Sep
19
2024
How to Save Money on Streaming Services

How to Save Money on Streaming Services

By | Budgeting & Goals, money | Comments Off on How to Save Money on Streaming Services

Streaming services deliver addictive TV (or movies, articles, or audio) that we all can’t stop talking about. If the content is good, we’ll willingly pay a fee every month to consume it. Who wants to be bored, or left out of the cultural conversations?

But now that the average viewer has four to five streaming services, the monthly price tag is on the rise. In 2024, Americans spent $61 a month on streaming services, which is up from $48 in 2023, according to Deloitte’s Digital Media Trends report.

Wondering how to save money on streaming video services, short of just canceling them all? We’ve got 12 tips for cutting costs without cutting (all) the content. Read on to learn about the different techniques, and see which are right for you.

13 Ways to Cut the Costs of Streaming

Monthly subscriptions to Netflix, Hulu, Disney+, Amazon Prime, and HBO Max — not to mention music subscriptions like Spotify, Apple Music, and Pandora — expose us to more content and more choice in terms of entertainment and education.

But the cost of streaming services is on the rise. In an age of higher prices, many of us want to protect our money from inflation. Cutting costs and sticking to a budget can be especially important.

Those are good reasons to examine how to save money on subscriptions. Here are 13 ways you might be able to save some cash on your streaming habits:

1. Paying Annually Over Monthly

Some streaming services allow you to pay a lump sum once a year instead of monthly payments. This can make it more challenging to build streaming services into a line item budget, but the reward could be worth it. Usually when you pay for a year in advance, streaming services offer you a discounted rate.

If you don’t plan to keep the service for a year — say, you only want Netflix the month that your favorite show releases a new season — paying the annual fee might not make sense. Instead, it could be more cost-effective to pay the monthly fee for one or two months a year when you want to use the service.This could be one way to be better with money.

2. Setting Renewal Reminders

Whether you pay once a year or month to month, it’s a good idea to know when your card will be charged again. If you set a reminder in your phone or on your digital calendar, you can receive an alert before paying for another month.

When you get the alert and think about how much you and your family used the streaming service over the last pay period, you might realize that it’s not worth it to keep paying. If that’s the case, consider canceling to add money back into your monthly budget.

3. Finding Streaming Bundle Deals

Many streaming services offer bundle deals that allow you to save. If you already plan on subscribing to two separate services, it is a good idea to explore discounts for bundles. For example, if your family wants Hulu and Disney+, you might be able to save money by bundling the two together.

However, if you don’t want one of the services in the bundle, calculating the cost of individual services vs. the bundle could also be helpful. If you are motivated to save money, opting out of a bundle that includes services you don’t really need could be a way to free up funds.

You could then use the money you save to open a savings account and start an emergency fund, or you might choose to put your freed-up funds into retirement savings. Every bit helps.

4. Utilizing Free Trials Before Paying for a Plan

Several major streaming platforms, including Hulu, Apple TV+, and Amazon Prime, allow you to try out their content before committing. Some people who only want to watch a specific movie or TV series that is released in a certain month might take advantage of free trials — signing up to watch their desired content and then canceling the service before it renews and charges their card.

Even if you aren’t utilizing free trials to game the system, they do get you a month of content without having to worry about fees. It’s a good idea to set a reminder at the end of the free trial to cancel the service if you don’t want to keep it; otherwise, your account may be charged.

5. Determining If You Really Need the Services — And Canceling What You Don’t Need

Regularly analyzing your budget is a good idea, especially as the cost of living increases. While reviewing your average monthly expenses, you might want to consider if you really need each of the streaming services to which you are subscribed.

If your family has any services that they rarely use, you can consider canceling those subscriptions to save money each month.

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

No account or monthly fees. No minimum balance.

9x the national average savings account rate.

Up to $2M of additional FDIC insurance.

Sort savings into Vaults, auto save with Roundups.


6. Seeing if a Phone Plan Comes With a Subscription Deal

When’s the last time you changed your phone plan? If you are thinking about upgrading to a new phone or a new plan, you might want to shop around to see what streaming deals phone carriers are offering.

Promotions are subject to change, but often, carriers like T-Mobile, Verizon, and AT&T offer free subscriptions to popular streaming platforms like Netflix, Apple TV+, and Paramount+. These are often for a year but sometimes for as long as you keep your phone contract.

Recommended: The Importance of Saving Money for the Future

7. Choosing Plans with Ads

Today, Streaming services typically offer viewers ad-free experiences that allow them to consume content unhindered. But increasingly, that comes at a cost. To save money on monthly subscription services, many families opt in for the lower-tier, less expensive “with ads” plans.

Streaming services like Hulu and Netflix offer their content at discounted rates if you opt into the “with ads” plan, and even streaming giant Netflix has announced its intentions to roll out a cheaper, ad-supported plan.

If you don’t mind watching ads in between your favorite shows and movies, downgrading to a cheaper, ad-supported subscription could save you money.

Recommended: How to Save Money From Your Salary Each Month

8. Downgrading to a Cheaper Plan if You Can

Ad-supported plans aren’t the only downgrade you can consider to save money on streaming services. Some services, like Hulu, have top-tier plans with live TV options. Others, like Netflix, allow you to pay more so that you can utilize additional screens at the same time.

Here’s another way to save money on streaming services: Consider whether you are fully utilizing every aspect of a service. (This is a good moment to tap your financial discipline.) If you aren’t truly using a service or realize you can pare down, it’s wise to explore what alternatives the platforms offer that could save you money.

Downgrading your plan could free up cash that you could funnel towards growing your emergency fund or saving for a vacation, or into your checking and savings account.

9. Sharing the Account With Your Household

Some streaming services allow you to share your account with friends and family, typically within the same household. Rather than maintaining separate accounts, you might be able to save money by sharing services with roommates.

If you opt to save money this way, you may find that streaming services even allow you to create separate, personalized profiles within your account as long as you are in the same residence.

10. Using Free Alternative Streaming Services

Not all content requires a subscription. If you have a smart TV or other internet-connected device, you can connect to free services like the Roku Channel and Pluto TV. While this may not give you access to the hot new shows everyone is talking about, it can definitely give you plenty of options for viewing.

11. Rotating Streaming Services Instead of Having Them All at Once

Most consumers have four to five streaming services in a given month, according to the Deloitte Digital Trends report. Depending on how much TV and music you consume, it’s possible to utilize that many services fully. But for many families, that might be too many. Just watching a few episodes of a show every month may not justify the expense.

If you find that you don’t regularly watch all your services, it could be a good idea to rotate them. For example, you could pay for two in the spring because they’ve got new shows you like, then switch to another two during summer vacation because they’ve got great content for kids, and then switch again in the fall and winter because you enjoy their holiday programming.

12. Using a Cash Back Credit Card

Earning money by spending money can make monthly expenses a little more manageable. For example, say you have a cash-back card that allows you to earn up to 3% back on qualifying purchases. While it might not sound like much, that’s 30 cents cash back for every $10 streaming service each month. It can add up.

Some cash back credit cards are actually designed for people who like streaming services; they might offer special cash back rates specifically for subscription services like Prime Video and Spotify.

13. Swapping Down on Resolution

Some people are obsessed with having the latest, most crystal-clear image as they view their shows; others, not so much. If you fall into the latter category, you might be able to score a cheaper subscription for lesser resolution. For instance, Netflix currently charges $15.49 for a monthly subscription without HD; a standard plan with HD is $15.49 (with perhaps other perks as well); and $22.99 for a premium one with Ultra HD available.

Banking With SoFi

Looking for more ways to lighten your monthly budget? Choosing the right bank account could help save you money. For instance, you might want to consider a high-yield bank account or one with low or no fees. Explore the options to see what makes the most sense for you.

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

Are streaming services continuing to increase in price?

Many streaming services have increased their prices in recent years. How their pricing will evolve depends on many factors, but we are at a moment of high inflation with price hikes likely. To save money on monthly subscriptions, consumers might want to cut back on the number of streaming services, look for ad-supported plans, and consider streaming bundles.

Is cable cheaper than streaming?

The Deloitte Digital Media Trends report found that the average American uses between four and five streaming services, with an average monthly bill of $61. While higher than it was pre-pandemic, Monthly spending on streaming services is still lower than the average cable bill, which is $113, according to a 2023 J.D.Powers study. Of course, you can find much cheaper basic cable packages, but you can also have a single streaming service to cut costs.

What streaming services have bundle deals?

You can find bundles with multiple streaming services, such as Hulu, Disney+, and ESPN+. Amazon Prime members get access to video content plus Prime shipping deals on Amazon.com; they can also take advantage of bundles with platforms like AMC+ and Paramount+. Bundle deals might not always be available, so it’s a good idea to research before signing up.

Photo credit: iStock/Brothers91

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.

4.20% APY
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.

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.

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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Sep
16
2024

What Is the Reverse Budgeting Method?

By | Budgeting & Goals, Family Finances, money | Comments Off on What Is the Reverse Budgeting Method?

The reverse budgeting method is an approach that prioritizes savings. Budgets typically start by looking at monthly bills and expenses and allocating whatever is left over to saving. Reverse budgeting turns this approach on its head — it considers savings first and spending second.

Also known as the “pay yourself first” method, reverse budgeting starts by allocating a certain amount of your monthly income to your savings goals (such as retirement or an emergency fund). Whatever is left over after that is how much you have to spend. Essentially, it involves pretending that your paycheck is smaller than it actually is.

If your top goal is saving or you’ve tried budgeting in the past without complete success, the reverse budget might be for you. Here’s what reverse budgeting means and how it works.

Key Points

•   Reverse budgeting prioritizes savings by allocating a portion of income to savings goals first, then spending the remainder on other expenses.

•   Reverse budgeting simplifies budgeting since you can focus on saving a predetermined amount and then spend the rest as needed or desired.

•   The reverse budgeting method can help achieve financial goals faster and allows guilt-free spending within remaining income limits.

•   Reverse budgeting may not be ideal for those with high-interest debt or irregular income.

•   Automating savings and periodically reassessing the budget are key steps to making reverse budgeting work effectively.

Reverse Budgeting Explained

The reverse budgeting method prioritizes setting money aside for your savings and investing goals. This might include building an emergency fund, saving for a new car or down payment on a house, or investing for retirement. Once that money has been set aside, the rest of your income can be used to cover your living expenses.

Reverse budgeting usually involves setting up automatic contributions to savings, typically on payday. As a result, the money leaves your bank account before you get a chance to spend it. That’s why this method is also known as the “pay yourself first” approach.

How Reverse Budgeting Differs from Traditional Budgeting

Making a budget typically involves listing all of your monthly expenses and assigning a portion of income to each category (e.g., housing, groceries, transportation). The goal is to ensure that expenses don’t exceed income, and any leftover funds can be saved or invested. This approach often requires meticulous tracking and discipline to avoid overspending in any category.

By contrast, reverse budgeting starts by looking at your financial goals and the things you want to save for. It helps you determine how much you need to put aside each month to accomplish them. You then subtract that sum from your monthly pay; what’s left is how much you have to spend on everything else.

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

No account or monthly fees. No minimum balance.

9x the national average savings account rate.

Up to $2M of additional FDIC insurance.

Sort savings into Vaults, auto save with Roundups.


Steps to Create a Reverse Budget

Creating a reverse budget tends to be less complicated than setting up other types of budgets. It doesn’t require establishing spending categories and totals for how much you will spend on each. That said, there are a few steps involved. Here’s a look at how to do a reverse budget.

1. Assess Your Spending

To know how to set your savings goals, you’ll need to get a general sense of your current cash flow. You can do this by pulling the last few months of financial statements, then adding up how much is coming in and going each month on average. You might also want to make a list of your essential monthly expenses, as well as how much you tend to spend each month on nonessentials.

This type of spending audit will give you a clear picture of your spending patterns. It can also help you identify any discretionary spending you may be able to reduce to accommodate your savings goals. There are also budgeting apps that can do a lot of this work for you. Start by seeing what your financial institution offers that could help with this process.

2. Identifying Your Savings Goals

Next, you’ll want to think about your savings goals. These might include building an emergency fund, saving for a down payment on a house, doing a home renovation, going on a vacation, paying for a wedding, contributing to retirement accounts, or any other financial objectives.

You’ll likely want to set your savings goals in terms of dollars as well as the timeframe within which you want to work.

3. Allocate Income to Savings

Once you’ve identified your savings goals, you might pick just a couple to start with. For each, as noted, you’ll have determined how much money you’ll need, along with a realistic timeline for reaching the goal. With that information in mind, you can then allocate a portion of your income to each goal.

For example, if you want to save $5,000 for an emergency fund over the next year, you would need to save approximately $417 per month.

As you go through this step, you’ll want to be realistic about how much you can afford to siphon off your paycheck for savings. It’s important to have enough spending money left over to cover your bills and also have some fun.

Recommended: 10 Most Common Budgeting Mistakes

4. Automate Your Saving

To ensure consistency and reduce the temptation to spend your savings, it’s a good idea to automate the saving process. If you have a 401(k) at work, you can do this by letting your employer know how much of your paycheck to put into your retirement account.

For shorter-term goals, consider setting up an automatic transfer from your checking account to a savings account for the same day each month, ideally right after you get paid. Some employers even allow you to split up your direct deposit into two different bank accounts.

5. Make Adjustments as Needed

Once you’re living on your reverse budget, you may find that you don’t have enough wiggle room to comfortably cover your bills and everyday spending. Or you might realize that you can afford to put more money towards savings and, in turn, reach your goals faster. Either way, it’s important to periodically reassess your reverse budget and, if necessary, make some adjustments in your savings rate.

This is especially important as your life circumstances and financial goals change. If you get a raise, for example, consider increasing your savings rate (this can help you avoid lifestyle creep). Conversely, if you encounter unexpected expenses, you may need to temporarily reduce your savings rate to accommodate these costs.

Pros and Cons of Reverse Budgeting

As with any financial strategy, reverse budgeting has its advantages and disadvantages. Understanding these pros and cons can help you determine if this method is right for you.

Pros of Reverse Budgeting

First, consider the upsides of reverse budgeting:

•   It can help you reach your goals faster: One of the main advantages of reverse budgeting is that it takes savings right off the top of your paycheck. This can help you build an emergency fund, save for a major purchase, or invest for retirement more quickly than traditional budgeting methods.

•   Low maintenance: Reverse budgeting simplifies the budgeting process. Instead of meticulously tracking every expense category, you focus on saving a predetermined amount and spend the remainder as you see fit. This low-maintenance approach can be particularly appealing for those who find traditional budgeting too time-consuming and/or restrictive.

•   Spending without guilt: With reverse budgeting, you can enjoy spending within the limits of your remaining income. Since your savings goals are already met, you have the freedom to spend on discretionary items without worrying that you are derailing your future progress.

In these ways, the reverse budgeting method can help you prioritize savings and achieve financial security.

Recommended: The Most Important Components of a Successful Budget

Cons of Reverse Budgeting

Next, keep these potential downsides of reverse budgeting in mind:

•   It could lead to overspending: Since reverse budgeting doesn’t require setting up spending categories and strict spending limits for each one, you could end up overspending on certain things. Then, you might have to dip into savings to cover the shortfall.

•   You might be better off focusing on debt: If you have high-interest debt, paying down those balances could provide a better return on investment than saving or investing. If this is the case, a more traditional budgeting approach that prioritizes debt repayment might be more effective.

•   Not ideal for people with variable income: Reverse budgeting generally depends on earning a set amount of money each month. For people with variable income, such as freelancers or those with seasonal work schedules, maintaining a fixed savings rate could be challenging.

The Takeaway

Reverse budgeting, also known as the “pay yourself first” method, prioritizes saving and simplifies the entire budgeting process. By automating saving, it also reduces the chance that you’ll spend money today that you were intending to set aside for the future. However, reverse budgeting may not be the best approach if you have a lot of high-interest debt or your income fluctuates. You might be better off with another budgeting technique.

Choosing the right banking partner can also help you budget more effectively.

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

How does reverse budgeting help with saving money?

Reverse budgeting helps with saving money by prioritizing savings over expenditures. With this approach, you allocate a set percentage or amount of your income to savings first and then use the remaining amount to cover your expenses. This ensures that you don’t spend money you were planning to use for future goals.

Can reverse budgeting work for irregular income?

Reverse budgeting can be challenging for those with irregular income, such as gig workers. Here’s why: It relies on setting aside a certain amount of money into savings each month — before other expenses are paid. If your income fluctuates significantly, it may be difficult to meet your savings goal monthly.

However, you may be able to make it work by taking a flexible approach. For example, you might set a minimum savings rate based on your lowest expected income and then, during higher-income months, increase your savings contributions. Building an emergency fund can also help smooth out the fluctuations.

Is reverse budgeting suitable for paying off debt?

Reverse budgeting isn’t ideal for paying off debt, since it focuses on saving first, which can divert funds from debt repayment. If you have significant high-interest debt, prioritizing debt repayment might provide better financial benefits in the long run compared to the returns from savings or investments.

However, you might consider a hybrid approach — allocating a portion of your income to debt repayment and another to savings, ensuring you address both goals.

Photo credit: iStock/Goodboy Picture Company

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.

*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.

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.

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-Q324-035

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Sep
16
2024

How Does Raising Interest Rates Help Inflation?

By | money, Money & Life | Comments Off on How Does Raising Interest Rates Help Inflation?

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.

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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.

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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.

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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.

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Sep
09
2024

What Is Money Dysmorphia?

By | money, Money & Life | Comments Off on What Is Money Dysmorphia?

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.

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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.

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

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.

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Sep
09
2024

What Is Doom Spending?

By | money, Money & Life | Comments Off on What Is Doom Spending?

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.

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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.

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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.

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.


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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.

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