Dec
13
2024
What Is a Financial Checkup?

What Is a Financial Checkup?

By | Budgeting & Goals, Financial Independence, money | Comments Off on What Is a Financial Checkup?

A financial checkup is a process in which you thoroughly review your finances and how you are tracking against your goals. It’s similar to an annual visit with your doctor to help ensure that you’re maintaining good physical health.

A financial checkup can be an important step in achieving financial wellness, which means meeting your money obligations today and also funding your future goals. Regular financial checkups can help you see how well you’re doing. What’s more, they give you the opportunity to pinpoint where you might be able to improve your money management strategy.

If you’ve never done a personal financial checkup before, fear not. Getting started is easier than you might think.

Key Points

•   A financial checkup involves a thorough review of personal finances, assessing budget, expenses, assets, and debt to gauge financial health.

•   The process can include examining credit reports and retirement savings to ensure progress towards financial goals.

•   Evaluating emergency savings and insurance needs can be a key step to securing financial stability.

•   Regular financial checkups help eliminate bad spending habits and clarify budgeting.

•   These checkups instill financial discipline and encourage consistent saving, essential for financial wellness.

What Is a Financial Checkup?

A financial checkup is a thorough review of your personal finances. It’s similar to getting a health checkup from a doctor, only instead of checking your blood pressure and other vitals, you’re measuring your financial stats. For example, some of the things you might review as part of a financial check include your:

•   Monthly budget and expenses

•   Assets, ranging from money in a savings account to equity in a home

•   Debt situation and repayment strategy

•   Credit reports and scores

•   Retirement savings

•   Emergency savings

•   College planning, if you have kids

•   Insurance needs and coverage

Those are all things that can go along with setting up a financial plan. What is a financial plan? It’s a strategy for managing your money in order to reach your personal money goals. You can complete a financial checkup and financial plan yourself or do so with the help of a professional financial advisor.

Recommended: Emergency Fund Calculator

Why Are Financial Checkups Important?

A financial health checkup can help you establish where you are with your money, where you’d like to be financially, and what steps you need to take to get there. Completing regular personal financial checkups can guide you to improve your financial health as you work toward your goals.

For instance, money checkups could help you to:

•   Get clarity around budgeting and expenses

•   Eliminate bad spending habits so you don’t overdraft your checking account

•   Define your short- and long-term financial goals

•   Instill a sense of financial discipline as you work toward those goals

•   Develop a habit of saving consistently

•   Create an actionable plan for paying off debt

•   Form a workable strategy for retirement savings

•   Fine-tune your investment goals

Taking those kinds of actions can get you on the path to living your personal definition of financial freedom. That might mean retiring early, for instance, or finding ways to create passive income so you can live a lifestyle that isn’t job-dependent.

Skipping regular financial checkups can make it more difficult to do those kinds of things and put your financial security in danger. The simple reason: You’re oblivious to how you’re managing your money.

Key Steps to Take for a Financial Checkup

Money checkups can help you move ahead with achieving financial security, but what do you actually include in one? How often do you need to perform a financial checkup? And do you need to get help from a professional financial advisor? Here’s a closer look.

•   Frequency: In terms of frequency, it may be a good idea to consider a personal financial check at least once a year. For example, you might schedule it for the beginning of January. That way, you can review the previous year and set goals for the upcoming year. Quarterly checkups may be a better option if you’d like to get smaller snapshots of your finances throughout the year.

•   Hiring a financial advisor: Whether you hire an advisor for a financial checkup is entirely up to you. An advisor can offer an extra set of eyes to review your finances but it’s important to know what you’ll pay for that help. The average financial advisor cost is around 1% of the assets they manage annually. However, some financial institutions provide access to professional advisors for free. It’s worth doing a bit of research to see what might be available.

Ready to start your financial health checkup? Here’s a simple checklist you can follow.

Take Your Financial Vital Signs

Getting some numbers down on paper can be a good way to start your financial checkup. Looking at certain metrics for the last 12 months can give you some perspective on where you are financially. Here are some of the most important measurements to take:

•   Your monthly income and expenses

•   How much you have saved for emergencies

•   What you’re carrying in total debt

•   Debt-to-income ratio (i.e., how much of your income goes to debt repayment)

•   Your credit scores

•   How much you’ve invested for retirement

•   What percentage of your income you’re saving monthly

Along with looking at specific numbers, it can also be helpful to ask some basic questions to gauge your financial health. For example, you might ask yourself:

•   How many months did I stick to my budget vs. going over budget?

•   Have I bounced any checks or overdrafted my bank account this year?

•   Was I late paying any bills in the past 12 months?

•   Did I reach any savings goals or fall short of any goals?

•   Did my overall debt load increase or decrease?

•   How well did my investments perform?

The purpose of looking at numbers first and asking these kinds of questions is to establish your financial baseline. You can then move on to the next steps to take a deeper dive into your money situation.

Review Your Budget

Making a budget is usually at the top of the list of personal finance basics for beginners. A budget is a plan for spending the income that you have each month. The basic elements of a budget include:

•   Fixed expenses, such as housing

•   Variable expenses, which need to be paid monthly but their amounts may change (such as food costs)

•   Discretionary expenses or the “wants” in your budget

•   Income

•   Debt repayment

•   Savings

You might also include taxes as its own budget category if you’re self-employed. In this situation, you will need to set aside money regularly to pay estimated tax bills.

If you’re doing a financial checkup for the last 12 months, it can be helpful to look at what’s changed in your variable and discretionary expenses. For example, are you paying more for utilities than you were 12 months ago? Has your grocery bill increased? Is a bigger chunk of your budget going to “fun” things like hobbies, entertainment, or recreation?

Analyzing individual budget categories can help you pinpoint money leaks or areas where you might be able to cut back on spending. It’s also a good opportunity to review what you’re paying for cell phone service, internet, or car insurance to see if it’s worth switching to a cheaper provider.

Get up to $300 when you bank with SoFi.

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Up to 4.00% APY on savings balances.

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Check Your Emergency Fund

An emergency fund is money that you save for unplanned or unexpected expenses. Emergency savings is meant to be separate from money you save for sinking funds or for various short- and long-term financial goals.

If you have an emergency fund, check the balance to see how much cash you have on hand for rainy days. How much should you have in an emergency fund? An often-cited rule of thumb dictates saving three to six months’ worth of expenses for emergencies. If your savings balance is below that amount, you might go back to your budget to see where you might be able to find extra money to set aside.

Also, consider where you’re keeping your emergency fund. Ideally, that money should be somewhere that’s easily accessible in case a true emergency comes along. But you might also be interested in earning a great interest rate in the meantime.

If you’re keeping your emergency fund in a traditional savings account at a regular bank, you might consider upgrading to a high-yield savings account instead in order to snag a higher rate. Online banks may be a good option for finding one with a competitive interest rate.

Recommended: Emergency Fund Calculator

Factor in Life Changes

Life changes can affect your financial plans in different ways. Losing a job, for instance, can shrink your income. Getting married might increase your household income if you’re both working. Having a child, changing jobs, moving, buying a home, and starting a business are other situations that can impact your financial outlook.

If you’ve been through any of these life changes in the past year, consider what that might mean for things like budgeting, saving, and expenses. It’s also important to review your tax situation.

Getting married, for instance, means a change to your tax filing status. Having a child can open the door for added tax breaks. And starting a new business can bring additional tax obligations, such as estimated quarterly tax payments. Those are all things that could increase your tax bill year to year. It’s therefore important to consider where they fit in during your financial checkup.

Recommended: Getting Back on Track After Going Over Budget

Review Your Investment and Retirement Goals

Investing can be key to building wealth over the long-term. You can invest inside of a tax-advantaged plan, such as a 401(k) or individual retirement account (IRA), or through a taxable brokerage account. As part of your financial health check, it’s helpful to know:

•   Where your money is invested (i.e., taxable vs. tax-advantaged accounts)

•   How your portfolio is diversified across different asset classes

•   How those assets have performed over the last year

•   What you’re paying in investment fees

•   How your risk tolerance or tax situation has changed over the past year

•   Whether you’re on track with retirement saving.

Reviewing those things can give you an idea of whether you’re on the right track with your investments. For example, if you’re 30 years old and want to retire at 50 with $1 million, but you only have $10,000 invested, that’s a clear sign that you’ve got a lot of work left to do.

Using online investment calculators and retirement calculators can help you to figure out how closely you’re keeping up with your goals. And if you don’t have an investment account yet, you may want to consider setting up an IRA online and a taxable brokerage account so you can start growing wealth.

The Takeaway

A financial checkup is a smart way to keep tabs on your money and your financial health. It will give you the opportunity to make course corrections and can aid you with overcoming personal financial challenges. If you’re struggling with credit card debt, for example, then a periodic financial checkup can help you to figure out a strategy for paying down your balances while streamlining your expenses so you’re less reliant on plastic. It can also help you highlight ways you are succeeding financially and inspire you to keep going and keep your money growing.

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 often should you do a financial checkup?

Completing a financial checkup at least once a year can be a good way to see whether you’re on track with your goals and where you might be able to improve. If you’d like to check in with your money more often, you might schedule quarterly financial checkups instead.

How do you do a financial health checkup?

A financial health checkup starts with gathering information about your income, expenses, debt, and savings. From there, you can review your financial progress and goals to determine what steps to take next with your money.

What does financial wellness include?

Financial wellness means being able to manage your current money obligations with ease while also being able to look ahead to the future. Someone who has achieved financial wellness generally has stable income, a firm grip on their expenses, a dedicated savings habit, and little to no “bad” debt. Another component is looking forward and tracking well for future financial goals, like retirement.

Photo credit: iStock/Bilgehan Tuzcu

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

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Dec
13
2024
What Is a Reseller?

Guide to Reselling

By | Budgeting & Goals, Financial Independence, money | Comments Off on Guide to Reselling

A reseller is a critical link in the commerce chain, purchasing items from manufacturers, dealers, and other businesses and individuals, and offering them for sale to consumers. Resellers may do business on major platforms like Amazon and eBay or via smaller outlets.

There are real profits to be had by setting up a resale ecommerce platform. However, it requires taking the right steps professionally, such as finding initial capital, establishing a supplier network, and marketing your services as a reseller. Read on to discover if this career could be right for you.

Key Points

•   Reselling involves purchasing goods from manufacturers or wholesalers and selling them to consumers, often online, with flexibility and scalability as key benefits.

•   Startup costs include sourcing inventory, storage, marketing, and shipping, with significant capital needed for high-end items.

•   Reselling differs from dropshipping as it requires owning inventory, offering potentially higher returns but also higher risks.

•   Success in reselling depends on building a reliable supplier network and managing costs effectively.

•   Reselling can be a side hustle or full-time job, with income potential varying based on market demand and business strategy.

What Is a Reseller?

Resellers buy merchandise, such as clothes, shoes, toys, electronics, jewelry, and appliances, and resell it on online marketplaces or physical discount stores for profit. Online resellers often buy merchandise in bulk and at a discount from wholesalers and manufacturers. They then resell items individually on digital platforms like eBay and Poshmark.

Because the reseller does not manufacture the goods they sell, they typically have no production costs. However, they can face steep marketing costs. Depending on how well a seller manages these costs, they could see a steady stream of profits flowing into their checking account.

Another factor to consider is that resellers in the luxury goods or collector markets, such as watches, jewelry, or high-end fashion items, often have decades of industry experience and are experts in their field. They use this expertise to ensure the products they trade are authentic and not fake.

Recommended: 36 Places to Sell Your Stuff

How Does Reselling Work?

Resellers first have to source their merchandise or inventory. Some may seek liquidation pallets of customer returns or overstocks from big retailers. E-commerce resellers then market their inventory on their platform.

Once customers purchase products, the reseller ships packages and manages returns. Other than buying inventory, shipping and managing returns may be the biggest expenses for resellers, so they build these costs into their markups on the items they sell.

For luxury goods, like collectibles, watches, jewelry, and high-end fashion, resellers must authenticate the products to show that they are not fakes. Some buyers may only buy these items from dealers they know are trustworthy.

Recommended: 50/30/20 Budget Calculator

Common Reselling Industries

Practically any item you need or want can be found on the secondary market, except for perishables like food. Here are some common examples.

•   Apparel

•   Shoes

•   Luxury goods (high-end fashion, handbags, jewelry, and vintage jewelry)

•   Collectibles (wine, art, watches, whiskey, vintage cars)

•   Household goods (exercise equipment, household appliances, furniture)

•   Technology goods(smartphones, tablets, and tech accessories)

•   Electronics (stereo components, home entertainment systems)

•   Video games, DVDs, and Blu-ray discs

•   Vehicles

•   Baby products (toys, strollers, accessories)

•   Musical instruments

•   Power tools and garden equipment

Depending on what product you select to resell and how much time, energy, and investment you put into your business, reselling could be a job that pays daily or one that provides only occasional income.

Types of Resellers

Resellers assume various positions in the supply chain. To better understand what “reseller” means and what one does, here’s a look at the different types: wholesalers, retailers, and distributors.

•   Wholesalers: This involves buying products in bulk and at a discount from manufacturers or distributors. Wholesalers sell the products to retailers or resellers at a markup and in smaller quantities. They typically don’t sell directly to consumers.

•   Retailers: These professionals are further down the supply chain. Retailers buy from the wholesaler or distributor and sell directly to the consumer. They usually have a range of products and sell in small quantities.

•   Distributors: This involves buying products from manufacturers and selling them to others in the supply chain, usually wholesalers. Distributors tend to have close relationships with manufacturers who feature buying and marketing contracts with free samples and discounts.

Common Startup Costs for Resellers

Startup costs for resellers mainly involve sourcing inventory, storage, marketing, and shipping.

•   Inventory: The costs for inventory will depend on what you are selling. You will need significant capital if you plan to resell high-end items like designer handbags or jewelry. Clothing resellers will need capital to buy oversupply or liquidation pallets from big retailers like Nordstrom Rack or Costco or other wholesale clubs.

•   Storage costs: Resellers need to store their inventory, particularly if they buy in bulk from wholesalers.

•   Marketing: Marketing costs run high for resellers and focus on email outreach and ads, often on social media platforms like Facebook, Instagram, and TikTok.

•   Shipping: Shipping and returns may be the highest cost for resellers. Vendors need enough capital to ship items and cover returns costs.

Recommended: 15 Low-Cost Side Hustles

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Reselling vs Dropshipping: What’s the Difference?

Reselling is different from dropshipping because the former requires owning and storing inventory, while the latter is more of a middleman. Here are the key differences between dropshipping and reselling.

•   A reseller buys stock from wholesalers or distributors to sell at a profit.

•   Dropshippers don’t ever take physical ownership of products. They accept orders from customers and then buy the products from suppliers who package and ship the products to the customers.

•   Dropshippers require less capital than resellers because they do not buy or stock significant inventory.

•   The potential returns for resellers are higher than for dropshippers. Because resellers buy in bulk, they pay less per unit to their supplier and add more mark-up. Dropshippers often may buy single items, which can be more expensive.

•   Reselling is riskier because merchants may be left with inventory that they cannot sell but that they have paid for and still need to store. In this situation, it could put a strain on money in your traditional or online bank account.

Pros of Reselling

The beauty of reselling is flexibility in the products offered and the ability to run one’s own business. However, the success of a reseller largely depends on the relationship between the reseller and the suppliers. If you can succeed at that, you may well be taking a step towards making quick cash.

•   Resellers can make money without having to manufacture a product.

•   Once a reseller has established suppliers, they can scale and acquire new customers and find new products to sell.

•   Reselling is flexible. Merchants can change the products they offer according to market demand and depending on how much inventory they carry.

•   Resellers can scale quickly if they have reliable suppliers and market demand.

•   Reselling can be a way to make money from home.

Cons of Reselling

The disadvantages of reselling are that merchants must work hard to build a network of reliable suppliers, and a steady income is not guaranteed.

•   Finding inventory at the right price could be difficult until a reliable supply chain is established. This could drain funds in your savings account if you haven’t planned adequately.

•   Resellers must work hard to negotiate deals with suppliers and build relationships.

•   Quality control may be difficult because sending products back to manufacturers will mean delays for customers.

•   Shipping and storage costs can be considerable.

•   Your earnings may fluctuate, especially if you sell seasonal products, requiring you to create an irregular income budget.

•   Resellers are self-employed and have no health or retirement benefits from an employer.

Do Resellers Work from Home?

Whether you can work from home depends upon your particular situation and the kind of items you are hoping to resell. If working from home is an important consideration, it might make sense to focus on small goods, such as fashion accessories, that don’t require much storage space.
Whether you can work from home depends upon your particular situation and the kind of items you are hoping to resell.What are ways I can make money from home.

Reselling Alternatives

Becoming an entrepreneur and achieving financial freedom by reselling can often involve starting with eBay. While eBay is a popular and successful platform, it’s not the only game in town. Some alternatives to consider include:

•   Craigslist

•   Etsy

•   Facebook Marketplace

•   Poshmark

•   Rakuten

•   DePop (clothing)

•   The RealReal (fashion)

•   Mercari (home goods)

•   Ruby Lane (vintage items)

The Takeaway

Reselling involves purchasing goods from a manufacturer, wholesaler, dealer, or other source and then selling it to consumers. Typically, the selling happens online. This is a broad industry and a competitive one, but the flexibility of the work and ability to scale quickly can be major benefits. The disadvantages are similar to any entrepreneurial venture. New resellers must find capital to set up their business, buy inventory, and market that inventory.

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

Is reselling best as a side hustle or full-time job?

Reselling can be a replacement for a full-time job, but it will take time to establish sourcing and learn how to make reselling profitable. It’s best to resell on the side until you are confident that your income is sufficient and you can afford to leave your full-time or part-time job. Remember, you will not receive employer benefits and contributions as an entrepreneur.

Is reselling considered “scalping”?

Scalping is a type of reselling where the seller takes advantage of an inelastic market (meaning one where there’s always demand, even if the price is high) to make a profit. For example, scalpers often resell tickets for a popular sporting event at a major markup. Because the tickets are scarce, people are willing to pay a lot to attend. While some resellers are scalpers, many charge a reasonable markup on goods.

Do you need to have a college education to resell?

You don’t need any qualifications to resell. Succeeding as a reseller takes hard work, an ability to negotiate and find suppliers, and good business sense. That said, a business degree would be an advantage and provide knowledge that would help you with accounting, budgeting, inventory management, and marketing.

Photo credit: iStock/Iryna Mylinska

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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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 content is provided for informational and educational purposes only and should not be construed as financial advice.

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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Dec
13
2024
15 Low-Cost Valentine’s Day Gifts Your Sweetie Will Love

15 Low-Cost Valentine’s Day Gifts Your Sweetie Will Love

By | Budgeting & Goals, money | Comments Off on 15 Low-Cost Valentine’s Day Gifts Your Sweetie Will Love

Here comes Valentine’s Day, when your heart may be full of love but your bank account could be low on cash. How can you mark the day with a great gift that won’t further deplete your funds? You’re in the right place to find out.

Typically, February 14 triggers a spending frenzy. In 2024, spending on all things red, heart-shaped, or otherwise lovey-dovey was projected to hit $25.8 billion, according to the National Retail Federation. But to stick to a budget, consider this list of 15 sweet but affordable Valentine’s gift ideas.

Key Points

•   To express their love, many people splurge on Valentine’s Day gifts and celebrations, but lower-cost or free festivities can be just as meaningful.

•   Create a small bag of your partner’s favorite candy bars with a handmade card.

•   Gift a low-maintenance potted succulent as an alternative to expensive roses.

•   Cook a special meal at home to enjoy a personal dining experience.

•   Craft a personalized Valentine’s Day card with heartfelt sentiments.

Valentine’s Day Gifts on a Budget

Valentine’s Day has been celebrated for hundreds of years now, with the first messages declaiming love appearing in the 1500s. Commercially produced valentines swept across the U.S. in the mid-1800s and have been going strong ever since. The image of Cupid, the Roman god of love, with his bow and arrow, has been a long-time favorite representation, and birds (who often mate in February) also became a symbol of love.

These days, there’s no need to stick with those icons. Expressing your devotion can be done in an array of ways, often for very little cash that won’t blow your budget, as you’ll see in this list.

1. Sweet Treats

You could easily spend a bundle on top-tier chocolate truffles, but candy bars from the impulse rack at the checkout line can be equally satisfying. Put together a small bag of your honey’s favorite treats. Add a handmade card noting, “I’m sweet on you!” for a thoughtful and cute Valentine’s Day gift without going overboard or depleting your checking account.

2. Plant Power

While roses are a classic V-Day gift, price gouging can kick in around the holiday, making this a very expensive way to say “I love you.” Instead, why not avoid credit card debt and buy an adorable (and low-maintenance) potted succulent instead? It can show your affection and brighten your honey’s home. Look for them on Amazon or at The Home Depot or Lowe’s; they can cost just $7 each. Add tissue paper and some ribbon, and you’re good to go.

3. A Favorite Home-Made Meal

Skip the $100 dinner, and opt for a delicious meal at home. (Stash the money saved in an emergency fund or start a travel account with it.) Maybe that’s a chef’s recipe for three-cheese mac and cheese and a nice bottle of red wine or a good steak and salad with French vinaigrette. Choose something you don’t normally make that feels first-class but stays within a sensible budget.

4. S’mores

Here’s another affordable luxury that won’t bust your line-item budget on Valentine’s Day: While chocolates and fancy candy are delicious, sometimes a good old-fashioned treat from your childhood can feel more fun and meaningful. Grab a bag of marshmallows, graham crackers, and bar chocolate to roast over a fire.

Don’t have access to an open flame? No problem. Heat an oven to 350 degrees and layer a small baking dish with graham cracker squares, chocolate, and marshmallow halves. Repeat with another layer, topping it off with remaining marshmallow halves. Bake for nine to 11 minutes until marshmallows are puffed and golden brown on top.

5. An Over-the-Top Valentine’s Day Card

What’s an extravagant Valentine’s Day card? You know the splurge-y ones: Maybe they are three-dimensional, cut-paper pop-ups or encrusted with dried flowers. Some play music when you open them. Others are embossed with metallic designs. Whatever the details, even at their most expensive, they are likely to give you change on a $10 or $20 bill and put a smile on your sweetheart’s face.

6. A Handmade Valentine’s Day Card

On the other hand, what could be more wonderful than a handmade card? You might make a collage with magazine images or doodle a little drawing. When a heartfelt sentiment is added, that can be quite the Valentine’s Day keeper. And the money you saved vs. buying a major gift can go into your savings account for that vacation you two are planning.

7. Cupid Coupons

Show your appreciation for your significant other through cupid coupons to be cashed in for loving gestures. These money-saving coupons don’t skimp on thoughtfulness. You can make them for a 10-minute massage, cooking dinner one night, doing their laundry, or watching their favorite reality show (which you really don’t like) together.

Come up with different coupon ideas and place them in a decorative jar or envelope. Your partner can then redeem these gifts throughout the year.

Recommended: 5 Ways to Achieve Financial Security

8. Low-Cost Local Activities

There are plenty of fun, free activities that you can take advantage of locally. Head back to your favorite spot in the park for a stroll, or drive up to a local scenic overlook. Search your city for free museums (many museums have times or days when you can visit at no cost) or points of interest that you haven’t been to together.

9. A V-Day Party

Why not do a group Valentine’s Day happy hour at home? Ask friends to BYOB, and celebrate together with simple snacks. Whether you make it a surprise for your beloved or not, you’ll have fun as a group, and you won’t have to worry about spending a ton of money.

Recommended: 23 Ways to Make Quick Cash

10. Selfcare Supplies

Who can resist a little pampering? Head to a shop like Ulta or Sephora or look online at Amazon and other e-tailers for not-too-pricey moisturizers, masks, or shower gels. These often come in cleverly packaged sets for the Valentine’s Day holiday. These low-cost gifts are not only a treat for the recipient; their affordability can also make them a form of financial self-care for the gift giver.

11. A Love Letter

The written word goes a long way. If it’s been a while since you’ve confessed your love or you have yet to do so, express your feelings in a handwritten letter. Reflect on the past year with your bae, and tell them why they are so special.

If you’re short on words, write the top reasons why your partner makes you smile. Put each reason on a Post-it note, and leave them throughout their house or in their car.

12. DIY Roses

They may not smell as sweet as what Mother Nature makes, but LEGO Roses ($13) can be a fun gift. You can pre-assemble, or let your love go crazy building the 100-plus-piece blooms.

13. Scavenger Hunt

If you’re really crafty, come up with a scavenger hunt. You can make it themed according to your loved one’s favorite book, TV show, or movie. There’s nothing better than solving a Harry Potter-themed riddle that leads your partner to the Gryffindor House Cup or Tom Riddle’s diary.

Try coming up with four to five clues that lead to a small gift. A gift card to a local coffee shop feels more significant when you put together a scavenger hunt with your honey’s favorite things in mind.

14. Movie Night for Months

Research and write up a list of movies you’d love to watch together. Maybe they’ve never seen your favorite Hitchcock flicks or the “Lord of the Rings” saga. Leave a bunch of blank lines on your list for your love to fill in the movies they would like to stream with you, and have fun sharing together time while checking off each entry.

Trying to save money on streaming services? Check out services like Hoopla and Kanopy that can allow library-card holders to watch films for free.

15. Class Gift

Embark on an adventure together. Check your local library, community center, or arts organization for free or low-cost one-time classes, and sign both of you up. For instance, you might take a memoir-writing workshop, calligraphy tutorial, or strength-training class to spark a new hobby.

Valentine’s Day Explained

Curious about this holiday that’s all about love and how it got its name? Here’s a bit of history: Valentine’s Day may have been so named in honor of a priest who was martyred around the year 270. He was said to have signed a letter to his jailer’s daughter “from your Valentine” as that was his name. Legend has it that he befriended the young woman and healed her from blindness. His example may have helped to inspire today’s tradition.

Other versions of the day’s history also exist; no one is 100% certain of the origin.

Valentine’s Day by the Numbers

Here are a few interesting statistics related to the Valentine’s Day holiday and gift shopping:

•   Men spend $235, or almost twice as much as women do at $119, on average for Valentine’s Day.

•   In a recent year, Americans spent $6.4 billion on jewelry, $2.6 billion on flowers, and $4.9 billion on an evening out for Valentine’s Day, according to the National Retail Federation.

•   Online dating activity tends to be busiest on the first Sunday of the New Year (messaging on Tinder has seen a 22% surge in years past) and can stay strong until Valentine’s Day, perhaps signaling that many people don’t want to be alone on that holiday.

If you do decide you want to splurge this holiday, you might think of how to finance it. Cash back rewards could help, or perhaps you can get a bonus when opening a new checking or savings account at an online bank or elsewhere.

The Takeaway

You are now armed with great Valentine’s Day ideas that maximize the moment without blowing your budget. You might try writing an old-fashioned love letter, hosting a scavenger hunt, or even giving your sweetie some everlasting toy roses. With these tactics, being financially savvy doesn’t have to take a holiday while you celebrate.

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.

Photo credit: iStock/Prostock-Studio

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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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 content is provided for informational and educational purposes only and should not be construed as financial advice.

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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Dec
13
2024
Differences and Similarities Between Home Equity Lines of Credit (HELOCs) vs Personal Lines of Credit

Home Equity Lines of Credit (HELOCs) vs Personal Lines of Credit

By | Credit, Financial Independence, Home Ownership, personal_loan | Comments Off on Home Equity Lines of Credit (HELOCs) vs Personal Lines of Credit

If you’re looking for a tool you can use to borrow money when you need it, you may be wondering which is the better choice: a personal line of credit or a home equity line of credit (HELOC).

In this guide we’ll compare these two types of credit lines — both of which function similarly to a credit card but typically have a lower interest rate and a higher credit limit. We’ll also cover some of the pros and cons of using a personal line of credit vs. a HELOC.

Key Points

•   A personal line of credit and a HELOC are both flexible borrowing options.

•   HELOCs generally have lower interest rates than personal lines of credit due to being secured.

•   Both options typically require a minimum credit score of 680.

•   Personal lines of credit are unsecured, providing flexibility but often at higher rates.

•   HELOCs may provide tax benefits for home improvements, though defaulting could risk home loss.

What Is a Personal Line of Credit?

A personal line of credit, sometimes shortened to PLOC, is a revolving credit account that allows you to borrow money as you need it, up to a preset limit.

Instead of borrowing a lump sum and making fixed monthly payments on that amount, as you would with a traditional installment loan, a personal line of credit allows you to draw funds as needed during a predetermined draw period. You’re required to make payments based only on your outstanding balance during the draw period.

In that way, a PLOC works like a credit card. Generally, you can pay as much as you want each month toward your balance, as long as you make at least the minimum payment due. The money you repay is added back to your credit limit, so it’s available for you to use again.

You can use a personal line of credit for just about anything you like as long you stay within your limit, which could range from $1,000 to $100,000, and possibly more.

A PLOC is usually unsecured debt, which means you don’t have to use collateral to qualify. The lender will base decisions about the amount you can borrow and the interest rate you’ll pay on your personal creditworthiness.

Can a Personal Line of Credit Be Used to Buy a House?

If you could qualify for a high enough credit limit — or if the property you want to buy is being sold at an extremely low price — you might be able to purchase a house with a personal line of credit. But it may not be the best tool available.

A traditional mortgage, secured by the home that’s being purchased, may have lower overall costs than a personal line of credit. There are several different types of mortgage loans to choose from.

A variable rate, which is typical of personal lines of credit, might not be the best option for a large purchase that could take a long time to pay off. Your payments could go lower, but they also could go higher. If interest rates increase, your loan could become unaffordable. With a traditional mortgage, you would have the option of a fixed rate or a variable one.

Another consideration: If you use all or most of your PLOC to make a major purchase like a home, it could have a negative impact on your credit score and future borrowing ability. The amount of revolving credit you’re using vs. how much you have available — your credit utilization ratio — is an important factor that affects your credit score. Lenders typically prefer this number to be less than 30%.

What Is a HELOC?

A HELOC is a revolving line of credit that is secured by the borrower’s home. It, too, usually has a variable interest rate.

Lenders typically will allow you to use a HELOC to borrow a large percentage of your home’s current value minus the amount you owe. That’s your home equity.

A lender also may review your credit score, credit history, employment history, and debt-to-income ratio (monthly debts / gross monthly income = DTI) when determining your borrowing limit and interest rate.

Recommended: Learn More About How HELOCs Work

Turn your home equity into cash with a HELOC from SoFi.

Access up to 90% or $500k of your home’s equity to finance almost anything.

Personal Line of Credit vs HELOC Compared

If you’re comparing a personal line of credit with a HELOC, you’ll find many similarities. But there are important differences to keep in mind as well.

Similarities

Here are some ways in which a personal line of credit and a HELOC are alike:

•   Both are revolving credit accounts. Money can be borrowed, repaid, and borrowed again, up to the credit limit.

•   Both have a draw period and a repayment period. The draw period is typically 10 years, with monthly minimum payments required. The repayment period may be up to 20 years after the draw period ends.

•   Access to funds is convenient. Withdrawals can be made by check or debit card, depending on how the lender sets up the loan.

•   Lenders may charge monthly fees, transaction fees, or late or prepayment fees on either. It’s important to understand potential fees before closing.

•   Both typically have variable interest rates, which can affect the overall cost of the line of credit over time. (Each occasionally comes with a fixed rate. The starting rate of a fixed-rate HELOC is usually higher. The draw period of a fixed-rate personal line of credit could be relatively short.)

•   For both, you’ll usually need a FICO® score of 680. Your credit score also affects the interest rate you’re offered and credit limit.

Differences

The biggest difference between a HELOC and a personal line of credit is that a HELOC is secured. That can affect the borrower in a few ways, including:

•   In exchange for the risk that HELOC borrowers take (they could lose their home if they were to default on payments), they generally qualify for lower interest rates. HELOC borrowers also may qualify for a higher credit limit.

•   With a HELOC, the lender may require a home appraisal, which might slow down the approval process and be an added expense. HELOCs also typically come with other closing costs, but some lenders will reduce or waive them if you keep the loan open for a certain period — usually three years.

•   A borrower assumes the risk of losing their home if they default on a HELOC. A personal line of credit does not come with a risk of that significance.

Personal Line of Credit vs. Home Equity Line of Credit
Personal LOC HELOC
Flexible borrowing and repayment ✓ ✓
Convenient access to funds ✓ ✓
Annual or monthly maintenance fee Varies by lender Varies by lender
Typicaly a Variable interest rate ✓ ✓
Secured with collateral ✓
Approval based on creditworthiness ✓ ✓
Favorable interest rates ✓* ✓*
*Rates for secured loans are usually lower than for unsecured loans. Rates for personal lines of credit are generally lower than credit card rates.

Recommended: Credit Cards vs. Personal Loans

Pros and Cons of HELOCs

A HELOC and personal line of credit share many of the same pros and cons. An advantage of borrowing with a HELOC, however, is that because it’s secured, the interest rate may be more favorable than that of a personal line of credit.

A HELOC may offer a tax benefit if you itemize and take the mortgage interest deduction. But there are potential downsides, too.

Pros and Cons of HELOCs
Pros Cons
Flexibility in how much you can borrow and when. Your home is at risk if you default.
Interest is charged only on the amount borrowed during the draw period Variable interest rates can make repayment unpredictable and potentially expensive.
Generally lower interest rates than credit cards or unsecured borrowing. Lenders may require a current home appraisal for approval.
Interest paid is tax deductible if HELOC money is spent to “buy, build, or substantially improve” the property on which the line of credit is based. A decline in property value could affect the credit limit or result in termination of the HELOC

Pros and Cons of Personal Lines of Credit

Because you draw just the amount of money you need at any one time, a personal line of credit can be a good way to pay for home renovations, ongoing medical or dental treatments, or other expenses that might be spread out over time.

You pay interest only on the funds you’ve drawn, not the entire line of credit that’s available, which can keep monthly costs down. As you make payments, the line of credit is replenished, so you can borrow repeatedly during the draw period. And you don’t have to come up with collateral.

But there are other factors to be wary of. Here’s a summary.

Pros and Cons of Personal Lines of Credit
Pros Cons
Flexibility in how much you borrow and when. Variable interest rates can make repayment unpredictable and potentially expensive.
Interest charges are based only on what you’ve borrowed. Interest rate may be higher than for a secured loan.
Interest rates are typically lower than credit cards. Qualification can be more difficult than for secured credit.
You aren’t putting your home or another asset at risk if you default. Convenience and minimum monthly payments could lead to overspending.

Alternatives to Lines of Credit

As you consider the pros and cons of a HELOC vs. a personal LOC, you also may wish to evaluate some alternative borrowing strategies, including:

Personal Loan

As you’re thinking about a personal loan vs. a personal line of credit, the big difference is that, with a personal loan, a borrower receives a lump sum and makes fixed monthly payments, with interest, until the loan is repaid.

Most personal loans are unsecured, and most come with a fixed interest rate. The rate and other terms are determined by the borrower’s credit score, income, debt level, and other factors.

You’ll owe interest from day one on the full amount that you borrow. But if you’re using the loan to make a large purchase, consolidate debt, or pay off one big bill, it may make sense to borrow a specific amount and budget around the predictable monthly payments.

Personal loan rates and fees can vary significantly by lender and borrower. You can use a loan comparison site to check multiple lenders’ rates and terms, or you can go to individual websites to find a match for your goals.

Auto Loan

If you’re thinking about buying a car with a personal loan, you may want to consider an auto loan, an installment loan that’s secured by the car being purchased. Qualification may be easier than for an unsecured personal loan or personal line of credit.

Most auto loans have a fixed interest rate that’s based on the applicant’s creditworthiness, the loan amount, and the type of vehicle that’s being purchased.

Down the road, if you think you can get a better interest rate, you can look into car refinancing.

Beware no credit check loans. Car title loans have very short repayment periods and sky-high interest rates.

Mortgage

A mortgage is an installment loan that is secured by the real estate you’re purchasing or refinancing. You’ll likely need a down payment, and borrowers typically pay closing costs of 2% to 5% of the loan amount.

A mortgage may have a fixed or adjustable interest rate. An adjustable-rate mortgage typically starts with a lower interest rate than its fixed-rate counterpart. The most common repayment period, or mortgage term, is 30 years.

Your ability to qualify for the mortgage you want may depend on your creditworthiness, down payment, and value of the home.

Credit Cards

A credit card is a revolving line of credit that may be used for day-to-day purchases like groceries, gas, or online shopping. You likely have more than one already. Gen X and baby boomers have an average of more than four credit cards per person, Experian has found, and even Gen Z, the youngest generation, averages two cards per person.

Convenience can be one of the best and worst things about using credit cards. You can use them almost anywhere to pay for almost anything. But it can be easy to accrue debt you can’t repay.

Because most credit cards are unsecured, interest rates can be higher than for other types of borrowing. Making late payments or using a high percentage of your credit limit can hurt your credit score. And making just the minimum payment can cost you in interest and credit score.

If you manage your cards wisely, however, credit card rewards can add up. And you may be able to qualify for a low- or no-interest introductory offer.

Credit card issuers typically base a consumer’s interest rate and credit limit on their credit score, income, and other financial factors.

Student Loans

Federal student loans typically offer lower interest rates and more borrower protections than private student loans or other lending options.

But if your federal financial aid package doesn’t cover all of your education costs, it could be worth comparing what private lenders offer.

The Takeaway

A HELOC or a personal line of credit can be useful for borrowers whose costs are spread out over time, especially those who don’t want to pay interest from day one on a lump-sum loan that may be more money than they need.

SoFi now offers flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively low rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit brokered by SoFi.

FAQ

What is better, a home equity line of credit or a personal line of credit?

If you qualify for both, a HELOC will almost always come with a lower interest rate.

Can I use a HELOC for personal use?

Yes. HELOC withdrawals can be used for almost anything, but the line of credit is best suited for ongoing expenses like home renovations, medical bills, or college expenses. Some people secure a HELOC as a safety net during uncertain times.

How many years do you have to pay off a HELOC?

Most HELOCs have a “draw period” of 10 years, followed by a repayment period.

What happens if you don’t use your home equity line of credit?

Having a HELOC you don’t use could help your credit score by improving your credit utilization ratio.

How high of a credit score is needed for a line of credit?

Personal lines of credit are usually reserved for borrowers with a credit score of 680 or higher. A credit score of at least 680 is typically needed for HELOC approval, but requirements can vary among lenders. Some may be more lenient if an applicant has a good debt-to-income ratio or accepts a lower loan limit.

Does a HELOC increase your mortgage payments?

The HELOC is a separate loan from your mortgage. The two payments are not made together.

Photo credit: iStock/KTStock

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You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
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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.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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

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

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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13
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Understanding a Taxable Brokerage Account vs an IRA

By | Growing Wealth, invest, Investing | No Comments

Tax-sheltered accounts like the IRA and 401(k) have long been the go-to investment accounts for retirement planning. These types of accounts offer ways to build up tax-advantaged savings for the future. However, investing in taxable brokerage accounts is another common way to build wealth for the short or long term.

The most notable difference between an IRA and a taxable brokerage account can be seen around tax season. With taxable brokerage accounts, you typically pay taxes on your capital gains and dividends each year. In contrast, tax-advantaged accounts generally only involve paying taxes when you make your contribution or withdraw your money, depending on the type of account.

Investors should know the similarities and differences between IRAs and taxable brokerage accounts. Learning the ins and outs of these accounts can help you decide which is right for you to build wealth and meet your financial goals.

Key Points

•   Taxable brokerage accounts and IRAs serve different purposes, with brokerage accounts focusing on general investment and IRAs designed specifically for retirement savings.

•   Taxable brokerage accounts require annual taxes on capital gains and dividends, while IRAs allow for tax-deferred growth until funds are withdrawn.

•   Different types of IRAs, such as Traditional and Roth, offer unique tax advantages and rules regarding contributions and withdrawals tailored to individual financial situations.

•   A combination of both account types can provide flexibility and diversification, allowing investors to meet both short-term and long-term financial goals.

•   Each account type has its pros and cons, making it essential to evaluate personal financial objectives before deciding on the appropriate investment strategy.

What Are Taxable Brokerage Accounts?

Think of taxable brokerage accounts as “traditional” investment accounts — brokerage-offered investment accounts with stocks, bonds, exchange-traded funds (ETFs), and mutual funds. Investors who utilize these accounts, including online brokerage accounts, invest and trade to build short- or long-term wealth, but not necessarily for retirement.

The investments within a taxable brokerage account are subject to tax on any capital gains, dividends, or interest earned. Brokerage account holders pay taxes each year based on investment income.

It’s also important to note that tax liability can vary based on variables like the types of investments held within the brokerage account, the length of time they are held, and an individual’s tax bracket. For example, short-term capital gains, which are gains on investments held for less than a year, are taxed at the same rate as ordinary income. In contrast, long-term capital gains, which are gains on investments held for more than a year, are typically taxed at a lower rate.

Recommended: Capital Gains Tax Guide

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1Terms and conditions apply. Roll over a minimum of $20K to receive the 1% match offer. Matches on contributions are made up to the annual limits.

What Is an IRA?

An IRA, or individual retirement account, is an investment account designed specifically to save for retirement. Contributions to an IRA may be tax-deductible or tax-deferred, and the accounts’ investments can grow tax-free until they are withdrawn at retirement age.

There are several different types of IRAs, including Traditional IRAs, Roth IRAs, and SEP IRAs, which have different rules for contributions, taxes, and withdrawals. An IRA can be a helpful tool for saving for retirement and taking advantage of potential tax benefits.

Taxable Brokerage Accounts vs IRA Accounts

Tax-sheltered, or tax-deferred, investment accounts like IRAs differ from taxable brokerage accounts because they generally offer tax advantages and have restrictions on contributions and withdrawals. The tax advantages make them designed for long-term retirement saving and investing. Besides having money invested for retirement, the most notable benefits of IRAs are no yearly tax burden and, in some cases, tax-deductible contributions.

Here’s a breakdown of what each tax-deferred account may offer compared to a brokerage account.

Traditional IRAs vs Taxable Brokerage Accounts

The traditional IRA has no income limits; as long as someone has a taxable income, they can contribute to a traditional IRA. The gains, dividends, and interest earned in IRAs grow tax-deferred during contributing years. Contributions to a traditional IRA may be tax-deductible, though the benefits phase out if you have a high enough income.

With a few exceptions, IRA withdrawal rules say account holders will have to pay a 10% early withdrawal penalty if they take a distribution before reaching age 59 ½. Additionally, account holders are required to start making withdrawals the year they turn age 73 (if they reach age 72 after December 31, 2022) that are taxed as income.

These limitations make a traditional IRA different from a taxable brokerage account, as taxable brokerage accounts do not have withdrawal restrictions and penalties.

With a traditional IRA, as with taxable brokerage accounts, account holders will need to manage it independently or with a financial planner’s help.

A traditional IRA might be a good option for investors who think they will be in a lower tax bracket when they retire. In theory, these investors would save money on taxes by paying them in retirement compared to paying taxes now.

For 2024, account holders can contribute up to $7,000 per year (or up to $8,000 if they are age 50 or older). For 2025, the total contributions investors can make to a traditional IRA remains the same — up to $7,000 (or up to $8,000 if they are 50 and up).

Roth IRAs vs Taxable Brokerage Accounts

Like taxable brokerage accounts, Roth IRA contributions aren’t tax-deductible. Investors contribute with post-tax dollars, but that also means they won’t be subject to taxes when they withdraw funds in retirement.

However, income limits exist for those who can contribute to a Roth IRA account. If you make more than the income limits, then the amount of money you can contribute to a Roth IRA may be reduced, and high earners may not be able to contribute to a Roth IRA at all. For 2024, income limits start at $146,000 per year for single tax filers and $230,000 for married couples filing jointly. For 2025, income limits start at $150,000 per year for single tax filers and $236,000 for married couples filing jointly. You can use a Roth IRA calculator to help determine your contribution limit.

As with brokerage accounts, Roth IRA account holders can contribute to their accounts at any age. Investors who want to make retirement contributions can do so even after they’ve retired.

Rules around Roth IRA withdrawals are less stringent than those for a traditional IRA. Roth account holders can also begin to take the account’s growth starting at age 59 ½ with no penalty as long as the account has been open for five years.

For those eligible to contribute to a Roth IRA, these accounts make the most sense if the account holder thinks they will be in a higher tax bracket in retirement. Since account holders pay taxes on the contributions in the year they were made, it makes the most sense to pay income taxes when in a lower tax bracket.

Recommended: Traditional vs Roth IRA: How to Choose the Right Plan

401(k)s vs Taxable Brokerage Accounts

Similar to an IRA, 401(k) accounts are one of the most common tax-sheltered accounts. The big difference between an IRA and a 401(k) account is that the 401(k) is employer-sponsored, and employees and employers can contribute to the account.

Employees can contribute to their 401(k) up to $23,000 per year in 2024 and up to $23,500 in 2025. Employees over 50 can make additional catch-up contributions of $7,500 annually in both 2024 and 2025, and in 2025, those 60 to 63 can make a higher catch-up contribution of up to $11,250 under the SECURE 2.0 Act. Many employers offer employees 401(k) plans, some even matching contributions up to a certain percentage.

The 401(k) is one of the most common ways to build a retirement nest egg because the contributions are automatic and come out of the employee’s paycheck, so employees may not even notice the money is gone.

Tax Advantages of an IRA vs Taxable Brokerage Account

As noted above, IRAs offer several tax advantages compared to taxable brokerage accounts. Investors generally use IRAs for tax efficient investing.

Here are some of the main differences:

•   Contributions to traditional IRAs may be tax-deductible: Contributions to a traditional IRA may be tax-deductible, depending on your income and whether a retirement plan at work covers you or your spouse. This means that the money you contribute to a traditional IRA can be deducted from your taxable income, potentially reducing the amount of tax you owe.

•   Earnings in an IRA grow tax-free or tax-deferred: The money you earn in an IRA, including interest, dividends, and capital gains, grows tax-deferred or tax-free until you withdraw it in retirement. In a taxable brokerage account, you would have to pay taxes on any capital gains and dividends you earn each year.

•   Withdrawals from traditional IRAs may be taxed at a lower rate: When you withdraw money from a traditional IRA in retirement, it is taxed as ordinary income at your marginal tax rate. However, if you are in a lower tax bracket in retirement than when you made the contributions, your withdrawals may be taxed at a lower rate.

•   Contributions to a Roth IRA are not tax-deductible: Contributions to a Roth IRA are not tax-deductible, but the money you withdraw in retirement is tax-free, provided you meet specific requirements. This can be a good option if you expect to be in a higher tax bracket in retirement than you are now.

Which Type of Account Is Best for Me?

Brian Walsh, Certified Financial Planner™ at SoFi, says ultimately, you’ll have a mixture of accounts. However, what’s right for you depends on your situation. “It depends if you have access to a 401(k) and an employer match … it depends on what you’re eligible for.” Here are a few considerations that can help you assess your situation.

Think About Investing in a Traditional IRA If…

•   You want to take advantage of tax-deferred contributions.

•   You expect to be in a lower tax bracket in retirement.

•   You’ve maxed out your 401(k) contributions and make too much to contribute to a Roth account.

Think About Investing in a Roth IRA If…

•   You expect to be in a higher tax bracket in retirement.

•   You want the option to pass on the account easily to your heirs.

•   You’ve maxed out your traditional 401(k) and want to offset some of your future tax burden with a Roth IRA.

Think About Investing in a 401(k) If…

•   Your employer offers a plan with a match program.

•   You’re uncertain about your future tax liability, and your employer allows you to split contributions between a traditional 401(k) and a Roth 401(k).

•   You prefer a hands-off approach to investing.

Think About Investing in a Taxable Brokerage Account If…

•   You’ve maxed out all contribution limits to your 401(k) and IRAs.

•   You want to invest in investments not offered in your 401(k) or IRA, like options or cryptocurrency.

•   You want more control over your investments with the opportunity to withdraw funds at your leisure.

Pros and Cons of Taxable Brokerage Accounts

Here are some of advantages and disadvantages of taxable brokerage accounts:

Pros of Taxable Accounts

•   Flexibility: Taxable brokerage accounts allow you to invest in a wide range of assets, such as stocks and bonds, as well as derivatives. This allows you to create a diversified portfolio that may help you meet your investment goals.

•   Growth potential: Taxable brokerage accounts offer the potential for significant growth, as you can earn capital gains on your investments if they increase in value.

•   No contribution limits: Unlike tax-advantaged accounts, taxable brokerage accounts have no contribution limits. This means you can contribute as much as you want to your account, subject to income limits or restrictions.

Cons of Taxable Accounts

•   Taxes: One of the main disadvantages of taxable brokerage accounts is that you will be required to pay taxes on your investment income and capital gains. This can significantly reduce your overall returns.

•   Lack of tax benefits: Taxable brokerage accounts do not offer the same tax benefits as tax-advantaged accounts. For example, 401(k)s and IRA contributions may be tax-deductible, while investments in taxable brokerage accounts are not.

•   Potential for loss: As with any investment, there is a risk of loss in a taxable brokerage account. If your investments decline in value, you could lose some or all of your initial investment.

Is it Smart to Have Both an IRA and a Taxable Brokerage Account?

It may be a consideration to have both an IRA and a taxable brokerage account, as each type has its specific benefits and drawbacks.

An IRA can be a good option if you are looking to open a retirement account and save for retirement and want the potential tax benefits of an IRA. On the other hand, a taxable brokerage account can be a good choice if you are looking to invest for goals other than retirement or if you are not eligible for a tax deduction on your contributions to an IRA.

Having both an IRA and a taxable brokerage account can give you more flexibility and diversification in your investments, which can help you manage risk and improve your overall financial situation.

The Takeaway

Every account — from taxable brokerage accounts to IRAs — has advantages and disadvantages, which is why some investors choose to invest in a few. The old cliche, “don’t put all your eggs in one basket,” is a solid philosophy for financial planning. Investing in several different “baskets” is one way to ensure that your money is working hard for you.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Take a step toward reaching your financial goals with SoFi Invest.

FAQ

What is the difference between an IRA and a taxable brokerage account?

An IRA is designed specifically to save for retirement. Unlike a taxable brokerage account, which is used for general investing, contributions to a traditional IRA may be tax-deductible, and the investments within the account grow tax-deferred until they are withdrawn at retirement age. There are several other types of IRAs, including Roth IRAs, which have different rules for contributions, taxes, and withdrawals.

Is it better to contribute to an IRA or a taxable brokerage account?

Whether to contribute to an IRA or a taxable brokerage account depends on your circumstances and financial goals. In general, an IRA can be a good option if you are looking to save for retirement and want the potential tax benefits of an IRA. However, if you are not eligible for a tax deduction on your contributions or looking to invest for goals other than retirement, a taxable brokerage account may be a better choice.

How is a taxable brokerage account taxed?

The investments held within a taxable brokerage account may be subject to tax on any capital gains, dividends, or interest earned. Short-term capital gains, which are gains on investments held for less than a year, are taxed at the same rate as ordinary income. Long-term capital gains, which are gains on investments held for more than a year, are typically taxed at a lower rate. Dividends and interest income earned are also subject to tax.

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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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.


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

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

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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