold in your hands.

You determine your spending categories, such as entertainment, food, and so forth. You label an envelope for each, and then you divide your monthly available money from your checking account into the appropriate categories.

Then, as the month goes by and bills come in, you pay with the funds allocated in each envelope. Here’s one of the key points for envelope method budgeting: When the money is gone, it’s gone. The idea is to not dip in elsewhere to come up with cash for, say, a pricey sushi dinner you indulged in on impulse. The point is to get used to sticking to your budget.

Next, you’ll learn the steps to setting up an envelope budget.

How Does the Envelope Method of Budgeting Work?

Here’s a look at how the envelope method of budgeting works.

1. Determining Your Discretionary Income

The envelope method usually works best when you use it to budget for discretionary spending. Your discretionary spending is the money you spend on things you may not really need, such as entertainment.

To determine your discretionary income, take your monthly income and subtract any necessary expenses, including things like housing costs, utilities, and insurance payments.

You may want to include debt payments and savings goals (whether that means moving money into a savings account for an emergency fund or the down payment on a house) into this category as well. Anything you have left over is your discretionary income.

Budgeting rules of thumb, such as the 50/30/20 rule, can help you determine your discretionary spending as well.

2. Deciding on Budget Categories

Once you have a total for your discretionary income, you can begin to break it down by category. The spending categories you choose will depend on your own habits.

You may want to pay special attention to areas where you already have trouble with overspending. Eat out too much? Grab a latte almost daily? Consider this an opportunity to put a cap on that spending.

Other common areas to consider include groceries, entertainment, clothing, and gas money. You may want to build in a catch-all category that gives you some money to use for fun as well.

Assign a dollar amount to each category. Consider reviewing past bank statements to help you figure out what you normally spend.

Your bank or credit card may even break out your spending into categories for you, making it easy to tell where you typically spend. If you’re trying to cut back, assign dollar amounts that are lower in the categories where you can.

Recommended: Guide to Practicing Financial Self-Care

3. Withdrawing Cash and Putting it into Envelopes

The next step in an envelope method budget is to get one envelope for each category. Write the name of the category on the envelope and the dollar amount you have assigned to it. At the beginning of the month, withdraw enough cash to fill each envelope.

Depending on your situation, it may work better for you to spread your withdrawals out to align with your paycheck. If this is the case, you could take half the money out at the beginning of the month and the remaining half when you receive your next paycheck.

When you go to the bank, get the exact denominations that you need. For example, if you assigned $55 to your entertainment budget, make sure you get exactly $55 dollars. Make change if you use an ATM that only spits out $20s. With exact amounts, you’ll avoid the extra work of remembering where you need to shuffle dollars around.

If having a pile of envelopes feels too disorganized, consider using a coupon organizer. These look like little divided wallets or small accordion files. The idea here is the same as with the envelopes, and you should label each section with the category and dollar amount.

4. Spending Only Cash

Then, for the month ahead, the envelope method budget means that when you need to buy something, you take money from the appropriate envelope. You may not want to carry the envelope around with you, which could mean spending more than you need to or risking losing it. If you only bring $50 to the grocery store, make sure that your total doesn’t go beyond $50. Some tips to help this process:

•   Try to avoid the temptation to spend with your credit card too. It might help to remove your credit card out of your wallet while you use the envelope method. If you choose to do this, consider storing the card in a secure place where you can access it when you absolutely need it.

•   If you choose to purchase something online, such as concert tickets, for example, note the purchase on your envelope immediately. You can then remove the cash you spent online from the envelope.

•   When buying things online, continue to keep in mind the dollar amount you set for that category. Try your best to avoid overspending, based on the limits you set for each envelope at the beginning of the month.

Recommended: Emergency Fund Calculator

5. Once Your Cash Is Gone…It’s Gone

Here’s where the real discipline comes in with the envelope method. Once you’ve used up the cash in a given envelope, it’s time for a full stop.

This means no more spending in that specific category for the rest of the month. Remember, you’re trying to control your spending, so avoid borrowing from other categories.

If you deplete your entertainment budget, look for ways to save money on streaming services. Try free alternatives like watching movies at home. If you run out of money for groceries, get creative with leftovers and try to use up whatever food you have left in your cupboards and fridge. These exercises should hopefully help you begin to spend more and more intentionally as time goes on.

Pros of the Envelope Budgeting Method

Here are some of the most important benefits of the envelope budgeting system:

•   It makes spending tangible. Buying things with plastic can make it feel as if you haven’t spent any money at all. When you pay with cash, you’re forced to consider your spending and may spend less.

•   This system helps realize just how much you are spending on various expenses. For instance, you may not have realized how much you spend on take-out lunches until you see that $20 bill leave your hands every weekday.

•   This budgeting technique also makes it all but impossible to overspend, since you have a hard and fast budget limited by the cash in your envelopes.

Recommended: 5 Ways to Achieve Financial Security

Cons of the Envelope Budgeting Method

Yes, there are good reasons to try this budget system. However, it’s worthwhile to know some disadvantages before you dive in:

•   Carrying cash to pay for your daily expenses as part of this system can be risky; you might lose the money or, in rare cases, be robbed.

•   The cash-centric nature of the envelope budget can be difficult for people who do a lot of online banking and online transactions, like to use a debit card, and/or patronize shops that are cashless.

•   If you like to use plastic and get cash-back rewards or other perks, you will not be able to accrue those benefits while following the envelope budgeting method.

Recommended: 33 Simple and Easy Ways to Save Money

The Takeaway

The envelope budgeting system is one method that can guide you on your financial journey. By putting cash into envelopes marked for specific purposes, you can gain insight into where your money goes and hopefully rein in areas where you can cut back.

Another way to take control of your money is to find the right banking partner.

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

FAQ

What is the downside of the envelope budgeting system?

Some downsides of the envelope budgeting system is using cash to make payments. This can be inconvenient for people who prefer to use debit cards or online payments.

What is a budget system that involves envelopes?

The envelope budgeting method is a budget system that involves putting cash for different spending categories into separate envelopes. The cash is then used to pay your expenses; when you use up a month’s cash, that’s it. You don’t spend any more on that category.

How much money do you save with envelope budgeting?

How much money you save with envelope budgeting will vary, as it will with any budgeting system. For instance, if you discover that you use up more money than you allocated for dining out, you might decide to reduce your spending in that area from $120 a month to $70 a month and save $50 in that time period.

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The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

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

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

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

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

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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