Mar
05
2024
What Is an Itemized Deduction?

Guide to Itemized Deductions

By | Budgeting & Goals, Family Finances, money | Comments Off on Guide to Itemized Deductions

Tax deductions enable taxpayers to reduce their total taxable income. That can be a very good thing: It can result in a lower tax bill or, if you had too much withheld through the year, a larger refund.

While most people now take the standard deduction — especially since the Tax Cuts and Jobs Act of 2017 effectively doubled the standard deduction amount — some taxpayers may benefit from itemizing their deductions.

Doing so can be a somewhat complicated and time-consuming process, but it may save you money. Here’s your guide to itemizing deductions; read on to learn:

•  What is an itemized deduction?

•  How do itemized deductions differ from standard deductions?

•  What are examples of itemized deductions?

•  What are the pros and cons of itemizing deductions?

What Is an Itemized Deduction?

Itemized deductions are a strategy to lower your adjusted gross income for a tax year. Rather than taking a set standard deduction whose amount is determined by the Internal Revenue Service (IRS), some taxpayers choose to calculate all deductions for which they’re eligible. They can then decrease their taxable income by that amount.

It’s worthwhile for some taxpayers to do the math and see how much they can reduce their tax bill by itemizing. That said, many may realize they can actually reduce their taxable income more by taking the standard deduction. Why? The standard deduction is much larger than it used to be since the passing of the Tax Cuts and Jobs Act at the end of 2017.

For the 2023 tax year (filing in 2024), the standard deduction is:

•  $13,850 for single tax filers

•  $20,800 for heads of household

•  $27,700 for married couples filing jointly

Almost everyone can take the standard deduction — and there’s a lot less math and paperwork involved. But for a unique set of taxpayers, itemized deductions could yield an even larger tax liability reduction than what the IRS offers through the standard deduction.

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Itemized vs. Standard Deduction: What’s the Difference?

So what are the differences between itemized deductions and the standard deduction? Let’s take a look.

•  Dollar amount: The standard deduction is a set amount. If you choose the standard deduction, you cannot reduce your tax liability further by tacking on itemized deductions. When itemizing, the amount by which you reduce your tax burden varies depending on your unique tax situation. In nearly every case, it only makes sense to itemize if the resulting deduction is larger than the standard deduction or if you aren’t eligible to take the standard deduction.

•  Process: Claiming the standard deduction is straightforward. You don’t need to produce receipts and sort through expenses. If you itemize, you’ll need to educate yourself about all the deductions for which you qualify, produce the proof that you qualify in case of a tax audit, and fill out what is known as Schedule A on your tax return.

•  Eligibility: Anyone can itemize their deductions, but the standard deduction has a few exceptions. For example, if you’re married but filing separately and your spouse itemizes, you must itemize as well. While almost everyone is eligible to take the standard deduction, it never hurts to check with the IRS or your accountant to ensure eligibility.

Recommended: How to Pay Less Taxes: 9 Simple Steps

How Do Itemized Deductions Work?

Now that you know what itemized deductions vs. standard ones are, consider a more specific example of how they work.

Itemized deductions reduce your overall tax liability, just like the standard deduction. The catch? You can only take the itemized deductions for which you’re eligible. If you can cobble together enough itemized deductions to equal a larger tax-liability reduction than the standard amount, it could be worth itemizing.

As an example, let’s assume your gross income was $100,000.

•  The standard deduction for this income is $13,850 for single filers, so your taxable income would be $86,150.

•  Let’s suppose your itemized deductions are worth $20,000. It will lower your taxable income to $80,000.

Because your itemized deductions are greater than the standard deduction, it makes sense to itemize. Doing so will lower your taxable income and can thereby reduce the taxes you pay.

While it may take longer to calculate your deductions and prepare your tax return, it may make good financial sense to keep that extra cash in your pocket (or savings account, as the case may be).

Types of Itemized Deductions

The IRS offers an extensive list of potential itemized tax deductions, but you’ll probably only qualify for a handful. Here are a few of the most common:

•  Property tax deduction

•  Mortgage interest deduction

•  Charitable contribution deduction

•  Deduction of state and local sales taxes

•  Deduction of certain medical and dental expenses

While the IRS used to have a long list of miscellaneous deductions — from moving expenses to unreimbursed job expenses to tax preparation fees — many of these disappeared with the Tax Cuts and Jobs Act.

Independent contractors may want to consider itemizing; check out the tax deductions for freelancers to see which ones you may qualify for. As you itemize your business expenses, pay attention to the home office tax deduction, as well as how much you spend on office supplies, travel, and other business-related expenses. Make sure to keep good documentation of what you’ve paid.

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How to Claim an Itemized Deduction

To claim itemized tax deductions on your return, you’ll need to fill out IRS Schedule A with your Form 1040. Here’s what that process looks like:

1.   Research itemized deductions. It’s helpful to know which deductions you qualify for — and to gather up necessary documentation to enter in all the information beforehand. Preparing for tax season can make the process go much more smoothly!

2.   Fill out Schedule A. You’ll enter in all your expenses and add them up to get your total deduction.

3.   Compare it to the standard deduction. Before copying that total over to your Form 1040, it’s wise to reference the standard deduction for your filing status this year. Once you’re sure that the itemized deduction can yield larger savings, you can write down the number on Form 1040 and continue filing your taxes.

While the process sounds straightforward, it can be difficult to find out which deductions you’re eligible for and how to tabulate all your expenses. If you’re unsure, it may be a good idea to work with an accountant or at least professional tax preparation software.

Recommended: How to File Taxes for the First Time

Pros and Cons of Itemized Deductions

So what are the benefits and drawbacks of itemizing your deductions? Let’s take a look.

Pro: Itemizing could help lower your taxable income and save you more money than the standard deduction.
Con: Given changes to tax law a few years back, there’s a good chance you may save more with the standard deduction.
Pro: Because you’re writing off certain expenses and know which expenses are deductible, you may be more prudent with your spending habits throughout the year.
Con: Itemizing can involve a lot more paperwork and effort. It can be confusing, and you must make sure you’re only itemizing deductions for which you actually qualify to avoid trouble with the IRS.

The Takeaway

Most people will likely save more money on their taxes with the standard deduction, but depending on your scenario, you could see a greater reduction in your tax liability by itemizing. If you have the time, it may be worth it to go through the process of itemizing, just to see if you could save money. If you can, great! And if not, the standard deduction also offers great savings.

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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

Can anyone itemize a deduction?

All taxpayers are permitted to itemize deductions, but the Tax Cuts and Jobs Act has made it less attractive to itemize for many Americans. Why? The standard deduction essentially doubled in size, while fewer expenses became eligible for itemizing.

Still, it may be worth calculating your itemized deductions to see if you can save more than you would with the standard deduction.

What are some things that you cannot itemize?

Since the Tax Cuts and Jobs Act, there are fewer things that you can itemize on your tax return. Even some popular deductions that people used to take are no longer eligible, including moving expenses, tax preparation fees, and unreimbursed business expenses.

Many deductions have a lot of fine print — both for inclusion and exclusion — so it’s a good idea to work with an accountant or professional tax preparation software to determine what counts as an itemized deduction.

Do you need proof for itemized deductions?

Generally, you should have proof for expenses that you are claiming as an itemized deduction. Such documentation would prove that you paid the expenses and that they were eligible for the deduction. The IRS calls this the burden of proof.

Photo credit: iStock/Milan_Jovic
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.

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

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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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Feb
27
2024
Is a $40,000 Salary Good?

Is a $40,000 Salary Good?

By | Budgeting & Goals, money | Comments Off on Is a $40,000 Salary Good?

To answer whether a $40,000 salary is good, you need to consider your perspective. For a recent grad in a small town where the cost of living is low, that might be an annual income that pays the bills. But a $40,000 salary is not typically enough for a household to live comfortably in most parts of the United States. To put it another way, a single person can live more comfortably on a $40,000 salary, but a family — with or without children — may find it more difficult.

Rising inflation has made it more challenging to get by on $40,000 in 2024, but this salary is still far above the United States Census Bureau’s poverty threshold for families of up to six people. The $40,000 figure represents earning more than the federal minimum wage ($7.25/hour).

So is $40,000 a good salary? Well, it depends.

Key Points

•   A $40,000 salary may be sufficient for an individual in a low-cost area, but it may not be enough for a family to live comfortably in most parts of the US.

•   Rising inflation has made it more challenging to live on a $40,000 salary, but it still exceeds the poverty threshold for families.

•   Compared to the median household income in the US, a $40,000 salary falls short, but it can contribute to the median household income when combined with a second income.

•   A $40,000 salary translates to a monthly income of $3,333.33, a biweekly paycheck of $1,538.46, and a weekly income of $769.23.

•   Living on a $40,000 budget requires careful expense tracking, budgeting, debt management, and saving strategies. Location plays a significant role in how far the salary can stretch.

How Does a $40,000 Salary Compare to the American Median Income?

Here’s a look at how earning a $40,000 annual income compares to that of your fellow Americans.

•   According to the U.S. Census Bureau, the median household income in 2020 (when data was gathered) just surpassed $67,500.

•   More recently, the Bureau of Labor Statistics determined that the median weekly income of a full-time worker (salary or hourly) was $1,037, or nearly $54,000 a year.

While a $40,000 salary falls short of recent BLS definitions of the median personal income, it could successfully contribute to the Census Bureau’s picture of the median household income, when combined with a second income from a domestic partner.

Could this salary be considered good? Consider the following:

•   As an individual, you may find that $40,000 is a good entry-level salary.

•   Couples living the DINK lifestyle (which stands for dual income, no kids) and who each make $40,000 would be well above the median household income. Plus, they would have the additional costs of raising children as part of their budget.

$40,000 Salary Breakdown

It can be helpful to know what a $40,000 salary translates to as a monthly budget, weekly paycheck, or even hourly rate. This may help you compare career options and budget wisely, not to mention answer that question, “Is $40K a good salary?”

Here’s how it breaks down:

•   Monthly income: $3,333.33

•   Biweekly paycheck: $1,538.46

•   Weekly income: $769.23

•   Daily income: $153.85*

•   Hourly income: $19.23**

*Based on 260 working days a year
**Based on 2,080 working hours a year

And remember: That’s before taxes. If you are single and make $40,000 a year, your federal tax bracket is at 12%, but you may also owe state, city, and even school district taxes as well. It’s important to keep that in mind as you plan and assess how to pay bills and save with this salary.

Recommended: What to Do When You Get a Pay Raise: 12 Tips

Can You Live Individually on a $40,000 Income?

It is possible to live individually on a $40,000 income. In fact, you may be able to afford the average monthly expenses for a single person and work on your saving and investing goals.

Your location will have the largest impact on how far your dollars will stretch. Areas with a lower cost of living will likely be easier to afford for an individual on a $40,000 income.

As an individual, you can help your salary go further by looking for ways to save money, like:

•   Having a roommate or renting out a room in your house if you own one

•   Cooking at home instead of eating out

•   Buying a used car or, depending on where you live, relying on public transportation

•   Finding a higher-yield savings account, ideally over 1.00% APY

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.20% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
FDIC insurance.


Best Places to Live on a $40,000 Salary

If you can afford moving expenses and aren’t tied to a specific location for work, you can make your dollars go further more easily in certain locations in the United States. These are places with a lower cost of living. Here are the five cheapest cities to live in the U.S. this year, according to U.S. News:

•   Hickory, North Carolina

•   Green Bay, Wisconsin

•   Huntsville, Alabama

•   Quad Cities (Davenport-Bettendorf, Iowa and Moline-Rock Island, Illinois)

•   Fort Wayne, Indiana

However, there’s more to moving than just the expenses and the job. Before packing up a rental truck, consider whether you are comfortable leaving behind friends, family, and familiar places.

Recommended: Financial Moves to Make During a Job Transition

Worst Places to Live on a $40,000 Salary

A $40,000 salary might not go far enough in a city with a high cost of living. U.S. News research indicates these are the most expensive cities to live in:

•   Los Angeles, California

•   Miami, Florida

•   San Diego, California

•   Salinas, California

•   Santa Barbara, California

And if you were expecting to see New York City on this list, don’t worry: It’s not far behind, at number nine.

Tips for Living on a $40,000 Budget

So how can you (and possibly your family) live on a $40,000 budget? It’s important to cut costs, look for deals, pay down your debt, and build up savings for an emergency.

But living on a small salary doesn’t mean you have to completely give up entertainment. Remember that it’s OK to treat yourself to the nice things in life from time to time, as long as they are within reason. Everyone needs some fun in their life.

Here are some important tips for living on a $40,000 budget:

Carefully Tracking Your Expenses

First things first, get an understanding of your current spending habits. Your bank may offer tools that make this easy to analyze or you can download apps or check websites that make this easier.

Consider what bills you have every month, whether they are on auto pay, and, if so, when do they process? (This will help you schedule your bills and avoid getting hit with late fees.) Make a list of all your recurring expenses (mortgage or rent, student loans, car payment, phone, insurance, and utilities), and then analyze how much on average you’re spending on more variable expenses like groceries, gas, clothing, and entertainment.

What can you cut? What bills can you negotiate down? Where can you reallocate money toward savings?

Recommended: 20 Commonly Forgotten Monthly Expenses

Getting on a Budget

Now that you have an idea of what you’re currently spending, it’s time to design a budget around what you should be spending.

Start by plugging in necessary monthly expenses; these are things you must pay for each month, like your home, insurance, and food. Only once you can see that these basic needs are met should you begin to budget for things like dining out or new clothes, also known as wants vs. needs.

Not sure where to start? Do some online research on how to make a budget. There are different techniques including a line item budget and the 50/30/20 budget rule.

Use the 50/30/20 budget calculator below to get an idea of how your budget could be broken down.


Getting Out of Debt

As you consider how to manage daily life on a $40,000 salary, it’s wise to pay attention to the role that debt plays in your personal finances. Mortgage and student loan debt are structured to be paid off over decades, and can be considered by some to be good debt, as the interest rates are often relatively low and timely payments build your credit history. The rates on credit card debt, however, can be high (currently over 20% on new offers and 16% on existing accounts) and therefore more detrimental to your finances (and mental health). If you have serious credit card debt, it is wise to cut back expenses as much as you can so you can focus on paying off your debt.

You can tackle your debt using the snowball method or the avalanche method. You may also consider a balance-transfer credit card or a debt consolidation program, depending on your situation. A debt counselor who works for a nonprofit, like the National Foundation for Credit Counseling (NFCC ), can be helpful as well.

Saving Your Money

If you are debt-free (house, car, and student loan payments aside) and still have wiggle room in your budget after accounting for necessary expenses and a little bit of fun money, you can allocate some of your $40,000 salary toward your saving goals. These might include vacations, a house down payment, renovations, or a wedding. An emergency savings fund is often a good place to start.

Recommended: Don’t know how much to save for unexpected expenses? Try our intuitive emergency fund calculator.

Investing Your Money

After you have gotten a handle on your expenses, designed a budget, and opened a savings account, you might consider if there is enough leftover from your $40,000 salary for investing. This may not be possible if you live in a city or state with a high cost of living.

How can you start investing? If your employer offers a 401(k) match, consider taking advantage of that. It’s basically free money, so contribute enough to snag it.

You can also look for automated investing opportunities so you don’t have to worry about building a portfolio from scratch.

Managing Finances With SoFi

If your $40,000 salary is paid via direct deposit, think about opening a high interest online savings account. With direct deposit, you can get an array of perks from our SoFi Checking and Savings account. You’ll spend and save in one convenient place, plus you’ll earn a competitive APY and pay no fees, which can help your money grow faster. What’s more, qualifying accounts can get paycheck access up to two days early.

Make the most of your money with SoFi.

FAQ

Can you live comfortably on $40,000 a year?

Individuals can often live comfortably on $40,000 a year. Families, however, may struggle with this salary, especially in areas with a higher cost of living.

What can I afford making $40K a year?

If you are an individual living on $40,000 a year in an area with a low to moderate cost of living, you can afford typical monthly expenses like food, housing, and utilities and still have enough for some fun expenditures, like entertainment. If you are frugal and build a budget, you may also be able to pay down debt, build your savings, and even invest a little.

Is $40,000 a year considered middle class?

According to Pew Research, a middle-class family of three makes between $56,000 and $156,000. Families of that size who bring in $40,000 a year would not be considered middle class. However, an individual making $40,000 a year would likely qualify as middle class.

Photo credit: iStock/Prostock-Studio

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.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOBK0722021

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Feb
27
2024
At What Age Can You Get a Debit Card?

At What Age Can You Get a Debit Card?

By | Family Finances, money | Comments Off on At What Age Can You Get a Debit Card?

The minimum age to get a debit card with a checking account at a bank or credit union in your name only is 18. However, it’s possible for kids as young as age six to get a debit card when opening a bank account with a parent. There are also fintech companies that offer debit cards for kids with no minimum age requirements.

Getting your child a debit card can be a great way to introduce them to the basics of money management, as long as you do so wisely.

Key Points

•   The minimum age to get a debit card with a checking account at a bank or credit union is 18, but kids as young as six can get a debit card when opening an account with a parent.

•   Debit cards have age limits because opening a bank account is a legal agreement, and minors cannot enter into contracts.

•   Some banks offer teen checking accounts or joint checking accounts that allow minors aged 13 to 17 to have a debit card.

•   Fintech companies provide prepaid debit cards for kids with no specific minimum age requirements, offering more control and flexibility.

•   Giving minors a debit card can teach them financial responsibility, provide convenience, and prepare them for managing money in the digital age.

Why Do Debit Cards Have Age Limits?

Debit cards have age limits because the age requirement for a bank account is usually set at 18. When you open a bank account, you’re entering into a legal agreement with the bank. Since minors cannot legally enter into contracts, banks require you to be a legal adult in order to open a bank account in your name.

There is, however, an exception to this answer to “When can you have a debit card?” Minors under 18 can qualify for a debit card if they’re opening a bank account with their parent’s help. In that case, banks may agree to issue a debit card that’s linked to a teen checking account for a minor aged 13 to 17 or a joint checking account that’s shared by the teen and their parents.

The minimum age to open a bank account can vary by bank or credit union and go even younger. Chase, for example, offers a bank account for kids as young as 6 that includes a debit card. Parents must be current Chase customers to open the account, and they will own the account.

If you’re interested in getting your child a prepaid debit card that isn’t associated with a specific bank account, there are platforms that allow that with no minimum age restrictions for kids. You can link your child’s debit card to your account to deposit funds and set controls on when and how they can spend the money.

💡 If you’re 18 or older and ready, you can get a debit card with SoFi.

Do Minors Need to Have a Debit Card?

Whether your minor child needs to have a debit card can depend on their financial situation and your personal preferences. Some scenarios to consider:

•   If your teen has a part-time job or runs their own business, then it may be worthwhile to give them a debit card that’s linked to a checking account. They can deposit their paychecks or earnings into their account and use their debit cards to make purchases.

•   Likewise, you might want your child to have a debit card if they have bills they’re responsible for paying. For example, you might expect your 17-year-old to pay for their cell phone or car insurance. If they have a debit card, they could use it to pay those bills themselves, versus you having to pay them and collect the money from your teen.

•   Some parents want their kids to learn how to handle money and think managing a debit card responsibly is a good step in that direction. Still others may want their child to be able to, say, buy a snack after school without carrying cash.

•   Whether a minor should have a debit card can also be a question of maturity and their sense of personal responsibility. If you have a child who’s constantly losing or misplacing their stuff or doesn’t necessarily grasp how money works, then a debit card might do more harm than good. But if your child seems capable and you want to improve their money mindset, it could be a wise move.

Is It Possible to Get a Debit Card as a Minor?

It’s possible to get a debit card as a minor, but a young person will likely need a parent or guardian’s help to do so. The options for getting a debit card as a minor include:

•   Opening a teen checking account at a bank or credit union

•   Opening a joint checking account with a parent or guardian

•   Getting a prepaid debit card

Getting a debit card that’s linked to a checking account may be preferable if you’d like your teen or child to be able to deposit money without you having to reload a debit card. On the other hand, a prepaid debit card may offer more control.

For instance, you might be able to set limits on how much your child can spend per day or where they’re able to use the card.

You can also control when funds are deposited to their prepaid account. If you want them to complete their weekly chores on time, for example, you could make that a condition of adding money to their card.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

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Benefits of Having a Debit Card as a Minor

There are several good reasons to consider giving your teen or child a debit card.

•   Financial responsibility. Having a debit card can be a good way for kids to learn how to manage money, including how to budget and prioritize saving. Even if your child’s only source of income is allowance, a debit card can still be a helpful tool for teaching them personal finance.

•   Convenience. If your child has their own debit card, they can use it to pay for things themselves without having to borrow from you and then pay it back later. Carrying a debit card also means your child doesn’t have to keep cash on them, which could get lost or stolen.

•   Online purchases. Using a debit card online can spare teens the trouble of having to visit their favorite stores to shop. They can also use their debit cards to enroll in streaming services or make in-app purchases with your consent.

•   Emergencies. A debit card could come in handy in an emergency situation if your child or teen needs money unexpectedly. For example, if your 16-year-old runs out of gas, they could use their debit card to fill up if they’re near a gas station, without having to call you for help.

In terms of what are debit cards good for, the short answer is quite a bit. Learning how to use a debit card at an early age can make it easier for kids and teens to master more complex financial concepts, such as a student checking account or a credit card, as they get older.

When Is the Right Time to Get a Debit Card?

The right time to get a debit card for a minor depends on the child’s age, maturity, and financial needs, as well as the parent’s comfort level. Generally, it may be a good idea to get your child a debit card if they have some form of income, whether it’s allowance, cash received for good grades, money from working a part-time job, or income that’s the benefit of a side hustle.

If you’re considering giving your child a debit card, it’s important to talk to them about what a debit card is and how it’s designed to work. Your child should understand that when they use their debit card to pay, they’re spending real money, even if cash isn’t physically leaving their hands.

It’s also helpful to discuss safety so they know how to protect their debit card. For example, you can explain that they shouldn’t share their PIN or debit card number or let a friend use their card. You can also go over how to stay safe when using their debit card online or when withdrawing cash at an ATM.

What to Look for When Choosing a Debit Card

If you’re ready to get a debit card for your teen or minor child, there are plenty of options to consider. As you compare different debit cards for kids, here are a few things to keep in mind.

•   Traditional or prepaid. The first thing to consider is whether you’d like to get a debit card for your teen that’s linked to a bank account or a prepaid debit card option. You might check the options at your current bank first to see whether it’s possible to set up a teen or joint checking account with a debit card before looking at prepaid platforms.

•   Fees. Account fees can nibble away at your child’s balance, so it’s important to check the fees you might pay, either for a traditional debit card that’s linked to a bank account or for a reloadable debit card for teens. The list might include out-of-network ATM fees, reload fees for prepaid cards, or monthly maintenance fees.

•   Access. It’s also important to look at how your teen or child will be able to manage and access their money. This may involve deciding whether to opt for a traditional bank vs. an online bank. If you’re opening a teen checking account at a brick-and-mortar bank, they should have branch and ATM access, along with online and mobile banking. An online bank or prepaid debit card might offer online and mobile banking access only.

•   Parental controls. The level of control you’ll have with a debit card for kids or teens can depend on where it’s issued. Your bank may offer debit cards for minors with parental controls built in. But if not, you might need to search for another card option that allows you the level of oversight you prefer.

Recommended: Debit Cards vs. Credit Cards

The Takeaway

Teens and kids may qualify for a debit card, which can build financial literacy and money skills. However, finding the right one for them, with the level of parental control you like and the lowest fees, can take some research.

Opening a free checking account for your teen can be a great introduction to money, and it’s a simple way to give them access to a debit card. You might also be interested in switching banks yourself if you’re ready to take a break from paying high fees.

With SoFi, when you open an online bank account, you can spend and save in one convenient place, earn a competitive annual percentage yield (APY) and pay no account fees, which can help your money grow faster. Plus, qualifying Checking and Savings account holders with direct deposit can get paycheck access 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

At what age can a minor have a credit card?

Minors may be added to a parent’s credit card account as an authorized user as young as 13. Otherwise, they’ll need to be at least 18 with their own income in order to get a credit card in their name without a parent’s consent.

Is it better for a minor to have a debit or credit card?

A debit card can be a good stepping stone for a minor to learn how to manage money, without the risk of them creating debt. Once your child begins to learn the fundamentals of finance, you could add them as an authorized user to your credit card to help them learn how credit works.

Do all banks allow minors to have debit cards?

Every bank has its own policy with regard to who can have a debit card or checking account and whether that includes minors. If you’re unsure whether your current bank or credit union offers debit cards for minors, ask them. If the answer is no, you can look around for other banks that have teen or kids checking accounts that include a debit card. Prepaid cards may be another option.

Photo credit: iStock/jacoblund

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.

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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11 Tips for Surviving on $1,000 a Month

11 Tips for Surviving on $1,000 a Month

By | Budgeting & Goals, Family Finances, money | Comments Off on 11 Tips for Surviving on $1,000 a Month

Living frugally can be a smart way to save money. While adopting a frugal lifestyle is a choice for some people, it may be a necessity for others. For example, you might be trying to figure out how to live on $1,000 a month if you’re in school or you lost your job and are trying to find a new one.

Getting by on $1,000 a month may not be easy, especially when inflation seems to make everything more expensive. But it is possible to live well even on a small amount of money.

Key Points

•   Surviving on $1,000 a month requires careful budgeting, prioritizing essential expenses, and finding ways to save money.

•   Cutting down on housing costs by sharing living spaces or finding affordable options is crucial.

•   Utilizing public transportation or opting for a bike can help save on transportation expenses.

•   Cooking at home, meal planning, and buying groceries in bulk can significantly reduce food costs.

•   Exploring free or low-cost entertainment options, utilizing discounts, and avoiding unnecessary expenses are key to making $1,000 a month work.

What Does Living on $1,000 a Month Look Like?

If your income is limited to $1,000 a month, you might be wondering exactly how far it will go. Breaking it down hourly, weekly, and by paycheck can give you some perspective on how much money you’ll actually have to work with.

An income of $1,000 a month is….

•   $230.77 as a weekly salary

•   $46.15 daily

•   $6.15 an hour, assuming you work 37.5 hours a week full-time

•   $11.54 an hour, assuming you work 20 hours a week part-time.

The numbers above assume that you’re talking about net income, which means the money you bring in after taxes and other deductions.

By comparison, the median household income in the United States is $67,521, according to Census Bureau data. That works out to $5,626.75 in monthly income.

Is It Possible to Live Off of $1,000 a Month?

Living off $1,000 a month is possible, and it’s a reality for many individuals and families. Again, you might be living on a low income because you’re in school. So your monthly budget might look something like this:

•   Food: $250

•   Gas: $100

•   School supplies/equipment: $50

•   Rent: $400 (assuming you’re sharing with roommates)

•   Utilities: $100

•   Miscellaneous: $100

As you may notice, there isn’t room in this budget for debt repayment or savings.

In addition to students living on a frugal budget, this kind of scenario may apply to older people on a fixed income. Retirees may choose to cut their expenses to the bone once they stop working. And in some cases, money may be tight because you’re getting through a financial hardship and income is lower than normal.

Can you live well on just $1,000 a month? That’s subjective, as the answer can depend on how responsibly you use the money that you have as well as what the cost of living is in your area. Being frugal and flexible are essential to making life on a smaller income work.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 4.20% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
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How to Live on $1,000 a Month

Figuring out how to live on $1,000 a month, either by choice or when money is tight, requires some creativity and planning. Whether your low-income lifestyle is temporary or you’re making a more permanent shift to financial minimalism, these tips can help you stretch your dollars farther.

1. Assess Your Situation

You can’t really learn how to manage your money better if you don’t know where you’re starting from. So the first step is creating your personal financial inventory to understand:

•   Exactly how much income you have

•   Where that money is coming from

•   What you’re spending each month

•   How much you have in savings

•   How much debt you have.

It also helps to consider why you might need to know how to live on $1,000 a month. For example, if you’re knee-deep in debt because you’ve been living beyond your means, that can be a strong incentive to curb spending and live on less.

2. Separate Needs From Wants

Needs are things you spend money on because you need them to maintain a basic standard of living. For example, needs include:

•   Housing

•   Utilities

•   Food

•   Health care

Wants are all the extras that you might spend money on. So that may include dining out, hobbies, or entertainment. If you’re trying to live on $1,000 a month, needs should likely take priority over wants. One good budget plan can be the 50/30/20 rule, which allocates 50% of one’s take-home pay to needs, 30% to wants, and 20% to savings.

Here’s a hard truth, however: When working with $1,000 per month, you may have to get rid of most (or all) of the wants to make your spending plan work. As you make your budget, focus on the needs first and if you have money left over, then you can add one or two small extras back in.

For an idea of how your income could be broken up into needs and wants, use the 50/30/20 calculator below.


3. Lower Your Housing Costs

Housing might be your biggest expense, and, if you want to make a $1,000 a month budget work, getting that cost down can help. Some of the ways you might be able to reduce housing costs include:

•   Taking on one or more roommates

•   Moving back in with your parents

•   Renting out a room

•   Refinancing into a new mortgage

•   Selling your home and moving into something smaller or less expensive.

Are these options ideal? Not necessarily. Living with parents, roommates, or strangers who are renting out part of your home can mean sacrificing some of your privacy. Refinancing a mortgage or downsizing can be time-consuming and stressful.

But if you’re trying to get your budget to $1,000 or less, these are all legitimate ways to slash your housing expenses.

4. Get Rid of Your Car

Cars can be expensive to own and maintain. A car payment could easily run several hundred dollars per month. Even if you own your car outright, putting gas in it, buying tires, and paying for regular maintenance could still make a sizable dent in your income.

If you have the means to do so, selling your car could free up money in your budget. And you could use the money you collect from the sale to pad your savings account, pay down some debt, or simply get ahead on monthly bills.

If you do sell your vehicle, use an online resource like Kelley Blue Book to check your car’s potential resale value before setting a price.

5. Eat at Home

After housing, food can easily be a budget-buster, especially if you’re eating out rather than preparing meals at home. The good news is that there’s a simple way to cut your food costs: Ditch the takeout and restaurant meals.

Planning meals around low-cost, healthy ingredients can help you to spend less on food and still eat well. You can also save on food costs by:

•   Using coupons

•   Shopping sales and clearance sections

•   Downloading cash back apps that reward you with cash for grocery purchases

•   Relying on pantry staples that you can make into multiple meals

•   Trying Meatless Mondays (which means eating vegetarian on Mondays; meat tends to be a pricey buy)

•   Repurposing leftovers as much as possible.

You could also save money on food if you’re able to make things like bread, pizza dough, or pasta yourself using basic ingredients. When shopping at your local grocery stores, take time to compare prices online before heading out. And consider whether you can get in-season vegetables and fruits for less at a local farmer’s market.

6. Negotiate Your Bills

Some of your bills might be more or less unchanging from month to month. But others may give you some wiggle room to negotiate and bring costs down.

For example, if you’re keeping your car, you don’t have to keep the same car insurance if it’s costing you a lot of money. You can shop around and compare rates with different companies, or ask your current provider about discounts. You could also raise your deductible, which can lower your monthly premium, but keep in mind that you’ll need to have cash on hand to pay it if you need to file a claim.

Other bills you might be able to negotiate or reduce include:

•   Internet

•   Cable TV (bonus points if you can get rid of it altogether)

•   Cell phone

•   Subscription services (or better yet, cancel them for extra savings)

•   Credit card interest.

Also, if you are hit with a major doctor’s bill, know that it can be possible to negotiate medical bills. It’s definitely worth talking with your provider’s office about this.

There are also services that will handle bill negotiation for you. While those can save you time, you might pay a fee to use them so consider how much that’s worth to you.

7. Learn to Barter and Trade

Bartering is something of a lost art, but reviving it could be a great idea if you’re trying to live on $1,000 a month. For example, say you need to cut the grass, but there’s no room in your budget to buy a new lawn mower to replace your broken one. You could barter the use of your neighbor’s mower in exchange for a few hours of raking leaves at their place.

Or, say that you have kids who have outgrown their clothes. Instead of resigning yourself to using a credit card to buy new outfits for school, you could set up a clothes swap with other parents in your neighborhood. You can clean out clutter and get things you need, without having to spend any money.

8. Get Rid of Debt

Debt can be one of the biggest obstacles to making a $1,000 a month income work. If you have debt, whether it’s credit cards, student loans, or a car loan, it’s important to have a plan for paying it down.

When you only have $1,000 a month to work with, you may only be able to pay a little to your debts at a time. But you might be able to make each penny count more by making debts less expensive.

For instance, you might try a 0% APR credit-card balance transfer to save on interest charges. Or if you have loans from getting your diploma that have a high interest rate, you may consider the benefits of refinancing your student loans to reduce your rate and lower your monthly payment.

If you’re really struggling with how to pay off debt on a low income, you may want to talk to a nonprofit credit counselor. A credit counselor can review your situation and help you come up with a budget and plan for paying off debt that fits your situation. One option is the National Foundation for Credit Counseling, or
NFCC.

9. Adopt a No-Spend Attitude

When you want or need to know how to live on $1,000 a month, the fastest way to get overspending in check is to do a no-spend challenge. How this works: You commit yourself to not spending any money on nonessentials for a set time period.

A no-spend challenge can last a day, a weekend, a week, a month, or even a year. The time frame doesn’t matter as much as being all-in with the idea of not spending money on things you don’t need. And you might be surprised at how much money you’re able to save by avoiding wasteful spending.

10. Find Free or Low-Cost Ways to Have Fun

Living on $1,000 a month might mean you don’t have much room in your budget for fun. But you can still enjoy life without having to spend money.

Some of the ways you can do that include:

•   Checking out free events in your community, like festivals or fairs

•   Adopting hobbies that are low or no-cost, like walking or bike-riding

•   Checking out books, DVDs, and CDs from your local library

•   Volunteering

•   Visiting local spots that offer free admission days, like museums or aquariums.

Those are all ways to spend an enjoyable afternoon without costing yourself any money. And if you do want to do something that requires a little spending, you can use a site like Groupon to check for coupons or special deals to save some cash. Or try Meetup to see if any free or low-cost events of interest are brewing in your area.

11. Grow Your Income

If you try living on $1,000 a month and find that it just isn’t enough, the next thing you can do is figure out how to bring in more money. Fortunately, there are plenty of ways to do that.

Here are some ideas for making more money to supplement your income:

•   Increase your hours if you’re working an hourly job

•   Take on a part-time job in addition to your full-time job

•   Start an online low-cost side hustle, like freelancing or Pinterest management

•   Consider an offline side hustle, like walking dogs or shopping with Instacart

•   Sell things around the house you don’t need for cash

•   Check for unclaimed money online

•   Sell unwanted gift cards for cash.

The great thing about making more money is that you can try multiple things to see what works and what doesn’t. And you can also use found money, like bonuses, rebates, or refunds to help cover bills or shore up your savings.

The Takeaway

Making your budget work when you have $1,000 in monthly income is possible, though it might take some serious work. Drastically reducing expenses can be a great place to start, and bringing in more income can of course help too.

Changing banks is one more money-saving tip to know. When you open an online bank account with SoFi, for example, you can get checking and savings in one place. Plus, if you sign up with direct deposit, you’ll avoid the usual steep banking fees and earn a competitive APY. Qualifying accounts can get paid up to two days early. If you’ve never considered an online bank before, those are great incentives to make a change.

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

Where can you live on $1,000 a month?

The best places to live on $1,000 a month are ones that have an exceptionally low cost of living. In the United States, that may mean living in a rural area or a smaller city. When searching for the cheapest places to live, consider what you’ll pay for housing, utilities, transportation, and food – the non-negotiable “musts” in your budget.

How can I live on very little income?

The secret to living on a very little income is being careful with how you spend your money and minimizing or avoiding debt as much as possible. Keeping a budget, cutting out unnecessary expenses, and using cash only to pay can make it easier to live on a smaller income.

What is the lowest amount of money you can live on?

The lowest amount of money you can live on is the amount that allows you to cover all of your basic needs, including housing, utilities, and food. For some people, that might be 25% of their income; for others, it might be 75%; it really depends on your specific situation (household size, debt, etc.) and the cost of living. Residing in a less expensive area can make it easier to live on less of the money you make.

Photo credit: iStock/David Commins

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.

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Feb
27
2024
Can You Write a Check From a Savings Account?

Can You Write Checks From a Savings Account?

By | Family Finances, Life & Career, money | Comments Off on Can You Write Checks From a Savings Account?

If you’re wondering, “Can you write a check from a savings account?” the short answer is no. You can’t write checks from a savings account; instead, you can do so from a checking account, which is designed to provide that specific financial service. Savings accounts are primarily for earning interest on your deposits and transferring money occasionally.

Checks might seem like an old-fashioned payment method, but they are vital in specific transactions. For instance, you might need to pay the deposit for an apartment rental by check. In addition, personal checks are more secure for mailing payments than cash.

While you may want to draw funds from a savings account, that’s really not its purpose. Here, you’ll learn the details on this situation and also a possible work-around or two.

Key Points

•   Writing checks from a savings account is not possible; it can only be done from a checking account.

•   Savings accounts are primarily for earning interest and occasional money transfers, not for check-writing.

•   Checks are still important for certain transactions, such as apartment rental deposits and secure mailing of payments.

•   Savings accounts are designed for saving money, earning interest, and providing security for future needs.

•   While payments cannot be made directly from a savings account using checks, automatic transfers and mobile banking can be used for certain transactions.

Why You Can’t Write Checks from a Savings Account?

You can’t write checks from a savings account because these accounts are for earning interest on cash you leave alone. Federal law, in fact, prohibits check-writing from such accounts and may restrict how often you can transfer money out of a savings account, too.

Part of the way a bank makes money is to lend out your funds on deposit in a savings account for other purposes. You earn an annual percentage yield, or APY, on your deposit for giving the bank the privilege of using your money that’s in a savings account. In other words, your financial institution is depending on some savings-account money staying put, not being regularly transferred out via checks.

Checking accounts, however, are designed to allow customers to write checks and make purchases. They may not make much or any interest, but you can move your money out of these accounts via checks and electronic transfers. You can even write a check to yourself to access your money.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

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What Accounts Can You Write a Check From?

One of the ways that checking accounts vs. savings accounts differ is that you can’t write checks from a savings account. However, both checking accounts and money market accounts can let you move funds out via checks. You can choose from the following types:

•   Standard checking. This account typically provides a checkbook and debit card to make purchases. You might earn meager or no interest, but you can access your cash quickly. And, as with most kinds of checking accounts, you’ll be able to get cashier’s checks and certified checks if needed.

•   Premium checking. This is a checking account on steroids, with better interest rates, rewards programs, and customer perks. In addition, these accounts might have monthly fees or steep minimum balance requirements in order to get those enhanced benefits, so check your customer agreement carefully.

•   Rewards checking. Think of rewards checking as akin to a premium checking account but focuses on providing cash back for debit card usage. Again, it’s crucial to read the fine print for these accounts, as they usually require specific spending habits to be worthwhile.

•   High-interest checking. This kind of account, also known as high-yield checking, blends saving and checking together by providing higher interest rates while allowing you to write checks and use your debit card.

While this account attempts to provide the best of both worlds, you’ll likely receive a lower interest rate than a savings account. You also might have to fulfill strict requirements (such as a monthly high account balance or transaction count).

•   Student checking. High school and college students can access banking through these accounts. Student checking accounts typically provide leniency for overdrafts and promotional rewards for new customers. However, your account will change to a standard checking account when you lose student status, meaning you may lose the advantages of a student account.

•   Second chance checking. Customers with less than perfect banking histories can struggle to find a bank that will provide them with an account. Unpaid bank fees and repeated overdrafts can cast a shadow over your banking record, making financial institutions hesitant to work with you. Fortunately, numerous institutions offer second chance checking to give customers another shot at banking. These accounts might restrict spending or charge monthly fees to cover their risk but can help you get back on your feet.

•   Money market account. Many money market accounts also combine some of the features of savings and checking accounts. For example, money market accounts can earn higher interest than typical checking accounts (making them more like savings accounts) but allow you to write checks, as with a checking account.

Recommended: How to Sign Over a Check to Someone Else

What You Can Do With a Savings Account

While you can’t write checks with a savings account, the different types of savings accounts offer these functions and benefits:

•   Security. You can safely save for the future, whether that means building an emergency fund or saving for a down payment on a house. If you bank at a Federal Deposit Insurance Corporation (FDIC)- or National Credit Union Administration (NCUA)-insured institution, you will have up to $250,000 per depositor or shareholder, per insured institution for each account category.

•   Interest. As noted above, you’ll earn interest. The annual percentage yield (APY) will help your money grow.

•   Convenience. You can also use mobile banking with a savings account. This feature allows you to access your account from your phone to deposit checks, transfer money, and view monthly statements.

•   Perks. You may be able to snag some perks by opening a savings account, such as some banking fees being waived or a one-time cash bonus.

•   Automated savings. You can set up automatic transfers from your checking account to savings to help increase your savings in an effortless way.

•   Account linking. You can link your savings account as a backup to your checking to help avoid overdrafting.

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

Tips for Using a Savings Account to Make Payments

If your goal is to make payments from a savings account, you can’t use a check, as you’ve learned above. Plus, saving accounts may often have monthly transaction limits, meaning you can’t move money from the account for every monthly expense and random bill that may pop up. Generally, you can transfer money from a savings account six times a month.

You can, however, set up a small number of automatic transfers out of your savings account. Follow these tips:

•   Have your account details handy. Double-check your account and routing numbers to make sure you are transferring funds out of the right account.

•   Limit the bills you pay with your savings account. The less information is out there, the less likely it is to fall into a thief’s hands.

•   Don’t attempt more than your account’s transaction limit. Usually, plan on paying no more than six monthly bills with your savings account. Check with your financial institution, however, to find out your exact transaction limits.

•   Maintain an adequate balance. Transferring money from your checking account and depositing cash or paychecks into your savings account will help ensure you don’t overdraft the account.

Banking With SoFi

Savings accounts are excellent tools for earning interest and working towards your financial goals. However, they are less suitable for making payments because you can’t write checks from a savings account. Although you can make payments from savings accounts in a pinch, it’s better to use checking accounts for these transactions. After all, it’s what checking accounts are designed for.

If you’re looking for a banking partner who can provide the best of both checking and savings accounts, see what SoFi offers. When you open an online bank account, you’ll have the convenience of spending and saving in one place. Plus, with our Checking and Savings, you’ll earn a competitive APY and pay no account fees, two features that can help your money grow faster. Plus, you’ll receive both paper checks and a debit card to help you make payments.

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

Why do checks come from checking accounts?

Checks come from checking accounts because banks intend payments to flow frequently from these accounts. In addition, checking accounts are the most convenient way to deposit and withdraw money from a bank because you can withdraw money an unlimited amount of times per month.

Why can I not write checks with a savings account?

You can’t write checks with a savings account because the account is for saving money and earning interest payments. Banks don’t provide checks for a savings account because the intention is for you to save money and leave at least a chunk of it untouched in the account. On the other hand, checking accounts allow you to write checks.

Can I write any check from a savings account?

You can’t write a check from a savings account because that is not how they operate according to federal guidelines. You can save money and earn interest with a savings account, while a checking account allows you to write checks.

Photo credit: iStock/AndreyPopov

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.

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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