Some things in life sound too good to be true, and getting cash back for purchases may seem like one of those deals. But an increasing number of credit cards, called cashback cards, offer clients money back when they charge what they buy.
Many people are familiar with the concept of credit card rewards, when lenders give clients a little something back—points, airline miles—as an incentive for using their card.
In the case of cashback cards, that reward is, well, cash.
How Does a Cash Back Credit Card Program Work?
Cashback credit cards reward clients based on their spending, providing a credit that is a small percentage of the total purchase.
If a cashback card provides 1% back, for instance, the cardholder would generally earn 1 cent on every dollar spent, or $1 for every $100 they charge to their card. If, over the course of the year, a person charges $10,000 in purchases to their cashback credit card, they’d earn $100 in cash back for that time period.
Unlike sale items, when an item is discounted at the time of purchase—meaning, of course, the shopper pays a cheaper price—cashback cards work more like a rebate. The customer buys something at the posted rate and gets money back at a later date.
The average American had a credit card balance of $5,315 in 2020, according to Experian. Assuming that full balance is eligible for cash back, it would earn $53.15 with a credit card providing 1% cash back and $106.30 for one giving 2% cash back.
Do All Cashback Credit Cards Work the Same Way?
Yes and no. While all cashback cards typically use the same model—money back based on a percentage of total purchases—the differences are typically in the details.
Things like the rate of cashback earnings, interest rate, the process for redeeming cash back, and so on vary by card and lender. Some lenders may even offer several cashback credit card products with different rates and benefits.
As such, before signing up for a cashback credit card, it’s smart to spend some time researching and comparing cashback cards to find the one that best suits your needs.
What to Look for in a Cashback Card
There are a number of considerations when choosing a cashback credit card that will determine just how profitable the card will be for a specific person.
Because people have different spending habits and financial preferences, the best type of credit card will ultimately depend on the individual. Here are some things to consider.
Rate of Cash Back
Not all cashback credit cards offer the same rate of return, so it’s best to comparison-shop. Though differences in percentages may sound negligible, getting 2% instead of 1% means double the cash back—and those small amounts can add up over time.
Some credit cards also provide different rates of cash back depending on the spending category or how much money the cardholder charges in a year. For example, some credit cards may provide a higher percentage on expenditures such as gas, travel, or groceries and a different rate for other types of purchases.
Tiered cashback cards may provide a higher (or even lower) rate when annual purchases exceed various thresholds.
Some credit cards also offer higher introductory cashback rates.
How a person chooses to redeem cash back may also determine the final payout. A travel rewards card, for example, may provide a higher rate of return for cardholders who redeem the money they earn on flights, and a lesser amount for those who redeem their rewards on statement credits or other purchases.
It can be difficult to tell at a glance how much the cashback percentage rate may actually net an individual, especially when considering categorized and tiered rewards. But when comparison-shopping for a cashback credit card, it is worth crunching some numbers to get an idea.
One way to estimate how much in cashback rewards a card will actually end up earning is to apply the posted cashback rates to previous credit card statements or to the spending allocations within an individual’s annual budget.
Annual Fees
Though some cashback credit cards have no annual fee, others do. It’s a good idea to factor in any annual fee when estimating the cashback rewards based on your spending habits. Calculating the returns on fee vs. no-fee cards can help to assess whether it’s worth shelling out extra.
If a bank charges $99 for a cashback card earning 2%, the bank fees would essentially cancel out the $100 in cash back earned on the first $5,000 in annual spending.
Someone who charged $7,500 annually would net $51 with the 2% cashback card, and $75 with a no-fee 1% cashback card. But if they charged $20,000 annually, the $99/2% cashback credit card would net $301, while the no-fee card would only earn $200 in cash back.
APR
The nearly half of Americans who carry a balance on their credit cards each month will want to pay close attention to a credit card’s annual percentage rate. This is the amount of interest cardholders will have to pay if they do not pay off their credit card balance in full each month.
The average credit card APR was 14.65% in late 2020, according to the Federal Reserve—a rate that can quickly cancel out any cashback benefits.
A good question to ask a lender before signing up for a cashback credit card is “Where can I get cash back?” The terms of redemption can vary across credit card products.
In some cases, cardholders may see an annual one-time credit for the full amount earned. Other cards allow cardholders to redeem their cash back at any time.
Tips for Getting the Most Out of a Cashback Card
While signing up for—and using—a cashback credit card is the first step to getting money back on everyday purchases, there are some ways to optimize the returns.
Pay Off Your (Whole) Credit Card Bill on Time
With few exceptions, credit card charges are not subject to interest until after the statement payment due date. But after that payment becomes due, extra interest and fees can quickly add up—erasing any cashback benefits.
Optimize Redemptions
When it comes to redeeming cash back, it’s worth seeking the biggest bang for your buck.
If a card offers different rates of cash back depending on how rewards are redeemed, being strategic when cashing out can result in a greater windfall.
Consider Extra Fees
Though a cashback credit card can make it tempting to charge everything you buy, that’s not always the most cost-effective strategy.
Though it’s generally an exception, some merchants impose surcharges for using a credit card or may provide discounts for paying in cash. In such cases, it’s a good idea to crunch the numbers to ensure the extra fees don’t actually cost more than the cashback reward.
The Takeaway
Free money may be hard to come by—but not if you use a cashback credit card. When choosing a card, It’s best to look at the rate of cash back, any annual fee a card may charge, and the APR if you carry a balance.
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.
Normally there is no simple way to cancel interest on student loans. There are programs under which different kinds of federal student loans could be forgiven or discharged, but they are not easy to qualify for.
Then there’s non-COVID-related forbearance, during which interest does accrue.
During the 2020-21 coronavirus-related “administrative forbearance,” interest rates were set to 0% on federal student loans held by the Department of Education through at least September 2021—and the interest did not accrue. So that’s a reprieve from interest but not a cancellation.
A case of major loan and interest cancellation did arrive in March 2021, when the Biden administration canceled $1 billion in federal student loans for borrowers who attended a school that had engaged in deceptive or illegal practices or closed suddenly.
How Does Student Loan Interest Work?
When borrowers take out a student loan, they should remember that they’ll end up paying more than the amount they initially took out, when all is said and done. That’s because loans come with interest or the amount a lender charges a person to borrow money, which will vary based on the type of loan.
Borrowers accrue interest on their student loans every day. Yep, every day. On top of that, the interest compounds, which means interest owed on a loan rolls into the loan’s total. Simply put, a borrower will pay interest on the interest.
The student loan interest rate does not change on income-driven repayment plans, but the plans can increase the total amount of interest you pay because repayment terms are expanded.
With a typical deferment or forbearance—postponement of student loan payments when you can’t afford them—interest usually accrues during the period (though the government picks up the interest tab during some deferments).
Reports have emerged of borrowers being asked to pay fees to suspend their payments s. That’s a scam. Anyone who encounters that kind of request can report it to the Federal Trade Commission’s Complaint Assistant .
If a borrower had a FFEL or Perkins loan not held by the Department of Education, they were beholden to the policy adopted by their lender or school. If their lender or school chose not to adopt the payment and interest waiver, then they were to keep making payments with interest.
Borrowers could choose to consolidate their loans with a federal Direct Consolidation Loan. But doing so after the 0% interest period could result in a higher interest rate than before.
This is true any time: Borrowers unsure of their federal loans’ status may want to contact their servicer for information. Policies are in flux, so loan servicers will know the latest.
How Forbearance and Deferment Normally Work
If you face short-term financial hardship, you may qualify for forbearance or deferment on federal student loans, providing a temporary suspension of payments.
During a normal forbearance, if you qualify, you can temporarily postpone or reduce your federal student loan payments, but interest will accrue on your loans.
During a normal deferment period, the government, not the borrower, pays the interest on some student loans, such as Direct Subsidized Loans, but interest will accrue on others, like Direct Unsubsidized Loans and Direct PLUS Loans.
During forbearance, you probably won’t be making any progress toward forgiveness or paying back your loan, the Federal Student Aid office notes, and gives this example:
If you have a loan balance of $30,000 and an interest rate of 6% and are in forbearance for a year right after you enter repayment, $1,800 in interest will accrue on your loans. If you do not pay that interest, it will capitalize (be added to your principal balance).
Because interest accrues on your principal balance, capitalization will cause more interest to accrue over time than if you had paid the interest. It will also increase your monthly payment under most repayment plans.
Forgiveness, Cancellation, and Discharge
There are several types of forgiveness, cancellation, and discharge for different kinds of federal student loans. Here are a few.
Public Service Loan Forgiveness
If you are employed by a government or nonprofit organization, you may be able to have your Direct Loans balance forgiven after 120 qualifying monthly payments.
Teacher Loan Forgiveness
If you teach full-time for five consecutive academic years at a low-income elementary school, secondary school, or educational service agency, you may be eligible for forgiveness of up to $17,500 on your Direct or FFEL Program loans.
Total and Permanent Disability Discharge
If you’re totally and permanently disabled, you may qualify for a discharge of your federal student loans and/or Teacher Education Assistance for College and Higher Education Grant service obligation.
Discharge in Bankruptcy
Available for Direct Loans, FFEL Program loans, and Perkins Loans, but bankruptcy rarely results in discharge of all debt..
Any payment made during the administrative forbearance was to be applied to the principal of the loan, unless a borrower had accrued unpaid interest, which would have to be paid off first, according to the Consumer Financial Protection Bureau.
Nonpayments by borrowers working full time for qualifying employers were to count toward the 120 payments required by the PSLF program and as payments required to receive forgiveness under an income-driven repayment plan.
Collections on defaulted federally held loans were halted, as were garnishments.
… and Could Be Around the Bend
A lot can happen in a short amount of time. As of now, there’s lots of talk of forgiveness of federal student loans.
But if that does not happen, or happen in the amount some hope for, federal student loan borrowers must eventually resume payments at their loans’ original interest rate.
Those who anticipate a struggle to make payments may consider a number of repayment options, including income-driven repayment plans and federal student loan consolidation.
And those with private student loans might want to consider refinancing, especially if they have good credit and a stable income, during a time of low rates.
The Takeaway
Cancellation of student loan interest is rare. In a normal forbearance, interest accrues on student loans. And other than student loan cancellation from on high, en masse, it’s pretty darned hard to have loans forgiven.
While rates are low, it could be time to look at the rate of your private student loans and consider refinancing them. Student Loan Refinancing with SoFi can mean a lower interest rate and a different loan term.
Borrowers can consolidate both private and federal student loans into one new loan with one monthly payment.
†Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS, PLEASE BE AWARE THAT THE WHITE HOUSE HAS ANNOUNCED UP TO $20,000 OF STUDENT LOAN FORGIVENESS FOR PELL GRANT RECIPIENTS AND $10,000 FOR QUALIFYING BORROWERS WHOSE STUDENT LOANS ARE FEDERALLY HELD. ADDITIONALLY, THE FEDERAL STUDENT LOAN PAYMENT PAUSE AND INTEREST HOLIDAY HAS BEEN EXTENDED TO DEC. 31, 2022. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE THE AMOUNT OR PORTION OF YOUR FEDERAL STUDENT DEBT THAT YOU REFINANCE WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
A high deductible health plan, or HDHP, has a higher deductible than other types of insurance plans, as the name implies.
In return for higher deductibles, these plans usually charge lower premiums than other types of health plans.
You can combine a HDHP with a tax-advantaged health savings account (HSA). Money saved in an HSA can be used to pay for out-of-pocket, qualified medical expenses before the deductible kicks in.
An HDHP can be a good, affordable health insurance option for people who are relatively healthy and don’t see doctors or receive medical services frequently.
But these plans may not be the best choice for everyone. Read on for important things to know about HDHPs.
How Does a High Deductible Health Plan Work?
When you sign up for an HDHP, you will pay most of your medical bills out of pocket until you reach the deductible (with some exceptions, explained below).
Your deductible is the amount you’ll pay out of pocket for medical expenses before your insurance pays anything.
Under current law, in order to be considered an HDHP, the deductible must be at least $1,400 for an individual, and at least $7,000 for a family.
But deductibles can be significantly higher than these minimums, and are allowed to be as high as $2,800 for an individual and $14,000 for a family.
As with other insurance plans, HDHPs come with out-of-pocket maximums. This is the most you would ever have to pay out of pocket–that includes your deductible, copayments, and coinsurance (but exclude premiums and medical costs not covered by your plan).
Out-of-pocket maximums for HDHP plans can’t exceed $2,800 for an individual and $14,000 for a family.
Despite the high deductible with HDHPs, some health care costs may be covered 100 percent even before you meet your deductible.
The government requires all HDHPs sold on the federal insurance marketplace and many other HDHP plans to cover a fair number of preventive services without charging you a copayment or coinsurance, even if you haven’t met your deductible.
You can find a list of those covered services for adults , specifically for women , and for children at HealthCare.gov.
How Does an HDHP Work With a Health Savings Account?
When you purchase a high deductible health plan, whether it’s through the federal marketplace, an employer, or directly through an insurance company, you may also open a health savings account (HSA).
You can put aside pre-tax income in the HSA to help pay your deductible or other qualified health care expenses. However, HSA funds typically can not be used to pay for health insurance premiums.
Earnings also grow tax-free in an HSA account, and withdrawals used to pay for qualified healthcare expenses are not subject to federal taxes. As a result, HSAs can result in significant tax savings.
Currently the maximum you can save in an HSA each year and receive the tax benefits is $3,600 for an individual and $7,200 for a family. Some employers make contributions to employee HSA accounts as part of their benefits package.
HSAs are also portable, meaning you take your HSA with you when you change jobs or leave your employer for any reason. Your HSA balance rolls over year to year, so you can build up reserves to pay for health care items and services you need later.
You may contribute to an HSA only if you have an HDHP.
What are the Pros and Cons of HDHPs?
As with any health insurance plan, there are both advantages and disadvantages of HDHPs. Here are some to consider.
Advantages of HDHPs
• Lower premiums. In exchange for the high deductible, HDHPs typically charge lower premiums than traditional healthcare plans like PPOs.
• You can combine an HDHP with an HSA. This can help you cover out-of-pocket medical expenses with pre-tax dollars, which make these costs more affordable. And, these accounts never expire.
• You get the same essential benefits and no-cost preventive care as other plans. HDHPs are required to cover the same types of healthcare expenses as other plans (after you meet the deductible). And, they offer the same no-cost preventive services as their more expensive counterparts.
Disadvantages of HDHPs
• High out-of-pocket costs due to high deductibles. You will need to pay for medical expenses out of pocket (because of the high deductible), while also paying your monthly premiums.
• A disincentive to receive care. You might be inclined to skip doctor visits because you’re not used to having such high out-of-pocket costs. Forgoing treatment, however, could cause more serious health problems down the line.
• Emergencies can be expensive. If you need unexpected care or go to the hospital, an HDHP will not pay anything until you have met your high deductible. This can mean having to come with a significant amount of cash to cover your medical bills.
HDHPs vs. PPOs
A preferred provider organization, or PPO, is a traditional type of health plan that usually has a lower deductible than an HDHP, but charges higher premiums.
With a PPO, you will typically only have to pay a copayment, or “copay,” when you see a doctor or fill a prescription.
For other medical services and treatments, you will likely have to pay out of pocket until you reach the deductible, but that will happen sooner than it would with a HDHP.
Both PPOs and HDHPs typically have a network of providers you can work with to get the best rates.
In a PPO, however, the provider list may be smaller than it is with an HDHP. To get the best rate on your care, members of either type of plan will want to be sure they are sticking to that list.
A PPO may be advantageous if you go to the doctor a lot and/or run into unexpected medical expenses, since you start to get help from the health plan much earlier in the year than you might with an HDHP.
A PPO could end up costing you more, however, if you end up having a year with low medical expenses.
The Takeaway
So are HDHPs worth it? With an HDHP, you will likely pay a lower monthly premium than you would with a traditional health plan, such as a PPO, but you will have a higher deductible. If you combine your HDHP with an HSA, you can pay that deductible, plus other qualified medical expenses, using money you set aside in your tax-free HSA. If you are young and/or generally healthy with no chronic or long-term conditions, an HDHP may be the most affordable option for you.
On the other hand, if you have a medical condition and you make frequent doctor visits, you may find you need coverage that kicks in sooner than it would with an HDHP plan. It can be a good idea to estimate your health expenses for the upcoming year and get a rough idea of how much you will be responsible for out of pocket with an HDHP before you sign up. You might want to use a budgeting app, such as SoFi Relay, which makes it easy to categorize and track all of your expenses in one mobile dashboard.
Health insurance is just one way to protect your budget, but making sure you have insurance on your home can also help you avoid expenses in the future. SoFi Protect and Gabi offer insurance for both renters and homeowners, so you can be sure that your home, and the things inside you care about, are protected.
Check out insurance offerings with SoFi Protect today.
SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.
Insurance not available in all states.
Gabi is a registered service mark of Gabi Personal Insurance Agency, Inc.
SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.
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.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
If you’re like many Americans, your home is the single largest purchase you’ll ever make–and one you likely can’t afford to replace if disaster strikes.
That’s why homeowners insurance can be a wise investment. This type of insurance will compensate you if an event covered under your policy damages or destroys your home or personal items.
It will also cover you in certain instances if you injure someone else or cause property damage.
Although having homeowners insurance isn’t required by law, mortgage lenders often require you to insure your home until you’ve paid the loan in full.
Choosing the right coverage for your home–and understanding exactly what is (and what isn’t) covered–can be confusing though.
Some policies cover more than others, and how much coverage you need will depend on your circumstances, as well as your risk tolerance.
Here’s what you need to know about the options available for protecting your home.
Most standard homeowners insurance policies include six different kinds of important coverage.
• Dwelling: This covers the physical structure of the home itself, including its foundation, walls, and roof, as well as structures attached to the home such as a front porch.
• Other structures on your property: This covers things that aren’t attached to the main home structure, like garages and fences.
• Personal property: This includes personal items including clothing, furniture, and everything else that you put inside your home.
• Additional living expenses: This provides funds to pay for temporary living expenses, such as hotel costs and restaurant meals, while your home is being repaired or rebuilt.
• Liability coverage: This protects you against lawsuits and damages you or your family cause to other people or their property.
• Medical coverage: This is offered to foot the bills incurred by somebody who is injured on your property, whether it’s your fault or theirs.
What Type of Events Does Homeowners Insurance Cover?
The most common type of homeowners insurance policy on the market is called HO-3 insurance.
This insurance includes coverage of 16 specifically named perils, but it may also offer “open peril” coverage, which means that anything that damages your dwelling that is not specifically excluded in the paperwork will be covered by the policy. (This coverage generally does not extend to your personal property, however.)
The 16 named perils typically include:
• Fire or lightning
• Windstorms or hail
• Explosions
• Riots
• Damage caused by aircraft
• Damage caused by vehicles
• Smoke
• Vandalism
• Theft
• Volcanic eruptions
• Falling objects
• Damage due to the weight of ice, snow or sleet
• Water or steam overflow from plumbing, HVAC systems, internal sprinklers and other appliances
• Damage due the “sudden and accidental tearing apart,cracking, burning, or bulging” of an HVAC, water-heating, or fire-protective system
• Freezing of pipes and other household appliances
• Damage due to a power surge
What Isn’t Covered by Homeowners Insurance?
Homeowners insurance typically covers most scenarios where a loss could occur. However, some events are generally excluded from policies. These often include:
• Earthquakes, landslides and sinkholes
• Infestations by birds, vermin, fungus or mold
• Wear and tear or neglect
• Nuclear hazard
• Government action (including war)
• Power failure
What if you live in a flood or hurricane area? Or an area with a history of earthquakes? You may want to consider a rider (which is supplementary coverage to an existing policy) for these or an extra policy for earthquake insurance or flood insurance.
Home insurance policies also typically set special limits on the amount of reimbursement you can receive in categories such as artwork, jewelry, appliances, tools, electronics, clothing, cash, and firearms.
If you own something particularly valuable, such as fine art painting or piece of expensive jewelry, you might want to purchase a rider that you will be reimbursed in full for it.
What Should I look for in a Homeowners Insurance Policy?
Homeowners insurance companies typically offer three different reimbursement models or levels of coverage.
Which one you choose can be an important decision. That’s because it will impact how you will be reimbursed in the event your home is damaged or burglarized, and also the cost of your premiums.
These are the most common homeowners policy options, listed from least to most costly.
Actual Cash Value
Actual cash value typically covers the cost of the house plus the value of your belongings after deducting depreciation (i.e., how much the items are currently worth, not how much you paid for them). If your five-year-old TV was stolen, for instance, you would not likely get reimbursed for the cost of a brand-new one.
Replacement Cost Value
Replacement value policies generally cover the actual cash value of your home and possessions without the deduction for depreciation, so you would likely be able to repair or rebuild your home and re-buy your possessions up to the original value.
Extended Replacement Cost Value
This coverage will typically pay out more than the original value of your home and belongings, up to a specified limit, if it actually costs more to fix your home and/or replace your possessions.
The limit can be a dollar amount or a percentage, such as 25% above your dwelling coverage amount. This gives you a cushion if rebuilding is more expensive than you expected.
Guaranteed Replacement Cost Value
Guaranteed Replacement Cost is the most comprehensive coverage. This inflation-buffer policy pays for whatever it costs to repair or rebuild your home and replace your possessions—even if it’s more than your policy limit.
This type of coverage can be ideal since you typically don’t need just enough insurance to cover the value of your home, you will likely need enough insurance to rebuild your home, preferably at current prices.
Understanding Homeowners Insurance Deductibles
Homeowners policies typically include an insurance deductible — the amount you’re required to cover before your insurer starts paying.
The deductible can be a flat dollar amount, such as $500 or $1,000. Or, it might be a percentage, such as 1 or 2 percent of the home’s insured value.
When you receive a claim check, an insurer typically subtracts your deductible amount from the total claim.
For instance, if you have a $1,000 deductible and your insurer approves a claim for $8,000 in repairs, the insurer would likely pay $7,000 and you would be responsible for the remaining $1,000.
Choosing a higher deductible will usually reduce your premium. However, you would likely have to shoulder more of the financial burden should you need to file a claim.
A lower deductible, on the other hand, means you might have a higher premium but your insurer would likely pick up a greater portion of the tab after an incident.
The Takeaway
Of the many types of insurance coverage out there on the market, homeowners insurance is one of the most important–it literally protects the roof over your head, which very well might also be your most valuable asset.
Homeowners insurance covers damage to your home and its contents. It also typically reimburses you for losses due to theft and pays out if visitors to your property are injured.
Your policy may also pay for living expenses, such as a hotel stay, if your home becomes uninhabitable.
In some cases, you can get additional policies or riders for events not covered by your regular home insurance, such as flooding, as well as extra coverage for any highly valuable possessions.
Because choosing the right homeowners insurance company and right amount of coverage can be overwhelming, SoFi has partnered with Lemonade to help bring customizable and affordable homeowners insurance to our members.
Prices start as low as $25 per month, and Lemonade gives back leftover money to charities of your choice.
Check out homeowners insurance options offered through SoFi Protect.
SoFi offers customers the opportunity to reach the following Insurance Agents:
Home & Renters: Lemonade Insurance Agency (LIA) is acting as the agent of Lemonade Insurance Company in selling this insurance policy, in which it receives compensation based on the premiums for the insurance policies it sells.
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.
Some good news about budgeting: According to a 2020 Debt.com survey, as many as 80 percent of Americans are now doing some form of budgeting. The top reasons for using a budget, according to the survey, include increasing wealth and savings and managing debt.
While not everyone loves the idea of budgeting, taking a moment to assess and prioritize your spending can yield some real rewards. Even a basic monthly budget can help you reach your financial goals, whether it’s to have a financial cushion, put a downpayment on a new home, go on your dream vacation, or all of the above.
The most common reason cited for not budgeting in Debt.com’s survey was making too little money. But the truth is that you don’t have to make a lot to benefit from having a budget. Indeed, budgeting can be particularly helpful when money is tight.
Whether you’re brand new to budgeting or looking to improve your budgeting skills, read on. Below are some simple steps that can help you keep better tabs on your cash flow and improve your financial life.
Gathering All of Your Financial Information
While estimating your income and monthly costs can work in a pinch, to make your budget as complete (and accurate) as possible, you’ll want to start by gathering up at least three months worth of financial documents and receipts.
Here are some documents that may be helpful:
• Pay stubs • Bank statements • Credit card statements • Rent/Mortgage bill • HOA • Electricity bill • Water bill • Internet bill • Cable bill • Childcare/School Tuition statements • Monthly public transportation passes • Recurring healthcare costs like deductibles or prescriptions • Student loan statements • Insurance statements
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Figuring Out Your Monthly Take-Home Income
Although you may be able to rattle off your annual income without thinking, when creating a budget you’ll want to look more closely at your pay stub to determine your take-home pay. That’s how much is left after all of the deductions (such as federal, state, and local taxes, retirement savings, and insurance) are taken out.
If you’re self-employed, you’ll need to subtract your self-employment income tax before calculating your net monthly income.
Determining your take-home pay is important because if you use your annual income to make your budget, you might end up thinking that you have more money available to you every month than actually shows up in your checking account.
If you’re budgeting with another person, you’ll also want to tally up that person’s take-home pay as well. It’s a good idea to also include any additional household income, such as that from investments or social security. All together, these will give you a good idea of how much actual cash you have to budget with each month.
Tallying Up Monthly Expenses
Once you’ve nailed down how much money you’re bringing in each month, it’s time to look at how much money you’re sending out into the world each month. This is where all the paperwork you gathered can really come in handy.
A simple way to start is to write down how much you’re paying for all your fixed (or recurring) monthly bills, such as rent/mortgage, car payments, insurance, health care expenses, utilities, subscriptions.
Once you’ve got your regular bills accounted for, you can look at variable expenses, such as groceries, entertainment, and other discretionary expenses. With variable expenses, it’s helpful to look back at your bank statement, as well as receipts from the previous few weeks or months, and calculate an average.
If you tend not to save receipts, it can be useful to actually track your spending (by carrying a notebook, using a app, or collecting receipts and recording them later) for a week or more in order to better assess your daily spending.
Below are some sample budget categories and expenses that you may want to include:
When it comes to expenses that only occur in certain months, such as tuition for summer camp, you can divide the total by 12 in order to figure out how much you should be saving each month to cover these seasonal costs.
Once you have a list of all your monthly expenses, you may be alerted to trends you might not have noticed before (like $75 a month on morning coffees).
You’ll also be able to add it all up to see what your overall average monthly spending is. Ideally, this number is less than the amount of take-home pay you calculated above.
Planning and Creating a Budget
Now that you’ve got a grip on how much money you have coming in, and how much is going out, it’s time to actually create a plan for how you want to spend your money–in other words a budget–rather than spending haphazardly.
You can create a budget using pen and paper or a spreadsheet on your computer. There are also a number of budgeting apps, such as SoFi Relay, that can simplify the process.
There are several different ways to approach spending targets and savings goals in your budget.
One commonly recommended guideline it the 50/20/30 budget, which breaks up your spending and saving like this:
• 50 percent on “needs” or essential expenses (such as housing, utilities, auto payments, insurance, repairs, healthcare, childcare, minimum payments on debts, and education). • 30 percent on “wants” or discretionary expenses (e.g., shopping, entertainment, personal care, travel). • 20 percent towards savings (such as an emergency fund, paying more than the minimum on debts, retirement, and other savings).
These percentages are guidelines, however, and you may decide to re-jigger them based on your financial situation, current expenses, and goals.
If the cost of housing is high in your area, for example, you may need to allot more to the “needs” bucket. Or, if you have a big expense or a trip you want to take in six months, you may want to bump up savings, at least temporarily.
If you find that your spending is currently higher than your income, or doesn’t allow for monthly savings or debt reduction, you may need to find places where you can cut back.
It’s often simplest to do this in the “wants” category. For example, you might decide you can cook more and eat out less often, ditch that pricy cable bill, use the library instead of buying digital and audio books, or cut back on clothing purchases.
Once you’ve set up your spending and saving targets, you’ll want to track your progress, either by manually tracking your spending or using an app. Along the way, you may find that you have to adjust your spending to stay better aligned with your budget, or you might find that you need to adjust your budget to make it work better for you.
The Takeaway
A budget can help you achieve your financial goals, whether it’s knocking down debt, saving up for something fun, or funding your retirement.
While the process may sound intimidating, budgeting is really just a matter of figuring out what your current income and expenses are, seeing how they line up (or don’t), and then deciding how you may want to shift your spending in order to reach your goals.
It can also be helpful to remember that even if you have a budget, it will only be useful if you periodically track and update it to reflect any changes in your income, expenses, or financial goals.
If you need help tracking your spending, a checking and savings account with SoFi might be a great choice for you. With SoFi Checking and Savings, you can easily see your weekly spending (and make sure you’re on track with your budget) in your dashboard in the app.
Ready to take your budget to the next level? Find out more about how SoFi Checking and Savings can help you track your spending and budget effectively.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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