Financial Topics Archives | Page 73 of 808

Oct

2024

Guide To Understanding Layaway Plans

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

If you’ve heard of layaway, you may think it’s an old-fashioned concept, but it’s still available and can help people afford an item without breaking out their credit card.

Here’s how layaway works in a nutshell: You buy an item over time via installment payments. When you’ve paid the full price, you get to take your purchase home. There may be fees involved as well as the possibility of forfeiting your payments if you can’t keep up with them, but this technique can be a helpful tool in some situations.

Key Points

• Layaway allows customers to make installment payments for items held by retailers, enabling them to afford purchases without using credit cards.

• The process involves a down payment, followed by regular payments until the item is fully paid off, at which point it can be collected.

• Advantages of layaway include avoiding debt and interest, while drawbacks may include fees and the risk of forfeiting payments if unable to complete the plan.

• Many retailers, like Amazon and Walmart, continue to offer layaway options, particularly for higher-priced items like appliances and jewelry.

• Alternatives to layaway include buy-now-pay-later plans, credit cards, budgeting adjustments, or saving in advance for purchases without incurring additional fees.

What Is Layaway?

Layaway’s meaning is quite simple: You make a deposit, and a retailer holds your item (or lays it away) and collects the rest of the money over time. When paid in full, you collect your purchase.

Here’s a bit more detail on how layaway works.

• The customer chooses an item that’s eligible for layaway and makes whatever down payment the store requires to implement a layaway plan. (This amount varies based on the retailer, and may or may not include a service fee.)

• The customer then makes regular payments over time based on the retailer’s schedule. These payments may be made weekly, biweekly, or monthly. Online layaway plans let customers buy items according to scheduled deductions from their checking account.

• At the end of the layaway plan period, when the item has been paid for in full, the customer takes their purchase home or receives it in the mail.

One additional point about how layaway works: If the customer makes late payments or cancels the layaway plan entirely, they may be charged a restocking or cancellation fee — and may also forfeit some or all of the money they’ve put toward the purchase already.

💡 Quick Tip: Tired of paying pointless bank fees? When you open a bank account online you often avoid excess charges.

Why Use a Layaway Plan?

From the store’s perspective, layaway offers a low-risk way to make sales to those who might not otherwise be able to afford the purchase all at once.

Although the retailer might choose to charge a small fee to cover the item’s being tied up for the length of the layaway, if worse comes to worse and the buyer defaults, they can simply put the item back up on the shelf for sale.

From a buyer’s perspective, the attractiveness of layaway is even more obvious: It allows those who might not otherwise have the financial leverage to make large purchases affordably, over time.

Layaway is unique among financing options in that it often doesn’t involve interest, which means it can often be a more affordable choice than other types of credit or loans.

Pros and Cons of Layaway

Like any financial approach or product, there are both benefits and drawbacks to layaway plans.

Pros of Layaway

• The consumer doesn’t have to go into debt to make a purchase they would otherwise not be able to afford. Using layaway can help you avoid charging an item on your credit card, which typically incurs high interest rates (which makes it bad vs. good debt).

• Layaway plans don’t require a credit check — which also means that the consumer’s credit won’t be affected if they can’t pay the plan on time or in full.

• Fees associated with layaway plans are generally low and often don’t include interest.

Cons of Layaway

• Although they’re generally low, layaway plans do come with associated fees, such as service, restocking, and cancellation fees — and some of these may be non-refundable.

On the topic of fees, it’s worth noting that buying relatively inexpensive items on layaway can make the associated service fees proportionately costlier than they would be on higher-priced purchases.

• If the customer makes late payments or fails to pay in full, they might forfeit some or all of the money they’ve already put toward the purchase (though this varies by vendor, so check with the individual retailer you’re considering for full details).

• Repayment terms can be inflexible and it’s up to the vendor to set the repayment schedule.

• Layaway takes time and patience; it’s an example of delayed gratification. It may be less attractive to those who want or need to take home the purchase immediately rather than waiting until it’s been paid in full.

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Stores That Offer Layaway Plans

Layaway was originally offered back in the 1930s as a result of the Great Depression, then began fading away when the history of credit cards reveals that using “plastic,” as it’s sometimes known, became more common later in the 20th century.

The history of recessions tells us they do happen over the years, and the popularity of layaway surged again during the Great Recession of 2007-2009.

These days, many retailers still offer both in-store and online layaway, either for the holidays or year-round.

In some cases, you may only be able to implement layaway on certain products — generally more expensive ones, like appliances and jewelry.

Layaway programs come and go, but retailers that currently offer layaway include the following. Note that a couple of these retailers offer layaway purchases via a service called Affirm; more on that below:

• Amazon

• Best Buy

• Big Lots

• Burlington Coat Factory

• Sears

• Target

• Walmart

If you’re unsure whether or not a retailer offers layaway, you can always ask!

4 Alternatives to Layaway

Here are some other ways customers can get their hands on items they might not be able to buy in a single purchase.

1. Similar Pay-over-time Plans

Some retailers, especially for online purchases, offer buy-now-pay-later or pay-over-time programs that are similar to layaway — rather than paying the full price today, you pay small installments over time.

On the plus side, customers can often receive their purchases before the payment plan has been completed.

However, some of these programs, like Affirm (a payment option available at checkout at many online retailers), can involve interest charges, particularly if borrowers are late on their payments or don’t complete the repayment plan in full.

2. Credit Cards

Credit cards are an obvious alternative to layaway plans — and using them, of course, means that the purchase can be taken home right away.

In fact, credit cards are sort of like the opposite of layaway: With layaway, you pay for an item and then receive it, whereas with credit cards, you receive it now and pay for it later.

(A quick vocabulary lesson: You may hear the term “buy now, pay later” vs. credit cards. If offered “buy now, pay later,” do your research to learn the details. These arrangements may be a kind of layaway. They often charge no interest, making them potentially a better move than using plastic.)

Of course, using credit cards almost always involves compounding interest charges, often close to or more than 20%, which is nothing to sneeze at.

Since it’s easy to carry a revolving balance while making minimum monthly payments, credit cards can quickly lead to a credit card debt spiral that can be difficult to climb out of.

💡 Quick Tip: When you feel the urge to buy something that isn’t in your budget, try the 30-day rule. Make a note of the item in your calendar for 30 days into the future. When the date rolls around, there’s a good chance the “gotta have it” feeling will have subsided.

3. Reconfiguring Your Budget

If being unable to make large purchases is more of a systemic problem than a one-time issue, some budget management may be in order.

Looking at how much money is coming in versus going out and then figuring out where cuts can be made and changing buying habits can be an important step. This can help you save up for the purchases you really need — and want — to make.

Shopping around to find the best deals can also help ensure that a purchase price is as low as possible, regardless of how you decide to finance it.

Recommended: Different Types of Budgets

4. Saving Up for a Purchase

Another option to layaway is to save up in advance until you have enough cash to go ahead and buy the item outright. Let’s say you want to buy a new laptop. You might automate your savings and have $25 transferred from checking on payday to your savings account (ideally, a high-interest one). Over time, the savings will build up and interest will accrue.

When you reach the amount needed, ta-da! You can go purchase your new laptop, without paying any interest or other fees related to buying it over time.

Recommended: Book Now, Pay Later Travel

Opening a Savings Account

If you’d like to start saving for a purchase, it can be wise to find a bank account that offers low or no fees and a solid interest rate to help your money grow faster.

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

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

FAQ

How does a layaway plan work?

A layaway plan works by a customer paying installments over time until they have given the retailer the full price of the desired item. At that time, the buyer receives their item. A fee may be involved, but typically there are no interest charges.

Is it a good idea to buy things on layaway?

Layaway can be a good idea in some situations. It can help some customers purchase an otherwise out-of-reach item and avoid using high-interest credit cards and incurring debt. However, one must be able to wait to get the item, and the buyer could be charged fees. They might also forfeit payments if they can’t keep up with the installments that are due.

What is the difference between an installment plan and a layaway plan?

The terms layaway plan and installment plan are typically used interchangeably to refer to buying an item over time. You make regular payments that are a fraction of the full price until the item is paid up. Then, the purchase is yours.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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.

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.

SOBK0723016

Oct

2024

Gross vs Net Income: What’s the Difference?

What Are the Differences Between Gross and Net Income?

By Dan Miller | Family Finances, Life & Career, money | Comments Off

If you’re a salaried employee, the amount of money that you bring home with each paycheck plays an important role in your overall financial picture. While there are several dollar amounts that likely appear on your paycheck, two of the most important are your gross income and your net income.

Your gross income represents the total amount of money that your employer has paid you. If you are an hourly employee, it will be your hourly wages multiplied by the number of hours that you worked. If you are salaried, then it is a proportional amount of your total annual salary.

But in terms of net income vs. gross income, the net amount is the sum that is on your paycheck or directly deposited to your bank account. This is the figure that results when you subtract withholding taxes, benefits, and other deductions from your gross salary.

Key Points

• Gross income reflects the total earnings before any deductions, while net income is the amount received after taxes and other deductions are subtracted.

• Different factors, such as marital status and retirement contributions, can affect the amount withheld from gross income, leading to variations in net income.

• Gross income serves as a standard reference for comparing salaries, as it does not account for individual tax situations or deductions that can vary greatly.

• Understanding the relationship between gross and net income is crucial for effective budgeting, as net income directly impacts available funds for expenses and savings.

• Focusing on net income provides a clearer picture of financial health and aids in setting realistic budgets for living expenses and future goals.

What Is Gross Income?

Your gross income is your total salary or wages that you earn before any deductions or taxes are taken out of your paycheck. If you are a salaried employee, your gross income will be the portion of your salary that corresponds to the time period represented on your paycheck. For example, if you have a salary of $52,000 and are paid every two weeks, you will earn a gross income of $2,000 with each bi-weekly paycheck. If you were paid only once a month, however, your gross monthly income would be $4,333.33.

In some cases, an employee might be eligible for overtime pay, which could be reflected in their paycheck as well.

If you are an hourly employee, then your gross income will depend on the total number of hours you work and your hourly wage. If you work 80 hours during a pay period and have an hourly wage of $15/hour, your gross income will be $1,200 (80 times 15). In either case, any tips, bonuses, or one-time additions may also be added to your total gross income.

What Is Net Income?

Here’s the difference between gross income vs. net income: While your gross income represents the total amount of money that you earn in a given pay period, your net income is the amount of money that you’ll actually receive. From your gross income, taxes and common payroll deductions like health insurance and any 401(k) contributions will be subtracted. Other deductions could include wage garnishments or charitable giving via your workplace.

The result is your net income, which may then be sent to your bank account via direct deposit or given to you as a paper check.

Gross vs Net Income: What’s the Difference?

When comparing net and gross income, know this: Your gross income should always be equal to or more than your net income. If you don’t have any of what are known as withholding taxes or other deductions, it is possible that your gross income and net income will be the same. But if you do have any money withheld for taxes, insurance, retirement savings, or other common deductions, they will be subtracted from your gross income. The result is your net income and is also often referred to as “take-home pay.”

Why Do We Go by Gross Income?

When people compare earnings and salary, they often do so by comparing the gross income, and net income isn’t considered. One reason for this is that your gross income is the best indicator to compare the amount of money paid for a particular job or position. The amount of deductions or taxes withheld can vary greatly depending on a person’s situation.

Consider two people that make the same salary — one who is married with children will usually have less taxes withheld than a single person. Also, one person might contribute, say, 10% of their salary to a company-sponsored retirement plan while another chooses not to. Another example could be one person who has deductions that reflect their carrying their family’s health insurance costs while another individual could be married and on their spouse’s plan and therefore have no such deduction.

Another reason that gross income is often a better comparison than net income is because the money that is withheld from your paycheck usually represents actual value that you receive. Money deducted for retirement savings is transferred to your 401(k) account; insurance premiums are used to pay for medical or dental insurance and taxes are paid to the government. Those deductions are serving an important and valuable purpose.

How Do Gross and Net Income Relate to Taxes?

It’s important to understand your taxes and how they relate to your gross and net income. Taxes (along with deductions) are one of the things that is subtracted from your gross income to make up your net income. The more money that you have withheld for taxes from your paycheck, the lower your net income will be. However, this may help minimize the possibility of your owing additional money to the federal or local government come tax season.

How Gross and Net Income Affect Your Finances

While your gross income can be a useful point of comparison in terms of how much you make, it’s your net income that most impacts your budget and finances. When managing your money and wondering whether to focus on your gross or net income, it’s likely that the latter is where you may want to focus.

After all, it’s your net income that represents the money that you actually receive each pay period. This money that you receive each month can be a good starting point as you learn to spend wisely by budgeting.

You can work to best allocate funds to pay your living expenses, make discretionary purchases, pay off debt, and save towards future goals. A line item budget can help you balance your finances and meet your near-term and longer-term goals.

The Takeaway

Gross income and net income are two different points of reference for how much money that you make. Your gross income represents the total wage or salary that you earned during a particular pay period. After any taxes or deductions are taken out, the result is your net income. Your net income is how much money that you actually take home and can be a starting point as you set up your budget.

Understanding how your gross income and net income affect your overall finances is a good first step on the path to a solid financial future. SoFi Checking and Savings can also help you manage your finances. It’s a single, convenient place to spend and save, pays a competitive Annual Percentage Yield (APY), and charges you zero account fees. What’s more, our tools like Vaults and Roundups can help you enhance your savings, and if you open a qualifying account with direct deposit, you can access your paycheck up to two days early.

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

FAQ

How can I increase my net income?

Because net income and gross income are correlated, one way to increase your net income is to increase your gross income. You might do this by finding a new, higher-paying job or by starting a side hustle. The other option to raise your net income would be to lower the amount of taxes and deductions that are taken out each pay period. This could involve, say, increasing your tax allowances to lower the amount that is withheld for taxes or decreasing your other deductions, such as how much you contribute to retirement savings.

What are some budgeting tips to help you with your income?

One budgeting tip is to make sure you start with your net income and list out all of your expenses. Make sure that your total expenses are less than your total income (this may involve making some cuts) and create a plan to save at least some of the difference. You might want to research such budget guidelines at the 50/30/20 rule for inspiration.

Is gross income more important than net income?

Gross income and net income are both important and useful in different circumstances. For example, if you are wondering whether 40K a year is a good salary, it will depend on your situation. If you are single and/or live in an area with a low cost of living, it might be. But if you are the sole source of income for a family of four, live in a location with a high cost of living, and/or have considerable debt, that same gross income could be a challenge in terms of making ends meet.

Photo credit: iStock/Vasyl Faievych

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

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

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

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

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

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

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

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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.

SOBK0123036

Oct

2024

How to Deposit Cash at Local and Online Banks

By Sheryl Nance-Nash | Budgeting & Goals, Financial Independence, money | Comments Off

Having money in the bank can be a very good thing, and there are multiple ways to actually get cash safely into your account. You could go old school and deposit bills in person or take advantage of all the mobile transactions available.

Here’s help knowing all the different ways you can deposit money into your bank account, along with how-tos. Equipped with this knowledge, you can be even more ready to get your hard-earned dollars socked away.

Key Points

• Multiple methods exist for depositing cash into bank accounts, including direct deposits, account transfers, and cash deposits at bank branches or ATMs.

• Direct deposit offers a simple way to add funds, while ATM deposits may vary in terms of immediate availability depending on the bank’s policies.

• Online bank customers can utilize mobile deposits, ACH transfers, prepaid cards, or money orders to efficiently add cash to their accounts.

• Using peer-to-peer transfer apps allows for quick cash movement, though fees may apply for instant transfers or specific transaction limits.

• Understanding the timeframes for deposits is crucial, as cash typically clears faster than checks, and policies vary between financial institutions.

🛈 SoFi members can make fast, secure, and easy cash deposits at participating retailers nationwide using your SoFi debit card.

6 Ways to Deposit Cash in a Local Bank Account

Wondering how to put cash into your local bank account? We can help. There are numerous ways you can do this, including:

• Direct deposit

• Account transfer

• External transfer

• Wire transfer

• Peer-to-peer transfer

• Depositing Cash at Your Bank Branch

Here, we’ll take a closer look at each, and, a bit later, how to use ATMs to deposit cash.

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

1. Using Direct Deposit

Direct deposit is by far the simplest and easiest way to get cash into your bank account. All you have to do is visit your bank branch, fill out a deposit slip, hand the slip and your money to the teller, and be on your way.

If the bank is closed or you want to avoid standing in a long line indoors, you can deposit cash at an ATM. You likely won’t need to fill out a deposit slip at the ATM because the computer can read the check or count the cash and then electronically credit the account associated with the ATM card.

Be sure, however, that you know your financial institution’s policies when you make a deposit at an ATM. Unlike an in-person deposit where your money is typically available immediately, your funds may not be available right away with an ATM deposit (especially if it’s not your bank’s ATM). Also, some ATM’s don’t accept cash deposits. So inquire before you make your deposit.

2. Deposit Cash Using an Account Transfer

Perhaps you have more than one account at your bank (there are often incentives to do so, which many people take advantage of). It can be quite convenient to move money via a bank transfer between accounts.

You might complete a one-time transfer at the bank or online to transfer money from savings to checking to cover a large, unexpected expense. Or perhaps you want to set up recurring automatic transfers on payday to whisk 10% of your salary into savings. Or, say you’ve accumulated a chunk of change in one account and want to open a certificate of deposit (CD) to lock in your interest rate. An account transfer could make that happen, too.

3. External Transfer

Maybe you don’t want to keep all your eggs in one basket, so you have more than one financial institution where you keep your money. No worries if you want to move money between accounts as part of managing your banking. Some financial institutions allow you to link accounts held elsewhere.

The how-to’s: Complete what’s necessary to link the accounts (this can involve just inputting an account’s routing and account number), and you can easily transfer money between them.

4. Wire Transfer

How else to put cash into a bank account? Wire transfers may sound old-fashioned, but they are still an effective way to send money to someone else’s bank account. Say someone needs to send you money, but you don’t bank with the same financial institution. They can do a wire transfer from their bank to yours using providers like Western Union.

Wire transfers are fast, and the money arrives pretty much immediately. The downside is that you have to share your bank account information, which can give you cause for concern if you don’t know the person you’re dealing with.

Also, wire transfers charge the sender a fee, which may vary on factors such as whether you’re sending/receiving domestically or internationally. The person sending you the funds could want to deduct the fee from the money they are sending your way. And banks may charge fees related to wire transfers as well, so again, do a little research first to avoid any surprises.

5. Peer-to-Peer Transfer

Decades ago there were no money-transfer apps or platforms like PayPal, Zelle, or Venmo. Today, there are many ways to move money around with these tools, whether that means a friend paying you back for their share of the dinner tab or someone who employs you as a gig worker sending you your fee. The way these platforms work is that you can receive money either directly into your account or into the money-transfer app and then transfer it to your bank account.

Worth noting: Sometimes you may pay a fee for an instantaneous transfer versus one that takes a day or two. There can be other costs and transaction limits involved as well, so familiarize yourself with the specifics of the platform you are thinking of using.

6. Depositing Cash at Your Bank Branch

One last way to put cash in your bank account. If you bank at a traditional financial institution with brick-and-mortar branches, you could take your money in person and fork it over. Typically, this involves handing the cash to a teller with a deposit slip.

While many people who are paid in cash (yes, they still exist) may use this method, it is of course important to be cautious when en route to the bank with a pocket full of bills. If you lose the money or are robbed, that money would be gone.

4 Ways to Deposit Cash in an Online Bank Account

If your accounts are at an online bank, you may wonder how best to deposit your cash. After all, there isn’t a brick-and-mortar branch to stroll into, and no one wants to mail cash. But don’t worry; you likely have plenty of options.

One is to find an in-network ATM. Find out what network of ATMs your online bank is part of, and you can then deposit cash in one of those ATMs. Be sure to keep your receipt until the money surfaces in your account so you’re sure everything went through properly.

That’s not always convenient, though, so let’s consider some other options:

• Mobile deposit

• ACH transfer

• Prepaid cards

• Money orders

• Transferring from another bank

1. Using a Mobile Deposit

You can deposit your checks remotely. It’s super simple and you don’t have to leave home, which is one of the benefits of mobile deposits. All you need to do is take a picture of the front and the back of the check and deposit it via your bank’s mobile app.

2. ACH Transfer

You can also get money deposited directly into your account by what are known as ACH (or Automated Clearing House) transfers. These can be set up to go into your account on a recurring basis, too. For example, you can have your HR department deposit your paychecks into your account, and you can do the same with government benefits if you enroll in the program to get your money this way. Once you know how to set up direct deposit, it might just be a game-changer for you.

3. Depositing Cash Using a Prepaid Card

There’s another option if your online bank account isn’t part of an ATM network: a prepaid debit card that’s linked to your account. With a prepaid card, you can load money on it in a variety of ways. For example, you can go to participating retailers to deposit cash. Then you could transfer the money from the prepaid debit card to your linked online bank account.

But of course, there can be a downside. You may be charged fees to get the card, deposit cash, or withdraw funds. Do the math. If you don’t need to do it frequently, it might be worth it. But if you have to do this often, the additional costs might be a deal-breaker. Shop around for a card that suits your needs.

4. Using a Money Order to Deposit Cash

If all else fails, you could go retro and buy a money order. You get one from the post office or businesses like CVS and Western Union, among others. You’ll likely pay less than $5, though the fee depends on the amount of the money order. You can mail the money order to your online bank. Just double-check that the bank accepts money orders for deposits.

5. Transferring From Another Bank Account

Another option is to transfer funds from another bank account. Whether you keep multiple bank accounts at one financial institution or divide them between different banks, you can send money from one account to an online account simply. You can likely use the transfer feature in your bank’s app, add the necessary bank account and routing number, and get the money heading where you want it.

Can You Deposit Cash in an ATM?

Yes, you can. Many ATMs accept cash, though a few do not. Check with your bank or look carefully at the ATM you are planning to use to see whether a cash deposit is an option.

Using a Deposit Slip for an ATM

Like many other bits of paperwork, deposit slips are used less often than in the past when banking. Most ATMs do not require deposit slips. The computer that’s part of the ATM can verify and count the bills without the need for you to provide extra paperwork stating the amount.

Of course, you’ll want to double-check that where you are making your deposit has a machine that doesn’t require a deposit slip before you put your cash in. There may still be some devices out there that still require a deposit slip and envelope.

Funds May Not Be Available Immediately

If you deposit cash into your bank’s ATM, the money is typically available almost immediately. This is a change from the past, when a teller had to receive and then verify the deposit before funds were made available. This typically took one of two days.

Also keep in mind that many banks don’t allow you to deposit cash into an out-of-network ATM. If they do, there might be a fee involved as well as a delay in funds availability. It’s wise to check such details before you attempt to put some bills into this kind of machine.

When Does a Deposit Typically Appear in Your Account?

Every financial institution has its own rules about how long cash takes to clear or how long a direct deposit takes. Know, however, that federal law establishes the maximum length of time a bank or credit union can make you wait.

Cash, as you might guess, tends to clear most quickly. If deposited in person to your checking or savings account, it may become available the same day or the next day. If you deposit it to an ATM in your bank’s network, it could take until the second business day to clear; if you use an out-of-network ATM that accepts cash from those who aren’t account holders, that can take five business days.

The typical time period for checks and money orders to clear is between two and five days. According to the Consumer Financial Protection Bureau (CFPB), generally, these are the guidelines:

• If you deposit a check or checks for $200 or less in person to a bank employee, you can access the full amount the next business day.

• If you deposit checks totaling more than $200, you can access $225 the next business day, and the rest of the money the second business day.

Here are a few nice exceptions involving in-person deposits at your bank. You should be able to access the full amount on the next business day if you deposit:

• A certified check

• A check from another account at your bank or credit union

• A check from the government.

The amount of time a bank or credit union holds funds you deposit by check is sometimes referred to as a “deposit hold” or “check hold.” Some banks or credit unions may make funds available more quickly than the law requires, and some may expedite funds for a fee.

If you need the money from a particular check, you can ask the teller or a customer service representative when the funds will become available. A receipt showing your deposit does not mean that the money is available for you to use.

Knowing these timeframes can be very helpful as you stay on top of your money and work to make sure you know your approximate balance and don’t bounce any checks.

Recommended: When All Your Money Goes to Bills

The Takeaway

There are many options in terms of depositing cash into your bank account these days, whether you use a traditional or online bank. You’ll find options from going to a brick-and-mortar branch to using an ATM to mobile and ACH deposits and more. The timeframes for all of these deposits will vary, so check your bank’s policies.

You’ll want to be sure you don’t draw on your funds before they are fully available. It’s an important move to keep your account in good standing and avoid the fees many banks charge for overdrafts.

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

FAQ

Can you deposit cash into someone else’s bank account?

Typically, you can deposit cash into someone else’s bank account if your know the name on their account and their account number and if you go into a branch with the cash.

When does the money I deposit reflect?

A deposit can reflect in your account almost immediately (especially if it’s cash) or take a day or two to show up in your account. Also, the timing of funds availability for withdrawal or transfer can vary depending on the size and form of the deposit (such as whether you deposited a money order in person at a branch or deposited cash into an out-of-network ATM).

How do you deposit large amounts of cash?

You can use any of the standard methods: Cash (though do be cautious), transfer, check, and other techniques. But also know that a financial institution must report any cash transaction involving a deposit or withdrawal of over $10,000 to the Internal Revenue Service (IRS).

Is there a fee to deposit cash at a bank?

Most banks do not charge a fee to deposit cash at a bank. However, some banks may assess a fee if you deposit the funds into an out-of-network ATM.

Can you deposit cash without going to the bank?

Depending on your bank, you may be able to deposit your cash into an out-of-network ATM. You might have to pay a fee to do so.

Photo credit: iStock/JoeLena

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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.

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.

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

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Oct

2024

My Debit Card Expired! What Do I Do?

By Ashley Kilroy | Budgeting & Goals, Financial Independence, money | Comments Off

If your debit card expired, it can no longer make purchases or payments whatsoever. You’ll need to request a new card from your bank if they haven’t already sent you a new one. Once you have that card, you’ll need to activate it and shred your old one for security reasons.

Your debit card can be a vital player in your ongoing financial life. It’s your primary link to your bank account. It allows you to pay for items at stores, restaurants, and online businesses. In addition, debit cards are quicker than checks and don’t accrue interest charges like credit cards do.

As a result, staying ahead of your debit card’s expiration date is critical to uninterrupted use.

Key Points

• An expired debit card cannot be used for purchases or payments, requiring replacement through the bank for continued access to funds.

• Banks typically send a new debit card before the current one expires, but contacting them proactively can expedite the process if one is not received.

• After receiving a new card, it is essential to activate it and securely dispose of the old card to prevent identity theft.

• Debit cards generally last two to five years and can become inactive on the first day of the month following the expiration date.

• Regular monitoring of account balances and transaction statements can help avoid overdrafts and identify potential fraudulent activities.

What Happens if My Debit Card Expires?

You might not realize that your debit card expired until you try — and fail — to use it. However, it’s best to stay on top of that critical date. Otherwise, if your card expires, the following can occur:

• You can’t make purchases with an expired debit card.

• Automatic payments linked to your debit card, such as subscriptions or utilities, will stop.

• You’ll have to contact your bank about getting a new debit card if they haven’t already sent it.

• You’ll have to use alternative payment methods until you get a new card.

Replacing an Expired Debit Card

What to do when your debit card expires? Generally, your bank will send you an updated debit card in the mail a month before yours expires. However, if that hasn’t happened, keep these steps in mind:

• If you don’t receive one as the expiration date draws closer, it’s best to follow up with your bank about getting a new card. You can usually call your bank or log into your account online and ask for a new card. This can often take a week or so; perhaps less time if you pay a fee for expedited delivery.

• When you receive your new debit card, you can activate it by following the directions on the card. Typically, you can use the website or call the phone number on the activation sticker. You can also likely activate it by inserting it into an ATM (hopefully in-network, to avoid incurring ATM fees), entering your PIN, and withdrawing cash. The process may be somewhat different depending on your financial institution’s policies.

• Once you’re sure your new card works, it’s best to shred your old card. Throwing away an intact card invites the possibility of identity theft or bank fraud. To augment your security measures, you can discard portions of the shredded cards in different trash containers or throw away several bits at a time.

• Lastly, think about where you automatically use your debit card online. It’s vital to update your payment information where you linked your old debit card. For any bills you linked your debit card to (like your phone or electricity bill), log into your account and update your payment information.

The reason: Once your debit card expires, you won’t be able to make payments, and you could fall behind on your bills, which is exactly what you don’t want to happen when you automate your finances.

How Long Do Debit Cards Usually Last Before They Expire?

A debit card usually lasts two to five years from the date your bank issues it. You can use your debit card until the first day of the month after expiration. For example, if your card’s expiration date is January 2024, then your card will work through January 31, 2024. Then, on February 1, your card will become inactive.

Recommended: Features of Mobile Banking

Why Do Debit Cards Have an Expiration Date?

It might seem inconvenient when your debit card expires, but banks require a debit card renewal for practical reasons. Consider the following:

• The change of expiration date and security code combats fraud. In other words, the new card’s information helps prevent criminals from successfully hacking into your funds, thereby keeping your bank account safe online.

• Debit cards can get worn out with use. For example, the stripe or magnetic chip can become defective after several years. Or, the card might suffer scratches or begin to peel. Therefore, getting a new card preempts these scenarios.

• Card technology improves regularly. For instance, cards have gone from swiping to insertion and tap-to-pay in the last decade. As a result, getting a new card can allow you to take advantage of tech advances that increase convenience and security.

Will Transactions Go Through if My Debit Card Is Expired?

An expired card cannot make transactions or payments. Period. So, it’s crucial to get that debit card renewal before your current one expires.

Remember, an expired card doesn’t mean your bank account is frozen, empty, or deactivated. You can still make ACH payments if your card is expired — but an expired card can’t transact payment or let you use an ATM.

Do I Have Debit Card Access Even After It Expires?

The primary issue with an expired debit card is you can’t use it to pay in any context. However, you can access your bank account if your debit card expires, pay by ACH, and use mobile banking features. In addition, your bank account will still be active.

Tips for Using Your Debit Card Wisely

Your debit card is an essential financial tool that enables purchases, provides rewards, and more. In that way, it can contribute to your sense of financial security. Follow these tips to make the most out of your debit card:

• Memorize your PIN instead of storing it on your computer or other device. That way, no one can steal it and gain access to your account. And please: Don’t write it on the back of your debit card either.

• Don’t use an obvious PIN that anyone could easily guess, such as your birth year or 1234.

• Shred and then throw away all expired cards.

• Stay up to date on your account balance, so you don’t overdraft your account.

• Use cash instead of your card if the merchant charges a card usage fee. (Some retailers require a minimum purchase of $5 or more to prevent the card fee.)

• If your debit card provides points or cashback rewards, use it as much as possible without overspending. Also, keep in mind whether your card might have a daily spending or withdrawal limit, restricting card usage.

• Check account statements monthly, and let your bank know about any unfamiliar transactions, as they could be a sign of fraud.

• Be aware of transaction fees, when they will be charged, and whether the fee varies, depending on where you use your debit card.

Lastly, notify your bank immediately if you lose your debit card, so you aren’t financially responsible for fraudulent charges. Here’s how this works:

• When you report your card stolen within two days, there is a $50 cap on the fraudulent charges you must pay for.

• When you report within 60 days, a $500 cap applies to fraudulent charges you’re responsible for.

• You’re financially responsible for all fraudulent charges if you don’t report your card stolen within a 60-day window.

Quickly reporting the loss will help you avoid financial responsibility for extra charges that aren’t yours.

Recommended: Debit Card vs. Credit Card

The Takeaway

A debit card that’s expired can threaten to derail your financial life for a period of time, inconveniencing you as you try to pay for transactions and access cash. Being suddenly unable to use your card for purchases is frustrating and can even cause you to miss payments on crucial bills. Therefore, proactively communicating with your bank about a card that will expire soon can save you a headache.

If you’re in the market for a new debit card, you can open an online bank account with SoFi and enjoy many perks. For instance, you’ll have access to the global Allpoint Network of no-fee ATMs. In addition, you’ll enjoy spending and saving in one convenient place, earning a competitive annual percentage yield (APY), and paying no account fees. All this can help you manage your money more easily and maybe even grow your funds faster.

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

FAQ

Do I need to reach out to a bank if my card expires?

Reaching out to your bank if your card expires allows you to obtain a replacement debit card as soon as possible. Although banks usually send your new card ahead of time, it’s possible the card went to the wrong address or was never sent. Calling your bank or chatting with a bank representative online if your card expires can help minimize the waiting period for a new card.

Do the debit card numbers stay the same after they expire?

When your debit card expires, you’ll receive a replacement card with a new expiration date and security code. These numbers change to improve the security of your bank account.

What should I do with my old debit card?

You should shred or otherwise cut up your old debit card after you receive and activate the new one. Throwing away an intact card without shredding it means someone could easily steal your financial information.

Photo credit: iStock/fizkes

Oct

2024

6 Tips for Making a Financial Plan

By Julia Califano | Budgeting & Goals, Financial Independence | Comments Off

One critical step for creating financial security is establishing a financial plan. A well-crafted financial plan can help you achieve your goals, like buying a house, crushing your debt, or saving for retirement. Knowing that you’re prepared financially to face what’s ahead can help create peace of mind.

A solid financial plan will be different for everyone, but there are a few cornerstones to consider as you build your personal financial road map.

Key Points

• Establishing a financial plan involves setting specific goals such as building an emergency fund, growing retirement accounts, and eliminating high-interest debt.

• Analyzing resources requires gathering financial documents to assess income, expenses, assets, and liabilities, ultimately calculating net worth to measure progress.

• Understanding monthly cash flow helps identify spending habits by categorizing expenditures into essential and non-essential items, revealing opportunities to cut costs.

• Creating a budget aligns spending with priorities, with methods like the 50/30/20 rule helping to allocate income effectively towards needs, wants, and savings.

• Investing in long-term financial growth becomes possible once debts are managed and an emergency fund is established, allowing for contributions to retirement and taxable investment accounts.

6 Steps To Creating a Financial Plan

A financial plan is not just another word for budget or debt-reduction plan. It’s the long-term roadmap that could help make your vision for the future a reality. The smaller pieces, like budgets and debt-payoff strategies, are tools to help you get there.

And whether you sit down with a financial planner or do it yourself, the act of writing down not only what you want, but how you plan to get it, could help take it out of your head and make it real.

While the idea of coming up with an overall financial plan for yourself might seem overwhelming, you can make the process manageable by breaking it down into these six basic steps.

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

1. Setting Your Goals

While everyone’s financial goals will be different based on their individual situation, these are some common goals that tend to rise to the top of the list:

• Having an emergency fund. Generally, you’ll want to have to have at least three to six months worth of living expenses set aside in an emergency savings account. (If you’re self-employed or your income fluctuates, you might aim for six to 12 month’s worth of expenses.) This can be used to cover those unexpected expenses that invariably pop up, or float you through a loss of income, without wrecking your plan.

• Growing your 401(k) or other retirement accounts. If your employer offers a matching contribution, consider contributing at least 100% of what they’ll match. Combine that with the magic of compound interest, and you could see your balance grow at a nice pace.

• Eliminating high-interest debt. It’s no secret that eliminating your credit card debt could not only save you a significant sum in the long run but also help improve your credit profile.

While those three objectives often top the list, here are some other goals you may want to include in your financial plan:

• Establishing (and maintaining) good credit. If your dreams include large purchases, or even starting a small business, a bad credit score can be a deal-breaker. Generally, the minimum number needed to buy a home is 620 for a conventional loan. (If you’re struggling with bad credit, there are strategies that could help you build your credit profile.)

• Paying off your student loans. If this is one of your financial goals, you’re in good company — more than 43 million Americans currently carry student loan debt. And while a student loan is generally considered “good” debt, it still accrues interest.

• Living within your means. Ideally, you don’t want to put anything on your credit card that you can’t pay off in full at the end of the month (or relatively soon thereafter), since this is an expensive form of debt.

• Saving for your kids’ education. No one can predict what the higher-ed landscape will look like when your kids are ready to start filling out applications. But we do know that the average cost for tuition and living expenses in the U.S. is $36,436 per student per year, and that costs have had an annual growth rate of 2% over the past 10 year.

• Growing your investment portfolio. This might include items like your 401(k) or individual retirement account (IRA), but it can also mean a foray into the world of stocks and mutual funds. Becoming a smart investor can not only be a goal by itself, but one avenue to achieving other financial goals.

The goals that you choose as part of your financial plan may be on vastly different timelines, and you may need to accomplish one before you can move on to another. It can help to group financial goals into categories based on their time horizon — short term, mid-term, and long-term goals.

2. Understanding Your Resources

Knowing exactly what you have to work with might be one of the most important keys to building a plan that works. To put the entire puzzle together, though, you’ll need to find all the pieces.

One way to get started is to gather up all your paper and electronic bank statements, billing accounts, and portfolio documents. This might include:

Income: Salary, investment income, alimony
Expenses: Bank statements reflecting withdrawals or other debits, monthly billing statements, and other sources of everyday spending
Assets: Savings accounts, home equity, or physical items you own (car, collectibles, etc.)
Liabilities: Credit card debt, student loans, mortgage(s), and any other sources of debt

Next, you can use these documents to calculate your net worth. While you may not think you have much or any net worth, this is a worthwhile exercise because it establishes a baseline you can later use to measure growth in your net worth over time.

To create a net worth statement, simply list all of your assets (such as bank and investment accounts, real estate, valuable personal property) and then all your debts (like credit cards, mortgages, student loans). Your assets minus your liabilities equals your net worth.

If you find that your liabilities exceed your assets, don’t panic. This is a common scenario when you’re just starting out, particularly if you have a mortgage and student loans. With a financial plan in place, your net worth should grow over time.

3. Analyzing Monthly Cash Flow

Next, it’s a good idea to get a sense of your monthly cash flow — what’s coming in and what’s going out. You can use your bank statements from the last three or so months to come up with an average cash inflow and outflow.

If you find that your monthly outflow equals your monthly inflow (i.e., you’re not saving anything) or your outflow actually exceeds your inflow (meaning you’re living beyond your means), you’ll want to drill further down into the outflow column.

Start by making a list of all your spending categories and the average you spend on each per month. Then divide the list into two main categories: essential spending (e.g., rent/mortgage, utilities, groceries, insurance, debt payments) and non-essential spending (such as entertainment, shopping, travel, clothing). This exercise may immediately reveal some simple ways to reduce spending and expenses.

4. Updating Your Budget

While a budget sounds restrictive, it’s really nothing more than a plan to make sure that your spending aligns with your priorities. There are all different kinds of budgets but one simple approach is the 50/30/20 rule. To use this rule, you divide your after-tax income into three categories:

• Needs (50%)

• Wants (30%)

• Savings and debt repayment beyond the minimum (20%)

If you found (in the above step) that your outflow equals or exceeds your monthly inflow, you’ll want to take a closer look at your non-essential spending list and look for places to cut. Every dollar your free up can then be diverted into saving for your short- and long-term goals.

💡 Quick Tip: If you’re saving for a short-term goal — whether it’s a vacation, a wedding, or the down payment on a house — consider opening a high-yield savings account. The higher APY that you’ll earn will help your money grow faster, but the funds stay liquid, so they are easy to access when you reach your goal.

5. Tackling High-Interest Debt

Getting out from under high-interest debt (such as credit card balances, payday loans, or rent-to-own payments) is an important part of any financial plan.

There are several ways to go about paying down debt. With the avalanche method, for example, you list your debts from the highest interest rate to the lowest. You then throw all of your extra cash to the highest interest debt while continuing to make the minimum monthly payment on the others. Once you’ve paid off the highest interest debt, you move on to the next-highest interest debt, and so on.

With the snowball method, you list your debts from smallest to largest based on balance size. You then put all your extra cash toward the debt with the smallest balance, while making the minimum monthly payment on the others. When that is paid off, you move on the next-smallest debt, and so on. This approach can help you stay motivated by achieving early wins.

You might also consider debt consolidation, which involves transferring your credit card debt to a balance transfer card or personal loan with a lower interest rate — allowing you to focus on just one monthly payment.

6. Investing in Your Future

Once you have a solid emergency fund in place and expensive debt under control, you can start focusing on ways to grow your wealth over time.

While you may think of investing as something for rich people, investing can be as simple as putting money in a 401(k) and as easy as opening a brokerage account (many have no minimum to get started).

Part of your financial plan might include increasing your contributions to your retirement accounts. You might also look at allocating any other available income to a taxable investment account that can add to your net worth over time. Your plan for investing should take into account your investment risk tolerance and future income needs.

Monitoring and Reviewing

It’s been a few months since you implemented your financial plan, and so far, so good. But things may have changed a bit.

You paid off one credit card, so you need to reallocate that payment to the next debt. Or, a goal that used to be at the top of your list isn’t so important any more.

Reviewing your plan can mean not only making adjustments, but simplifying. This can include automating any new payments, consolidating new debts, or opting out of paper statements to reduce clutter.

Are There Any Downsides To Creating a Financial Plan?

Financial planning can help you feel more confident and in control over your personal finances. But it does come with a few downsides. Here are some to keep in mind:

• It can be time-consuming. The process of going through your finances and understanding your income, expenses, and savings takes time, effort, and patience. It can also take some time to see tangible results of your efforts.

• Financial predictions may not come to pass. You may set financial goals based on how much you expect to earn in a high-yield savings or an investment account. However, interest rates and investment returns are subject to conditions you can’t control or always predict.

• It’s not one and done. It is not enough to make a financial plan and stick with it. It’s important to keep track of your progress and regularly reassess and adjust your plan as your financial situation, your goals, and market conditions change over time.

Is Creating a Financial Plan Viable for Everyone?

Yes. Financial planning is a tool that anyone can use, regardless of age, income, net worth, or financial goals. While it sounds fancy, financial planning is simply a way to document your personal and financial goals, come up with a plan to reach those goals, and make sure you stay on track to meet those goals.

What’s more, you can create a financial plan at any time, whether you’ve just started working or have been part of the workforce for years. You can hire a professional financial planner to help, or you can write a financial plan yourself (with the help of the steps listed above.)

The Takeaway

Creating a financial plan is an important step toward financial security. To get started with your personal financial plan, you’ll want to prioritize your financial goals, review your current income and spending, and then analyze and make changes in a way that will help you meet the financial goals you set.

Keep in mind that a financial plan isn’t set in stone. As your life changes, you’ll want to adjust your financial plan to fit your needs.

Having the right accounts in place can go a long way toward helping you achieve your financial goals.

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

FAQ

How do you write a financial plan?

You can enlist the help of a professional financial planner or write a financial plan yourself. Generally, the first step is to write down your financial goals, assess your net worth. and identify your spending habits. From there, you can come up with a spending, saving, and debt reduction plan that will help you achieve your goals and build your future financial security.

What are the components of a financial plan?

A financial plan can be customized to your individual needs, but generally includes the following components:

• Financial goals (short-, medium-, and long-term)

• Statement of net worth

• Cash flow analysis

• Monthly spending budget

• Debt repayment plan

• Retirement savings plan

• Investment plan for other goals

What are examples of financial plans?

There are many different types of financial plans, and you don’t need to do them all at once. Some examples include:

• Cash flow planning and budgeting This involves looking at how much money you have coming in and going out and establishing a plan as to how you will spend your money each month.

• Insurance planning This assesses your risk exposure and develops strategies to protect against those risks.

• Retirement planning This aims to calculate how much money you will need in your retirement fund to live comfortably after you retire.

• Investment planning This involves looking at all of your future goals, such as purchasing a house, sending kids to college, and retirement, and coming up with a savings and investing plan to meet those goals.

• Tax planning This looks at ways to reduce your income taxes with tax deductions, tax credits, and any other opportunities that are available to taxpayers.

• Estate planning This involves making arrangements for the benefit and protection of your heirs.

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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.

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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