Money & Life Archives | Page 4 of 32

Sep

2024

21 Productive Things to Do on Your Day Off

By Jacqueline DeMarco | Family Finances, Life & Career, money, Money & Life | Comments Off

Some days off are meant for purely relaxing. Others are meant for checking things off our to-do lists that we can’t get done during the course of the work week.

If you’re looking for productive things to do on your day off — including ideas that may improve your money mindset and financial fitness — we have 21 good ways to get started.

How Staying Productive Can Improve Your Money Mindset

If you have a lazy day off, it might wind up costing you. The temptation to spend when bored is real. When you have nothing to do, you may turn to online shopping, dining out, or other pricey leisure activities to fill your time.

There is of course a time and place for spending on leisure, but there’s a big question to ask yourself before spending that money. Specifically, are you plunking down that cash because you will get something out of the experience or purchase or are you simply doing so because you’re bored?

Staying productive on days off can be a form of financial self-care. It can help you avoid unnecessary spending which, in turn, can make other leisure time feel even more enjoyable.

Productive Things to Do on Your Day Off

Not sure what to do on a day off? Consider checking one or more of these positive activities off your to-do list. Any of them can help you feel more organized and in control of your life.

1. Planning a Vacation

Instead of going out and spending money, consider staying home and planning your next vacation. The money you save can go towards your upcoming trip. Not only that,, research and advance planning can help you spend less on your vacation and make sure everything goes smoothly. You might even open a travel fund account and begin saving.

2. Checking Your Credit Card Statements

If you get paperless statements, you may not regularly look closely at your credit card spending. This can be a smart thing to check off on your day off. Simply Log into account and scan your recent statements. Make sure all charges are accurate and see if your spending is in line with your budget. If you’re carrying a balance, you might hatch a plan to pay it off.

3. Taking Quality Time for Yourself

“Qualify time” means different things to different people. For you, taking time for yourself might mean pursuing a hobby like painting, reading a good book, going for a long run, or taking a long bath. There are plenty of relaxing activities to enjoy that don’t cost any money and recharge you for the work days ahead.

Recommended: 30 Fun and Inexpensive Hobbies

4. Reviewing Your Career Goals

While it may not sound fun to sit down and think about work outside of working hours, there’s a lot of value to be found in peaceful reflection. Spending time reviewing career goals when there are no Monday-to-Friday stressors or distractions can make it easier to find clarity.

5. Starting a Side Hustle

Whether you could use some extra income or you’re thinking about changing careers, you might use some of your day off to investigate freelance opportunities and other types of side hustles. Look into options that you might enjoy that also provide the opportunity to learn new skills.

6. Catching Up on Important Errands

Running errands isn’t always fun, but not having them hanging over our heads almost always feels good. If you have a day off, you might want to use a couple of hours in the morning to tackle errands — this can leave the rest of the day wonderfully free. Plus, you’ll get that “I’ve got this!” boost from knowing you’re in control of those to-do’s.

7. Exercising

Getting in a workout — or just some physical activity — can boost your mood and energy level and lead to a happier and more productive day off.

8. Mapping Out Your Money Goals

Similar to setting career goals, a day off can be the perfect time to think about your money goals. Consider what you’d like to accomplish in the next several years — such as buying a car, going to Europe, or putting a down payment on a home. Then figure out how much you’ll need to save each month to do it. You might even open a high-yield saving account and set up an automated monthly transfer to help accomplish your goal.

9. Getting a Haircut

A fresh haircut can put a bit of pep in anyone’s step — a definite self-esteem booster for most of us.

10. Volunteering

Giving back to your community can be a great way to spend free time. There are so many different causes worth getting involved in, from food banks to animal shelters to park cleanups. Volunteering can also expand your network and help you learn new skills, which could pay off in other ways down the line.

11. Updating Your Online Resume

If you’re looking for a new job, the weekend can be a great time to update any resumes you have posted on social media platforms or job searching websites. There are loads of templates online that can help you spiff up your resume, too.

12. Reading a New Book

With so many distractions on busy days, it’s hard to find the time to read. Why not make reading a new book (or an old favorite) a priority on your next day off? There’s nothing like the escape of a good story, whether it’s historical fiction, a murder mystery, or whatever else catches your attention.

13. Taking an Online Class

Whether you want to learn a new work-related skill or explore a personal interest, there’s likely an online class out there that can help you productively use your time off. From coding to cooking, almost any topic is available these days.

14. Spending Time With Loved Ones

Productivity can mean a lot of different things, including spending time with loved ones. Maintaining connections with the people you care about most can help you build a support system and provide personal gratification.

15. Unsubscribing From Unwanted Emails

Have half an hour to kill before meeting up with friends? Chip away at unsubscribing from all those unwanted emails. The lack of digital clutter can be super freeing, even if you don’t achieve “inbox zero” just yet.

16. Updating Your To-Do List

Want to get things done on a day off, but don’t know where to start? Sit down with a pen and some paper (or your phone or laptop) and write an updated to-do list. Of course, it’s not necessary to tackle the entire list in one day, but do try to schedule when you’ll tackle each item on your list.

17. Checking How You’re Doing With Your Budget

Budgets only work if you check in periodically to see how well you’re sticking to the plan. Every few months, it’s a good idea to look at your bank statements and make sure your spending and saving aligns with your goals. You can also use a budgeting app to simplify the process.

Recommended: Guide to Emergency Funds

18. Planning for Next Week

Another good use of free time is to get organized for the week ahead so it feels less stressful and intimidating. Do meal prep, clean up the house, organize your bills, and make sure all work clothes are washed and ready to wear.

19. Finding Networking Opportunities

Nowadays, you can do a lot of professional networking from home online. If you have some downtime, consider hopping on LinkedIn, checking your notifications, and sending some connection requests or messages to help broaden your network.

20. Adjusting Your Tax-Withholding if It’s Not Right

Sick of owing taxes each year? Check your tax withholdings to make sure the correct amount is being deducted from your paychecks. Adjust it accordingly if needed. That quick move could save you some money headaches when tax season rolls around.

21. Cleaning Your House

A good cleaning session can help make your home more comfortable, efficient, and enjoyable to live in. Imagine your place freshly vacuumed or the bathroom scrubbed as motivation.

The Practical And Financial Benefits of Being Productive

We all need downtime, but being productive on a day off also has numerous benefits, including feeling happier, less stressed, and more in control over your life. It can also have a positive impact on your finances. For one, being productive can help beat the boredom that can lead to filling your time with shopping or other expensive activities. And if you use your free time to organize and stay on top of your finances, it can help you make the most of your money and reach your financial goals.

Banking With SoFI

As you can see from this list, there’s no shortage of productive things to do on your day off. Whether you choose to spend your free hours taking an online class, reviewing your budget, or outside running, putting your time to good use can leave you feeling less stressed and more in control over your personal, professional, and financial life.

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 4.20% APY on SoFi Checking and Savings.

FAQ

What is considered wasting time on your day off?

When deciding what things to do on a day off, only you can decide what’s a waste of time or what’s not. For one person, organizing their receipts is a waste of time; for another, it’s productive. The same holds true for reading a book. The key is to find a way to balance productivity and relaxation as you define them.

How can I productively treat myself on my day off?

There are numerous ways you can treat yourself on a day off while also being productive. Examples include going for a hike, listening to a podcast, reading a new book, or taking a class online. All of these options have positive benefits in terms of self-care and fun but don’t cost much (if anything).

Is traveling considered productive?

Traveling and gaining new experiences and insights beyond your local community can indeed be productive. Travel can help us learn, grow, relax, and return home with a new, refreshed perspective.

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As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% 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 4.20% 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.

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Sep

2024

What Is MAGI and How Do You Calculate It?

By Rebecca Lake | Family Finances, invest, Money & Life | Comments Off

MAGI, or modified adjusted gross income, is your adjusted gross income, plus certain deductions added back in. Adjusted gross income, or AGI, is your total income, minus any deductions you’re eligible to claim.

Knowing how to calculate MAGI can help you determine which tax deductions or credits you may be eligible for when it’s time to file your return. Here’s a breakdown of what MAGI is, and why it matters.

Key Points

• MAGI (Modified Adjusted Gross Income) is adjusted gross income (AGI) plus certain deductions added back in.

• Knowing MAGI can be crucial for tax planning, minimizing tax liabilities, and determining eligibility for tax credits, such as the Child Tax Credit.

• Gross income may include wages, business and retirement income, tips, dividends, capital gains, rents, and interest.

• Common deductions used to determine AGI include student loan interest, contributions to certain retirement plans, educator expenses, and health savings account (HSA) contributions.

• Deductions that need to be added back to AGI to determine MAGI may include traditional IRA contributions, student loan interest, passive loss or passive income, excluded foreign income, and rental losses, among others.

What Is MAGI?

MAGI is a tax term that refers to modified adjusted gross income. Gross income is your income before taxes or other deductions are applied. Understanding your MAGI can be helpful for tax planning, whether you’re making money trading stocks, or simply working a single job and earning a paycheck.

Definition of MAGI

In simple terms, MAGI is your adjusted gross income with some deductions added back in to see if you qualify for specific deductions or income-based programs.

Some groups may define MAGI slightly differently depending on how it’s used. For instance, in context of student loan interest deductions, the Internal Revenue Service (IRS) notes the following:

For most taxpayers, MAGI is the adjusted gross income (AGI) as calculated on their federal income tax return before subtracting any deduction for student loan interest.

The Social Security Administration (SSA), meanwhile, uses this definition:

Modified Adjusted Gross Income (MAGI) is the sum of the beneficiary’s adjusted gross income (AGI) (found on line 11 of the Internal Revenue Service (IRS) tax filing form 1040), plus tax-exempt interest income (line 2a of IRS Form 1040).

You may wonder why you’re subtracting certain deductions and then adding them back in, but the totals of your MAGI and AGI may differ. We’ll compare MAGI and AGI a little further on to help you understand the difference.

Recommended: What Is Income Tax?

Why MAGI Is Important

MAGI becomes important when determining which, if any, tax breaks you may be eligible to claim. It’s helpful to know your MAGI if you plan to:

• Make traditional IRA contributions that you plan to deduct on your taxes.

• Claim a premium tax credit for health insurance expenses.

• Claim child tax credits or education credits, which reduce your tax liability dollar for dollar.

It can also be helpful if you plan to contribute to a Roth IRA, which requires you to be income-eligible. An IRA is a tax-advantaged account that you can use to save for retirement. Traditional IRAs allow for deductible contributions while Roth IRAs offer tax-free qualified withdrawals.

Apart from tax planning, your MAGI is used for Medicare planning to determine what you’ll pay for monthly premiums once you turn 65.

MAGI vs. Adjusted Gross Income (AGI)

MAGI and AGI are two different calculations, though the final numbers may be very close. Here’s how the IRS defines AGI:

Adjusted gross income, also known as (AGI), is defined as total income minus deductions, or “adjustments” to income that you are eligible to take.

Gross income, for AGI purposes, includes wages, dividends, capital gains, business and retirement income, tips, rents, and interest. Adjustments to income are deductions that reduce your gross income.

Some common deductions that reduce gross income to determine AGI include:

• Health insurance premiums (if self-employed)

• One half of self-employment taxes paid

• Student loan interest

• Educator expenses

• Traditional IRA contributions and other qualified retirement plans

Your MAGI is your AGI, with some deductions added back in. Certain deductions are subject to limits, meaning that if your MAGI is too high, your deduction may be reduced or phased out entirely.

Who Needs to Calculate MAGI

Anyone who’s interested in claiming every tax credit or deduction they’re eligible for, up to the full amount allowed by the IRS, may benefit from knowing how to calculate MAGI.

Estimating your tax liability before the year ends gives you time to make some last-minute financial moves that might reduce what you owe or increase your refund. For instance, say you’ve been thinking of opening a Roth IRA. You’ll first need to know your MAGI to know if you’re eligible to contribute to a Roth, based on your income.

It’s also helpful to know your MAGI when applying for federal benefit programs. Your MAGI can affect your eligibility for:

• Supplemental Nutrition Assistance Program (SNAP) benefits

• Medicaid

• Children’s Health Insurance Program (CHIP) benefits

Calculate your Roth IRA eligibility.

Using your MAGI, discover how much you can put into a Roth IRA in 2024 using SoFi’s IRA contribution calculator.

How to Calculate MAGI

Tax planning software programs can calculate your MAGI automatically, or you consult with a tax professional. You’ll need a few pieces of information to find your MAGI.

Step 1: Calculate Your Adjusted Gross Income (AGI)

You’ll first need to find your AGI. To do that you first add up your total gross income. Again, this is all of your income from all sources, before taxes and deductions. Everyone’s list may be different, but might include:

• Full or part-time employment wages

• Self-employment income

• Investments, including rental income

• Interest and dividends

• Capital gains

You’ll use your gross income number to find your AGI in the next step.

Step 2: Add or Subtract Applicable Adjustments

Now you’ll subtract applicable adjustments to gross income to find your AGI. Again, this will differ from individual to individual, but some of the most common adjustments for AGI include:

• Traditional IRA contributions, including SEP IRA contributions if you’re self-employed

• Student loan interest

• Half of self-employment taxes paid

• Tuition and fees

• Contributions to a Health Savings Account (HSA)

The final number, after adjustments, is your AGI.

Step 3: Determine Your MAGI

Using your AGI you’ll now add back applicable adjustments to get your MAGI. Some of the things you’ll add back include:

• Traditional IRA contributions, and SEP IRA contributions if you’re self-employed

• Student loan interest

• Half of self-employment taxes paid

• Tuition and fees

• Passive loss or passive income

• Rental losses

• Non-taxable Social Security payments

• Foreign earned income exclusion

The resulting number is your MAGI, and this is what will help you discern which deductions or credits you might be eligible to take when filing your tax return.

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.

Common Adjustments to AGI for MAGI Calculation

Some adjustments to AGI for MAGI calculations are more common than others. Here are some of the most-often used adjustments.

Tax-Exempt Interest Income

Tax-exempt interest income is not subject to tax at the federal level — as the name implies. This income may, however, still be subject to income tax at the state and local levels.

An example of tax-exempt interest income is income earned from municipal bonds. A municipal bond is a debt instrument that city and local governments use to raise money to fund public works.

When you buy a municipal bond or muni, the bond issuer agrees to pay you interest for a set term in exchange for the use of your money. If the bond is tax-exempt you won’t owe income tax on the interest earned.

But again, interest income from these bonds may still generate state or local tax liabilities.

Qualified Tuition Expenses

Qualified tuition expenses include tuition and required fees for enrollment or attendance at eligible postsecondary schools. The term “qualified tuition expenses” is most often used when discussing education tax credits, such as the American Opportunity Tax Credit (AOTC).

Qualified tuition expenses do not include:

• Room and board

• Transportation costs

• Insurance and medical expenses

• Student fees that are not required as a condition of enrollment or attendance

You can’t claim this credit for the same expenses that were paid for with tax-free scholarships or grants. Neither can you claim a deduction for the same education expenses that you claim a tax credit for.

IRA Contributions

Traditional IRAs allow you to deduct some or all of your contributions. The amount you can deduct is determined by three things:

• Your MAGI

• Your tax filing status

• Whether you (and your spouse, if married) are covered by a retirement plan at your job

Note: If you or your spouse (if you’re married) are not covered by a retirement plan at work, your IRA contributions are fully deductible.

If either you or your spouse are covered by a workplace retirement plan, your IRA deduction may be limited. To determine how much of your IRA contributions you can deduct in a given year, if any, you’ll need to calculate your MAGI by adding certain deductions back to your AGI — such as the IRA contributions you deducted.

Deducting SEP or SIMPLE IRA Contributions

Keep in mind that contributions to self-employed retirement plans, such as SEP or SIMPLE IRAs, are generally subject to the same tax treatment as traditional IRAs. But because these accounts are used by small business owners and those who are self-employed, the rules governing deductions can be different from traditional IRAs, so it’s wise to check.

Roth IRAs do not allow for deductible contributions.

Student Loan Interest Deduction

When are student loans tax deductible? Generally speaking, the loan principal is not deductible, though the interest you pay might be.

The student loan interest deduction allows you to subtract amounts paid for student loan interest from your taxable income. As of 2024, you can deduct the lesser of $2,500 or the amount of interest you paid during the year.

Your MAGI must be below a certain amount to claim this deduction. For 2024, your ability to claim the deduction begins to phase out at these levels:

• Single filers with a MAGI of $80,000 or more

• Married couples filing jointly with a MAGI of $165,000

Single filers with a MAGI exceeding $95,000 and married couples with a MAGI greater than $195,000 won’t be able to deduct student loan interest.

MAGI and Tax Credits

Tax credits reduce your tax liability dollar for dollar. Some tax credits are refundable, meaning you can get a credit for them even if you don’t owe any tax.

MAGI is used to determine eligibility for a number of tax credits, including:

• Child Tax Credit

• Earned Income Tax Credit (EITC)

• Premium tax credit for health insurance

• Dependent Care Credit

Claiming credits can reduce your tax liability at the end of the year.

MAGI and Deductions

Tax deductions reduce your taxable income, which can push you into a lower tax bracket. As mentioned above, MAGI is used for several key deductions, including:

• IRA contributions

• Student loan interest

• Educator expenses

• Deductions for adoption expenses

You can claim both tax credits and deductions on your return to try and minimize your tax liability, or boost your refund. However, you can’t claim tax credits and deductions for the same expenses.

The Takeaway

MAGI is the same as AGI plus some adjustments added back into the mix. Navigating tax terms can seem daunting but it’s helpful to understand what MAGI is and how it can impact your financial situation. Learning about how taxes work can help you develop a plan for potentially minimizing your tax liabilities, so that you might have more money to invest.

Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

FAQ

What is the difference between MAGI and AGI?

Your MAGI is your adjusted gross income, with certain adjustments added back in. Your AGI is your gross income, after certain deductions are taken out.

Is MAGI used for all tax calculations?

MAGI is used for certain tax calculations that determine eligibility for tax breaks. For example, if you’re wondering whether you can claim the Earned Income Tax Credit, or get a deduction for traditional IRA contributions, your MAGI makes a difference.

Can MAGI be higher or lower than AGI?

Your MAGI will always be equal to your AGI, or higher. MAGI is your AGI, with certain deductions or adjustments added back in.

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Sep

2024

How Does Raising Interest Rates Help Inflation?

By Dan Miller | money, Money & Life | Comments Off

A small, steady amount of inflation is a sign of a healthy economy. But when prices rise too much too quickly, it lessens purchasing power, straining consumers and businesses.

Fortunately, the Federal Reserve (aka, “the Fed”) has a tool in its back pocket that can help tamp down inflation — the federal funds rate. By raising this benchmark rate, the government influences other interest rates, including rates for consumer and business loans. This makes borrowing more expensive and can help cool the economy, bringing inflation under control.

That said, raising interest rates doesn’t lower the pace of price increases overnight. There are also some risks involved in raising the federal funds rate too aggressively. Here’s a closer look at how interest rates and inflation interact.

Key Points

• To help control inflation, the Federal Reserve may raise the federal fund rate, which typically raises the interest rates offered by financial institutions.

• Raising interest rates makes borrowing more expensive, which tends to reduce consumer and business spending.

• Higher interest rates also encourage saving, since consumers will typically see higher interest rates on their savings accounts.

• It can take time for the Fed’s interest rate hikes to effectively ease the price of goods and services, and there are other factors that can affect pricing.

• Potential downsides to rising interest rates may include an economic slowdown, increased unemployment, and an increase in the cost of financing government debt.

The Relationship Between Interest Rates and Inflation

Inflation is generally defined as a sustained increase in the price of goods and services consumers regularly buy. While the inflation rate can be measured in a number of different ways, the Fed typically uses the Personal Consumption Expenditures Index (PCE) as its main measure of inflation. The PCE tracks changes in consumer spending on a wide range of goods and services.

The Fed has a stated goal of keeping inflation around 2% each year, as measured by the annual increase of the PCE index. To control inflation, the Fed will often take steps to influence interest rates. When interest rates are high, it costs more for consumers to use credit cards and take out mortgages and car loans. As a result, they typically start spending less. When demand for goods and services falls, it puts pressure on businesses to lower prices. Higher interest rates also help reduce spending by encouraging saving, as consumers benefit from higher yields on savings accounts.

Mechanisms of Interest Rate Increases

In the U.S., decisions on monetary policy are made by the Federal Open Market Committee (FOMC), which is made up of the Board of Governors of the Federal Reserve as well as five of the presidents of the 12 Federal Reserve banks. Congress has mandated the Fed to set monetary policy so as to promote maximum employment and stable inflation (generally around 2% annually).

The members of the FOMC meet regularly to discuss monetary policy, viewing various economic indicators such as the employment rate, inflation rate, and current interest rates. Based on these market factors, they set the country’s target interest rate, known as the federal funds interest rate (also known as the federal funds target rate).

The federal funds rate acts as a reference for the interest rates big commercial banks charge each other for the overnight loans. A change in the rate that banks charge each other for loans impacts other market rates (like the prime rate) and, consequently, interest rates offered by banks and other financial institutions to consumers and businesses.

Effects of Higher Interest Rates on the Economy

When the Fed raises interest rates, it can have a number of effects on the economy, including:

• Reduced household spending. When interest rates on credit cards go up, consumers generally spend less on their cards. In order to afford credit card payments that now may be higher, they might also cut overall spending on goods and services.

• Slowdown in home sales. Higher rates on mortgages make it more expensive to buy a home. As a result, many consumers may decide to continue renting and hold off on purchasing a home.

• Sluggish business growth. When the cost of financing goes up, businesses may decide to hold off making large purchases or other investments in expansion and growth.

• Increased saving. Higher interest rates on savings accounts, especially high-yield savings accounts, incentivize saving, since account holders will earn a higher return on their balances.

• More foreign investment. Higher interest rates can attract foreign investors looking for better returns on their investments, which can increase demand for U.S. currency.

Recommended: APY vs Interest Rate

How Higher Rates Combat Inflation

When the federal funds rate rises, it sets off a ripple of effects in the U.S. economy. It makes it more expensive for commercial banks to borrow from each other, more expensive for businesses to finance large projects, and more expensive for consumers to get mortgages and other types of loans. This ultimately leads to less borrowing, less spending, more saving (thanks to good interest rates on bank accounts), and less overall money in circulation. Altogether, this tends to have a cooling effect on the economy, which helps to lower inflation.

It’s important to keep in mind, however, that the impacts of monetary policy set by the Fed are generally not swift. It can take upwards of 12 months for a rate hike to wend its way through the economy and actually ease prices. It’s also important to keep in mind that there are many things that impact inflation — from supply chains to labor costs to consumer demand. Interest rates are only one influencing factor.

Recommended: 10 Ways To Save Money Fast

Potential Drawbacks of Raising Interest Rates

While raising interest rates can be an effective tool for fighting inflation, it is not without its drawbacks. Here’s a look at some of the potential downsides of raising interest rates.

• Economic slowdown: As borrowing becomes more expensive, businesses may delay expansion or cut back on hiring, leading to slower job creation. Consumer spending may also decline, resulting in reduced demand for goods and services. Over time, this can lead to a slowdown in gross domestic product (GDP) growth, potentially tipping the economy into recession.

• A rise in unemployment: As businesses face higher borrowing costs, they may reduce their workforce or halt new hiring to cut expenses. Industries that rely heavily on borrowing, such as construction and real estate, can potentially see significant job losses as investment slows.

• Rise in the government debt costs: When interest rates rise, the cost of servicing the U.S. government’s debt also increases. Higher interest costs can strain the government’s budget and reduce the funds available for other important programs, such as healthcare, education, and infrastructure.

The Takeaway

Raising interest rates is a powerful tool used by the Federal Reserve, the central bank of the U.S., to control inflation, particularly in an overheating economy. By making borrowing more expensive and encouraging saving, higher interest rates reduce consumer spending and business investments, which can help cool demand and bring inflation under control.

However, this approach is not without its downsides, as it can lead to slower economic growth, increased unemployment, and higher government debt costs.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.

FAQ

How quickly do interest rate hikes affect inflation?

The effects of interest rate hikes on inflation can take at least 12 months to materialize. Central banks raise rates to reduce borrowing and spending, which in turn lowers demand for goods and services, along with prices. However, it takes time for this chain of events to ripple through the economy. On top of that, inflation is influenced by numerous other factors (including global supply chains, energy prices, and labor markets), which can also delay the impact of rate hikes.

Can raising interest rates cause a recession?

Yes, raising interest rates too aggressively can potentially cause a recession. Higher interest rates increase the cost of borrowing for consumers and businesses, which can reduce spending and investment. If rates rise too quickly or remain elevated for too long, the economy may slow significantly, leading to reduced consumer demand, lower business activity, and ultimately job losses. If economic output contracts for two consecutive quarters, it generally indicates a recession.

What happens to savings accounts when interest rates rise?

When interest rates rise, savings account holders typically benefit from higher returns. In response to rising benchmark rates set by the Federal Reserve, many (though not all) banks and credit unions will increase the interest rates they offer on savings accounts This can make saving more attractive than spending.

Photo credit: iStock/PixelsEffect

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 4.20% 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 4.20% 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 4.20% 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 10/31/2024. 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.

SOBNK-Q324-013

Sep

2024

What Is Money Dysmorphia?

By Janet Siroto | money, Money & Life | Comments Off

A relatively new term, money dysmorphia is when someone’s perception of their finances doesn’t align with reality, such as feeling financially insecure even when they’re managing their money well. They may feel as if they can’t keep up with their peers when they are actually on a solid financial footing. Almost one in three (29%) of U.S. consumers reported this outlook in a December 2023 survey by Credit Karma.

Money dysmorphia can be problematic because having a distorted view of your financial standing can lead you to make unwise financial decisions. It can also exacerbate financial and overall anxiety. For this reason, it’s wise to become familiar with the symptoms of money dysmorphia, as well as how to deal with its impact.

Key Points

• Money dysmorphia is when someone has a distorted view of their financial status, which can lead to feelings of inadequacy and poor financial decisions.

• Personal experiences, such as growing up with limited resources or financial instability, can contribute to money dysmorphia.

• Symptoms may include overspending, underspending, financial decision paralysis, and stress about one’s financial situation.

• Social media and reality TV showcasing images of wealth can exacerbate feelings of financial insecurity and increase anxiety.

• Strategies to manage or overcome money dysmorphia may include limiting social media, seeking professional help, and developing healthy financial habits.

Defining Money Dysmorphia

Money dysmorphia is defined as perceiving your financial status to be different from and worse than reality. It borrows from the term “body dysmorphia,” a mental health condition in which a person has anxiety over perceived physical faults, when in reality those “faults” are minor or unrecognizable to others.

Money dysmorphia is often tied to a “keeping up with the Joneses” or FOMO (fear of missing out) viewpoint. For example, you might be earning a solid income, have a tidy sum in your bank account, and be paying down your student debt, but when you scroll through social media, your perception becomes skewed. You might see images of what looks to be the entire world, minus you, living it up on the French Riviera. By comparison, your life seems inadequate.

This is money dysmorphia in action. It hits younger generations especially hard, with 43% of Gen Zers and 41% of Millennials experiencing this issue.

Signs and Symptoms of Money Dysmorphia

How do you know if you are among the ranks of those with money dysmorphia? Here’s a look at some common signs of money dysmorphia.

• You tend to underspend. Money dysmorphia can make you feel poor in comparison to others — as if you’re barely getting by. You might adopt stringent measures to stop spending money and thereby build wealth. If you are avoiding many or all social events or swearing off vacations (including that favorite weekend getaway with your BFF), even while you have adequate spending money available, you could have money dysmorphia.

• You often overspend. The opposite behavior can also be true. Some with money dysmorphia may respond to feeling poor by overspending. For instance, if you see that many people your age on social media are shopping for status watches or handbags, you might drop a chunk of change on one to feel part of the (rich) club, even if that means you can’t put money in your retirement account for a while.

• You have trouble making financial decisions. Money dysmorphia can also paralyze you in terms of making financial decisions because your money status isn’t clear. Perhaps you’ve changed jobs and need to earmark a percentage of your earnings to go into a retirement account. With money dysmorphia, you may feel unable to know how much to save because you’re so unsure of your financial picture.

• You feel stressed or embarrassed about your financial situation. Money anxiety and stress, as well as feelings of inadequacy, can be a big part of money dysmorphia. If you feel as if everyone is doing better than you, financially speaking, and that you’ve failed to “make it,” even when you are objectively doing fine financially, that is a symptom.

Recommended: How to Make a Budget

Causes and Contributing Factors

Here’s a closer look at which forces can conspire to trigger money dysmorphia.

Psychological Influences

There’s no doubt that the topic of money in and of itself can be stressful. In an April 2024 MarketWatch survey, 88% of respondents reported some degree of financial stress, and 65% (almost two out of three) said finances are their single biggest source of anxiety.

What’s more, focusing on which people have how much money can stir up many other emotions. Feelings of inadequacy, worries about one’s future, along with concerns about self-control and spending can all feed into money dysmorphia.

Social and Cultural Factors

Social media and reality TV can be a key driver of money dysmorphia by constantly showing curated images of luxury, abundance, and financial success. Constantly seeing this type of content can make you feel as if you’ve fallen short, despite the hard work you’ve put into your career and the successes you’ve achieved. Even just checking in on your friends and family through social media may make you feel that others have more and are living better lives than you are.

Personal Experiences

You might have experiences in your past that make you particularly vulnerable to money dysmorphia. Maybe you grew up in a family with limited resources, so now you feel compelled to show off your wealth. Or perhaps your family had money then lost it, and you went from feeling secure to feeling as if everyone was richer than you.

Experiences in adulthood can also feed into money dysmorphia. Maybe you started your own business and it failed or you got laid off from your first job. Even if you now have a steady income, those experiences could make you feel as if you are always struggling and everyone else is doing better than you financially, even when that’s not the case.

Recommended: What Are Fixed vs Variable Expenses?

Impact of Money Dysmorphia on Financial Behavior

As noted above, money dysmorphia can alter your financial behavior in significant ways. For some, it leads to excessive scrimping and saving due to a sense of feeling poor and wanting to hold as much money as possible. While this can produce positive behaviors (like opening a savings account to stash as much cash as possible), hoarding funds can also result in missing out on life’s pleasures.

Money dysmorphia can also trigger the opposite problem — spending more than you can afford in an effort to keep up with your peers or due to a constant fear of missing out. Blowing your savings on a status buy could make you feel rich in the short term, but make it impossible to stick to a budget and result in steep credit card debt.

Having a distorted view of your financial picture can also cause you to make poor financial decisions. For example, if you can’t tell if you’re doing okay or going broke, you might not feel you can contribute toward an emergency fund. Not socking away money in that kind of account could be a liability down the road.

Strategies for Managing and Overcoming Money Dysmorphia

If, as you read about money dysmorphia symptoms, you’re thinking, “That’s me!”, here’s advice to help you handle the situation.

Limiting Social Media

Taking a break from social media, reducing the time you spend online, or weeding out accounts that make you feel financially inadequate can help with money dysmorphia. You might adopt one of these habits for a specific period of time, such as two weeks, and then see if you even miss that content.

You might also make some changes in who you socialize with offline. If you have friends who spend lavishly, you can get sucked into a game of keeping up. You might decide to go out to dinner with big spenders only a few times a year and otherwise meet up with them for more wallet-friendly activities, like a free concert or walk in the park.

Seeking Professional Help

Working with a finance professional can be a good way to get clarity on your financial situation and potentially help you resolve money dysmorphia. You can get an unbiased opinion of how well you are budgeting, saving for the future, and managing debt, as well as tips on enhancing your efforts, if needed.

Alternatively, you might decide to see a therapist or psychologist to work on emotional issues related to money. Another option is to work with a financial therapist, who blends knowledge of personal finance and human behavior to work on overcoming money dysmorphia, achieving financial discipline, and other issues.

Developing Healthy Financial Habits

Honing your financial habits may also help you avoid or overcome money dysmorphia. A good start is having a budget that works for you. There are many budget techniques and tools to help you understand how much money you have coming in, where it goes, and how to balance your finances. A good budget can clearly spell out how much money you have available for discretionary spending (“fun” money). It may also help you realize just how well you are doing financially or allow you to see that your goals are within reach.

You can create a budget and track your spending with pen and paper, or you might download a budgeting and spending app to your phone to simplify the process.

The Takeaway

Money dysmorphia occurs when a person feels as if their financial situation is different from the reality. For example, if you are earning a steady income and saving for the future but see lots of millionaires living it up on social media, you might feel as if you are struggling financially in comparison. This can lead to issues such as overspending to keep up, being miserly in an effort to build wealth, or being unable to make financial decisions. Fortunately, a few smart strategies can help you manage or overcome money dysmorphia and find your financial footing.

Having the right banking partner can also help you track and grow your money and feel more confident about your finances.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.

FAQ

How do I know if I have money dysmorphia?

Signs of money dysmorphia include overspending to “keep up with the Joneses” or economizing too much because you think you are financially unstable compared to others. You might also have anxiety and uncertainty about your financial standing, which can cause you to miss out on opportunities that would help you build wealth and secure your future.

Can money dysmorphia be treated?

Yes, money dysmorphia can be treated. You can work on adopting healthy money habits (which could include avoiding social media, a possible trigger for money dysmorphia) and/or seek help from a financial advisor or therapist to move past this issue.

What resources are available for those struggling with money dysmorphia?

If you are struggling with money dysmorphia, you might benefit from working with a financial planner to help you budget and save wisely. This process can also help you track your progress, which can be reassuring. Or you might work with a mental health professional or financial therapist to explore the emotional underpinnings of your money dysmorphia and develop coping strategies.

Photo credit: iStock/Riska

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 4.20% 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 4.20% 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 4.20% 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 10/31/2024. 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.

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.

SOBNK-Q324-034

Sep

2024

What Is Doom Spending?

By Janet Siroto | money, Money & Life | Comments Off

Doom spending is spending money to cope with stress when the future seems uncertain or troubling, such as when the economic or political outlook appears grim. For example, a person might be feeling anxious about how high their housing costs are and what will happen in an upcoming election. To distract themselves from these worries, they might splash out on a special sushi dinner, concert tickets, or new clothes. The thinking here? “What’s ahead looks dicey; I might as well enjoy myself now.”

If you can relate to this, read on to learn more about the causes of doom spending and how not to let it harm your financial standing.

Key Points

• Doom spending is when individuals spend money to cope with stress and anxiety about the future, such as a gloomy economic or political outlook.

• A significant portion of Americans, especially the younger Gen Z and millennial generations, engage in doom spending.

• Psychological triggers for doom spending may include stress, anxiety, impulse control issues, and societal and peer pressure.

• Doom spending can lead to increased debt and reduced savings, negatively impacting financial stability.

• Strategies to break the cycle of doom spending may include creating and sticking to a budget, setting up automatic savings transfers, and seeking alternative stress relief methods.

Understanding Doom Spending

Doom spending is a phenomenon in which people may overspend in response to stressful times. For instance, when the world is filled with political and economic uncertainty, consumers (especially younger ones) may feel there’s no point in saving. A voice inside their head may ask, “Why bother?” Instead, they decide to live in the moment and go shopping as a distraction and mood lifter.

A November 2023 survey by Qualtrics on behalf of Credit Karma found that 27% of all Americans engage in doom spending, and it’s especially prevalent among younger adults. In fact, 43% of millennials and 35% of Gen Zers admit they have spent money in this way.

Financial experts say these generations may be especially vulnerable to feelings of hopelessness and doom spending, as they came of age in a time of economic uncertainty and are living in an era with high housing costs, massive student debt, and considerable inflation (consumer prices rose approximately 20% between January 2020 and January 2024). Many may find that they currently have a lot less in their bank accounts that they’d like.

While there is nothing wrong with occasional rewards, doom spending can result in credit card debt and a reduced ability to save for the future. In the Qualtrics/Credit Karma study, about one-third of Americans reported an increase in debt in the past six months, and nearly half said the amount of money they’re saving has gone down.

Recommended: What Are Fixed vs. Variable Expenses?

Psychological Triggers Behind Doom Spending

Here’s a closer look at some of the causes of doom spending.

Stress and Anxiety

Stress and anxiety can trigger doom spending, and there’s little doubt that they are rampant right now. According to the American Psychological Association (APA), many people in the U.S. have been negatively impacted by the trauma of the pandemic, global conflict, racial injustice, inflation, and environmental challenges around us. All of those issues can swirl together and create a feeling of future doom.

According to a June 2024 Axios Vibes/Harris Poll survey, a majority of millennials and Gen Zers agree that it is better to treat themselves now rather than hold off for a future “that feels like it could change at any moment.”

Impulse Control Issues

Shopping can bring joy in a few different ways. Research has shown that purchasing an item you desire can empower you with a sense of control. It can also flood your brain with dopamine, a “feel good” neurotransmitter.

When people feel that the future is gloomy, they may crave that “feel good” flood even more and, therefore, easily give in to impulse purchases. Spending money in this way can be a relief and a release. It’s a distraction that lets you treat yourself and temporarily escape your worries.

Societal and Peer Pressure

Social media can exacerbate doom spending by driving you to spend money to “keep up with the Joneses.” It can also lead to FOMO (fear of missing out) spending and YOLO (you only live once) spending.

Because the future seems cloudy and so expensive, you may not bother to plan for it. Instead, you might follow a friend’s, coworker’s, or social media influencer’s lead and spend money on the latest trendy purchase or experience. It can create a feeling of belonging and help you escape all the doom-driven anxiety.

Consequences of Doom Spending

The consequences of doom spending can be mild or more significant, but typically include the following:

• Blowing your budget. Additional spending can make it hard to stick to a budget. If you’re buying more non-essentials, you may come up short when it’s time to make your student loan payment. Or you might have to stop contributing to your retirement plan so you can make ends meet.

• Credit card debt. Credit card debt in the U.S. reached a record high in the second quarter of 2024 (hitting $1.142 trillion). That’s a whole lot of swiping and tapping going on, and doom spending may be a contributing factor. Shopping with credit cards can feel as if purchases don’t cost anything since no hard cash changes hands. But if you go overboard with doom spending, you may get an eye-watering bill. Given today’s ultra-high credit card interest rates (currently averaging over 20%), it can be hard to get out from under credit card debt once it starts racking up.

• Ability to save. When you spend money on fun treats and impulse purchases to relieve stress and buoy your spirits, it may well be “borrowed” from money you were going to save. Whether those dollars were earmarked for an emergency fund, retirement account, the down payment on a house, or other purpose, doom spending can set you back in terms of your short- and long-term financial goals.

• Increased stress. Knowing that you’ve overspent can heighten the anxiety you are already feeling. Many people feel guilty about spending money, and a doom-triggered spending spree can create more worries about your financial future.

Strategies To Manage and Prevent Doom Spending

If you’ve been doom spending (or tempted to), these strategies can help you reign in the impulse.

Setting a Budget

A good budget helps organize your money and keep your spending on track; it can provide guardrails for how your income will be spent and saved. There are many different types of budgets, so you may need to experiment to find the method that works best for you. One popular approach is the 50/30/20 budget rule, which says that 50% of your take-home pay should go to needs, 30% to wants, and 20% to savings and/or additional debt payments. With a budget like this in place, you know just how much (30%) can go toward fun expenditures and can stick to that figure.

Once you determine how much you want to put towards savings each month, it’s a good idea to set up an automated transfer from your checking account to your savings account for the same day each month (perhaps right after you get paid). That way, the money gets whisked away and won’t sit there, tempting you to spend it.

You can set a budget and track your spending with pen and paper, or you might want to download a budgeting and spending app to your phone to simplify the process.

Self-Control Techniques

Being aware of what triggers you to doom spend can help you stop. For example, if you know you tend to shop on Sundays when you start feeling anxious about the week ahead and life in general, fill your calendar. You might set up a standing date to go walking or running with a friend or take on a volunteer gig or side hustle so you are too busy to spend.

Many people impulse buy online or on social media. If you tend to overspend in this way, consider disabling one-click shopping. It’s also a good idea to delete your credit card details from your devices — that way, it won’t be so easy to mindlessly spend while scrolling.

Recommended: How to Stop Spending Money

Seeking Professional Help

If you feel your doom spending isn’t yielding to the above techniques, you might want to enlist the help of a professional. A financial planner could help with budgeting or a therapist could guide you to uncover and address the emotional aspects of your spending.

A financial therapist could also be helpful. They merge money know-how and an understanding of human behavior to resolve issues such as doom spending.

The Takeaway

Doom spending is a way of coping with stress by spending money. When you feel as if the world is uncertain and anxiety-provoking, you may find relief by shopping. But this can negatively impact your finances and create more money worries. Fortunately, there are several strategies that can help you control doom spending and stick to a budget.

The right banking partner can also help by giving you tools to help you track and grow your money.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.20% APY on SoFi Checking and Savings.

FAQ

What are the common signs of doom spending?

Common signs of doom spending include:

• Making impulsive purchases in response to feeling stressed or anxious about the future

• Feeling temporary relief or pleasure after spending but later regretting the purchase

• Frequently buying things you don’t need

• Neglecting to save for the future

How can I break the cycle of doom spending?

Here’s a look at some strategies that can help you break the cycle of doom spending:

• Create a monthly spending budget.

• Set up a recurring monthly transfer from checking to savings.

• Uncover your spending triggers and work to avoid or eliminate them.

• Practice mindful spending by pausing before each purchase and assessing if it’s truly necessary.

• Seek alternatives for stress relief, such as exercise or hobbies, to replace spending as a coping mechanism.

• Work with a financial advisor or psychologist/therapist

Are there tools or apps to help manage spending habits?

Yes, there are a number of online tools and apps that can help you manage your spending habits, set up a budget, and monitor financial goals. Popular options include YNAB (You Need a Budget), Goodbudget, and EveryDollar. You might also check with your bank to see what tools they offer to track and organize your finances.

Photo credit: iStock/YakobchukOlena

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SoFi members with direct deposit activity can earn 4.20% 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 4.20% 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 4.20% 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 10/31/2024. 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.

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SOBNK-Q324-033

21 Productive Things to Do on Your Day Off

How Staying Productive Can Improve Your Money Mindset

Productive Things to Do on Your Day Off

1. Planning a Vacation

2. Checking Your Credit Card Statements

3. Taking Quality Time for Yourself

4. Reviewing Your Career Goals

5. Starting a Side Hustle

6. Catching Up on Important Errands

7. Exercising

8. Mapping Out Your Money Goals

9. Getting a Haircut

10. Volunteering

Earn up to 4.20% APY with a high-yield savings account from SoFi.

11. Updating Your Online Resume

12. Reading a New Book

13. Taking an Online Class

14. Spending Time With Loved Ones

15. Unsubscribing From Unwanted Emails

16. Updating Your To-Do List

17. Checking How You’re Doing With Your Budget

18. Planning for Next Week

19. Finding Networking Opportunities

20. Adjusting Your Tax-Withholding if It’s Not Right

21. Cleaning Your House

The Practical And Financial Benefits of Being Productive

Banking With SoFI

FAQ

What is considered wasting time on your day off?

How can I productively treat myself on my day off?

Is traveling considered productive?

What Is MAGI and How Do You Calculate It?

What Is MAGI?

Definition of MAGI

Why MAGI Is Important

MAGI vs. Adjusted Gross Income (AGI)

Who Needs to Calculate MAGI

How to Calculate MAGI

Step 1: Calculate Your Adjusted Gross Income (AGI)

Step 2: Add or Subtract Applicable Adjustments

Step 3: Determine Your MAGI

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Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.1

Common Adjustments to AGI for MAGI Calculation

Tax-Exempt Interest Income

Qualified Tuition Expenses

IRA Contributions

Deducting SEP or SIMPLE IRA Contributions

Student Loan Interest Deduction

MAGI and Tax Credits

MAGI and Deductions

The Takeaway

FAQ

What is the difference between MAGI and AGI?

Is MAGI used for all tax calculations?

Can MAGI be higher or lower than AGI?

How Does Raising Interest Rates Help Inflation?

The Relationship Between Interest Rates and Inflation

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Mechanisms of Interest Rate Increases

Effects of Higher Interest Rates on the Economy

How Higher Rates Combat Inflation

Potential Drawbacks of Raising Interest Rates

The Takeaway

FAQ

How quickly do interest rate hikes affect inflation?

Can raising interest rates cause a recession?

What happens to savings accounts when interest rates rise?

What Is Money Dysmorphia?

Defining Money Dysmorphia

Signs and Symptoms of Money Dysmorphia

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Causes and Contributing Factors

Psychological Influences

Social and Cultural Factors

Personal Experiences

Impact of Money Dysmorphia on Financial Behavior

Strategies for Managing and Overcoming Money Dysmorphia

Limiting Social Media

Seeking Professional Help

Double down on your retirement goals with a 1% match on every dollar you roll over and contribute to a SoFi IRA.¹

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