Nov

2023

How to Prepare Financially for a Divorce

By Julia Califano | Family Finances, Life & Career, money | No Comments

Going through a divorce can be an overwhelming experience. There’s already the emotional pain of divorce, and then partners must also divide up money and assets and break down the financial structure that they’ve built together.

Piled on top of the logistics of divorce, some people may find themselves managing money on their own for the first time in their lives. These added financial stressors can make a difficult situation even more challenging.

Fortunately, there are some simple things you can do prior to getting a divorce that can take some of the stress out of the process. While every couple’s situation is different, what follows is a basic roadmap for how to prepare for a divorce financially.

7 Steps to Financially Prepare for a Divorce

Divorces can range from being hard-fought battles in court to peaceful mediation that happen outside of the courtroom. Either way, when it comes to divorce and finances, the money eventually needs to be split up. Here’s how to make the process of dividing up assets go as seamlessly as possible.

💡 Quick Tip: Make money easy. Enjoy the convenience of managing bills, deposits, and transfers from one online bank account with SoFi.

Step 1: Gather Your Financial Statements

A good first step to preparing for a divorce is to gather current and past financial statements so you can get a full picture of your shared and individual accounts. Having quick access to all this information can also save time (and, in turn, money) when you consult a lawyer. Here’s what you may need:

• Checking, savings and investment account statements (past year)

• Current statements for retirement plans (IRAs, 401k plans, or pensions)

• List of assets acquired before and during your marriage (real estate, vehicles, boats, etc.)

• Debt statements and balances (mortgages, auto loans, personal loans, credit cards, and credit lines)

• Credit card statements (past year).

• Recent pay stubs

• Income tax returns (past three years)

Step 2: Document Your Assets

Since you’ll be dividing up all of your assets, it’s a good idea to take inventory of all of the assets you own (both individually and jointly), such as your home, car, and anything items with a high value. Collect receipts, photos or videos of each item, and note whether the asset is owned by you, owned by your spouse, or shared. You’ll also want to assign a value to each asset (if you own valuable antiques or collectibles, you might need to hire a professional appraiser).

Step 3: Track Your Finances

You’ll also want to begin tracking how much you’ve been spending each month — and on what. This will not only help you build a budget post-divorce, but it is also critical for your attorney (and later the judge) in deciding how to split assets and debts, and whether to award spousal or child support.

You can use your bank and credit card statements to come up with average spending from the past couple of years, including household bills, food, clothing, entertainment, home maintenance, transportation, child care, and anything else that you spend money on. Once you have a sense of what you’ve been spending, do your best to project future expenses. You can use previous years as a guide but also factor in potential future expenses (like a child’s school tuition and extracurricular activities).

Step 4: Prepare to Make Some Difficult Choices

Splitting financial accounts tends to be relatively straightforward, but dividing up “real” assets like your home and any other treasured joint possessions, can be more complicated, So it’s a good idea to think of anything that falls into that category and what will make the most sense for you and your spouse moving forward.

If you own your home, that is likely going to be the largest asset you’ll need to make a decision about. If the home is being supported by two incomes, neither you nor your spouse may be able to afford to stay there on your own. Often, the simplest choice is to sell the home and split the proceeds. However, if children are involved, and it’s financially feasible, one parent might opt to buy out the other to maintain some normalcy. What will work best for you and your spouse will depend on your unique personal and financial situation.

Step 5: Be Frugal

No doubt you’re aware that divorce can be expensive. The average cost of a divorce in the U.S. is $12,900. You could spend significantly less if there are no major contested issues, or it could run a lot more should you end up going to trial over several issues.

Either way, now is probably not a good time to run up large expenses, either individually, or as a unit. If you and your spouse don’t have money set aside for hiring a divorce attorney and other related expenses, try to agree about each spending a conservative and comparable amount, while continuing to use your joint and individual accounts.

This can be a good time to eliminate or pare back your expenses where possible. For example, you might cancel unused subscriptions and memberships, attempt to dine out less, and use the clothes that you own. There are tons of creative ways to be frugal — so you can do it in a way that aligns with your values.

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Step 6: Seek Out the Right Professional Help

If you and your spouse want to minimize legal expenses and think you can amicably split your assets, you might consider consulting a mediator. A mediator acts as a neutral third party to help you negotiate an agreement on the splitting of assets and making other arrangements (in some cases, custody of children) and could save you significant time and money.

If mediation is not an option, you’ll need to find a divorce attorney to handle your legal affairs and represent your respective sides in the negotiations (you’ll each need your own attorney). You might also consider getting help from a qualified financial adviser to make sure that all assets are divided, transferred successfully into new accounts, and reinvested, if necessary (again, you’ll likely each want your own financial adviser).

Step 7: Separate Your Finances

As you move towards divorce, you’ll want to set up your own checking and savings accounts and get your paycheck automatically deposited there. You’ll also need to redirect any direct deposits and update any automatic payment information. You can then start using the new accounts for all your own personal future deposits and expenses. The old joint accounts will need to be split between you and your spouse.

You may also want to consider opening your own retirement account (if you don’t have one). This is especially important if you are expecting to get money from your spouse’s retirement account as part of your divorce. Transferring the funds directly into your retirement account can help you avoid paying taxes on the money now.

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 much money should I save for a divorce?

The average cost of a divorce is $12,900. However, you could spend significantly less. A divorce with no major contested issues runs, on average, $4,100. Or you might end up spending more. Divorces that go to trial on two or more issues can cost as much as $23,300.

Should you separate finances before a divorce?

If you know divorce is inevitable, it can be a good idea to start the financial separation process as soon as possible. If your money is in a joint account, you can begin by opening a new individual checking account and savings account. Next, you’ll need to redirect any direct deposits and update any automatic payment information. Use the new account for all your own personal future deposits and expenses. You might opt to keep one joint account open, however, to pay for household expenses until you are officially divorced.

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.

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

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SOBK1023022

Nov

2023

How to Set and Reach Savings Goals

By Julia Califano | Budgeting & Goals, Growing Wealth, money | No Comments

Whether you want to save money for a trip to Japan, a down payment on your first home, or the wedding of your dreams, you are probably going to need a well-funded savings account. And for many people, that means implementing and sticking to a savings strategy.

A great first step to saving money is defining your savings goals. What is it that you’re working for? Whatever the answer is, having a specific goal — and not losing sight of it — can help you reach it. While getting to the finish line may require some planning and discipline, the reward will likely be well worth the effort.

Because living your best life probably requires having money saved, here are some strategies you might find helpful when trying to set and reach your savings goals.

1. Identifying Your Goals

There are some savings goals that are nearly universal, like retirement and an emergency fund, and others that will be unique to you. Everyone’s finances and goals are different. Before you can reach your savings goals, it’s important to know what they are. This is the fun part — you may want to spend some time dreaming and planning here.

Next, you’ll want to list those goals in order of priority. Keep in mind, priority doesn’t necessarily mean which happens soonest (although it could). For example, even though retirement is far away, it will likely be the most expensive savings goal a person will have during their lifetime. Therefore, it may rank higher in priority than other savings “wants,” such as a new television or an exotic vacation.

Because many people won’t be able to save for each of their big goals right away, ranking them in order of importance can help you determine which to work on first.

💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 4.20% APY, with no minimum balance required.

2. Determining Monthly Amounts

This is a necessary — and often eye-opening — exercise. First, list out your top two or three financial goals. Next, think about how much money you need to accomplish each goal and the time frame, in months, for accomplishing the goal. Then, divide the former by the latter.

For example, let’s say you want to save $6,000 for an emergency fund in one year (12 months), $10,000 for a wedding in four years (48 months), and $20,000 for a down payment in six years (72 months).

By dividing the savings goal by the number of months, you’ll find you need to save $500 per month for your emergency fund, $208 per month for your wedding fund, and $278 per month for your down payment.

This may be another exercise in prioritization, helping you hone in on what to focus on first.

Recommended: 10 Ways To Save Money Fast

3. Writing Down Your Goals

Research suggests that people who write their goals down are more likely to reach them than those who don’t. There could be a few reasons for this.

One is that a written list can serve as a practical reminder that you have goals to work toward. You can give yourself an extra visual cue by posting your goal (or goals) in a place where you’ll see it often, like on the fridge.

Writing down a goal may also help connect the creative, thinking part of the brain with the action-oriented and pragmatic parts of the brain. To translate your savings dreams into reality, it may be important to get as many parts of your brain and consciousness involved as possible.

You may find it valuable (and fun) to take this idea a step further and create a vision board for your goals.

4. Tracking Your Progress

There’s an old saying that goes “what gets measured gets improved.”

If you truly want to get better at spending and saving, then you may want to track both your daily spending habits and your long-term progress on your savings goals. This may feel difficult at first, but will likely get easier with practice and as you hone the methods that work for you.

With daily or weekly spending habits, there are lots of ways to track how you’re doing. If you don’t know where to start, there’s always the old-fashioned way — with a pen and paper. This is a great way to really wrap your head around where your money is going, and the act of writing down each “spend” may actually help you to spend less. Or, you could collect receipts and enter your expenses in an Excel spreadsheet or Google Sheet. Or, even easier, you may want to get a budgeting app (like SoFi’s) for your phone or other mobile device. These tools connect to your bank and credit card accounts and automatically track and categorize your spending.

With savings goals, it’s also possible to track your progress via pen and paper or using a spreadsheet — simply write down your goal and jot down your progress every time you make a transfer to your savings account. Budgeting apps are also a great way to track your savings, since they automatically import your transactions when you link your bank account(s).

5. Celebrating Small Successes

To help avoid savings fatigue and to keep the fire burning, don’t forget to treat yourself along the way. Positive reinforcement might be an important element to your success.

How might you do this? You don’t have to wait until you’ve reached your big goal to celebrate — you can give yourself some love throughout the journey. For example, if the goal is to save $10,000, then you might celebrate when you hit $5,000 in addition to when you cross the finish line.

Celebrating can be as simple as treating yourself to a hot chocolate or the fanciest coffee in town, but it can help to find a way to give yourself that mental victory.

6. Automating

If you’re like many people, you’re busy and not wild about taking on another chore. So, what can we do to make saving money less of a chore? One potential way to do this is to automate.

Automating is a simple and powerful way to make progress toward savings goals without having to think about it all the time.

To automate your savings, you might set up a recurring transfer from your checking account to your savings account on the same day each month, ideally right after you get paid. Financial experts refer to this strategy as “paying yourself first.” If you wait until you’ve paid all your bills and done your spending for the month to make a manual transfer, you might (a) forget and (b) not have anything left to move to savings.

7. Choose a High-Yield Savings Account

As you work toward your financial goals, you’ll want to make sure to put your accumulating funds in a high-yield savings account to maximize your money. A high-yield savings account is a type of federally insured savings product that earns rates that are much better than the national average. This allows your money to grow faster and can help you reach your savings goals sooner.

Some banks offer special, high-interest savings accounts that earn better rates than traditional accounts. One of the best places to look for high-interest savings accounts is online banks. Online banks, which save significant costs by not having to maintain branches, rarely charge monthly fees. They also typically offer rates that are much higher than those paid by traditional banks.

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.

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Nov

2023

8 Ways to Keep Your Finances Organized

By Julia Califano | Budgeting & Goals, money | No Comments

You try to set goals and stay on top of your finances. But sometimes life gets in the way and throws you off your game. You forget to pay a bill or accidentally overdraw your checking account — then kick yourself for getting hit with hefty fees.

Without an organized system in place, it’s easy to lose track of what’s coming in and going out every month. People with cluttered finances are more likely to miss payments, continue poor spending habits, and save less. Disorderly bills and budgets are not only stressful but can actually help drive you deeper into debt.

Organizing your money takes a little up-front time and effort but comes with a big payoff: It can help you live within your means, pay bills on time, reach your financial goals, and build wealth over the long term. Keeping track and organizing your finances also gives you a better sense of control over your financial life.

And, it’s not that hard to do, especially if you break the process down into small, manageable steps. What follows are eight effective ways to keep your finances organized and in check.

How to Keep Your Finances Organized

Whether you’re aiming to save for a big purchase, build an emergency fund, or invest for the future, a structured approach to managing your finances can make a significant difference. The following steps can help you stay on top of your financial life and save you money in the long run.

1. Set Some Financial Goals

Having a few clear, realistic financial goals is essential for staying organized. Knowing what you want to accomplish in the next months and years can guide your financial decisions. You can break down goals — like paying down debt, going on vacation, or putting a downpayment on a home — into smaller tasks and set deadlines to track your progress. This strategy can help motivate you to stay focused and disciplined with your finances. For example, brown bagging lunch might not feel like a pain if you have your sights set on a winter getaway to Mexico.

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

2. Create a Budget and Stick to It

One of the fundamental pillars of financial organization is creating a budget. Having a basic plan for spending and saving can lead to more financial freedom and a life with a lot less stress. Start by assessing how much, on average, is coming in and going out of your checking account each month. If you find that your monthly outflows tend to equal — or exceed — your monthly inflows, you’ll need to rejigger your spending.

There are all different ways to budget — the best approach is simply the one you’ll stick to. One simple framework is the 50/30/20 budget, in which you divide your monthly take-home income into three categories, spending 50% on needs, 30% on wants, and 20% on savings and extra debt payments. Once you have a budget in place, it’s a good idea to periodically check in and make sure you’re sticking to the plan.

3. Get Help From an App

There are a number of personal finance apps that are free to use on your phone and make it easy to organize your money. Basic budgeting apps, like Goodbudget, EveryDollar, and PocketGuard, allow you to connect with your financial accounts (including bank accounts, credit cards, and investment accounts), track spending, and categorize expenses so you can see where your money is going. Regularly reviewing your expenses will help you determine if you’re sticking to your budget plan, as well as identify any unnecessary costs and areas where you can cut back.

Automate Bill Payments

One way to make sure you always pay your bills on time is to automate the process. You can do this by setting up automatic payments for recurring bills, such as rent or mortgage, utilities, insurance premiums, and loan repayments. Simply log into each account and authorize the provider to debit your checking account or charge your credit card each month. Alternatively, you can use your bank’s online bill pay service. Just be sure to keep track of the payments you have automated, so you know when to stop them or update credit cards.

5. Put Saving on Autopilot

If you wait until after you pay your bills and do all your spending to move money into savings, you may not have anything left to transfer. Why not pay yourself first? Also known as automating your savings, this organizational step ensures you are always working towards your goals.

Simply set up an automatic transfer for a set amount of money from checking into a savings account each time you get paid. It’s fine to start small — since the transfer happens every month, even small deposits can grow to a significant sum over time. If you want to earn a competitive rate and pay the lowest fees on your savings, consider storing this money in an online savings account. Thanks to reduced overhead, online banks are typically able to offer more favorable returns than national brick-and-mortar banks.

💡 Quick Tip: Want a simple way to save more everyday? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.

6. Manage Mail as Soon as It Arrives

Despite living in a digital world, many important bills and documents likely still arrive in your regular mail. This might include stock statements, property tax bills, homeowners’ insurance bills, and medical bills. As a result, you’ll need a system for managing paper bills and statements. Generally, the most efficient way to deal with mail is to organize it as it comes in. You might create three “in” boxes or files labeled: “to pay,” “to file,” and “requires action.” Set a day and time each month to go through these boxes to make sure nothing gets ignored.

7. Organize Your Online Accounts

You likely have a number of online accounts — including bank and brokerage accounts, service provider accounts, and shopping accounts — each with a unique (a.k.a, hard-to-remember) password. It’s a good idea to make a list of all of your online accounts, including usernames and passwords, and keep it in a notebook stored in a safe place. Even better: Consider using a password manager tool, such as Dashlane, 1Password, or Apple’s built-in Keychain. These tools will start saving the passwords you use to log into your accounts and will automatically insert them into log-in forms. Typically, they will also generate hard-to-guess options when you sign up for new sites (no more “123456”).

Recommended: 11 Tips for Cleaning Up Your Finances

8. Make a Plan to Manage Debt

If you typically pay just the minimum on your high-interest debt, like credit cards, you are likely spending a lot on interest, while never getting ahead on your debt. Coming up with a system to knock down — and eventually eliminate — high-interest consumer debt can help you save money and make it easier to reach your financial goals.

To get a better handle on your debt, you may want to make a list of all your high-interest debts, including amounts owed and interest rate. Then focus your efforts on erasing one debt at a time while still making the minimum payment on all other debts. Where to start? You can use the debt snowball method and start with the smallest balance first, or use the debt avalanche method and pay down the highest interest debt first.

The Takeaway

If it feels like your money is all over the place and you’re living paycheck to paycheck without a plan, don’t get discouraged. You can get your financial act together one step at time.

By implementing some basic systems — like setting goals, creating a budget, automating payments and saving, and using an app that tracks your spending —- you can gain control over your finances and pave the way for a more secure financial future. Remember, financial organization is an ongoing process that requires consistent effort, but the rewards of financial stability and peace of mind are well worth it.

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 organize my personal household finances?

You can organize your personal finances by setting up a budget and putting some simple systems in place. You might, for example, put all of your regular bills on autopay so you don’t accidentally miss a payment and get hit with late fees. It’s also a good idea to automate savings by setting up a recurring monthly transfer from your checking account into your savings account right after you get paid.

For statements and bills that still come by regular mail, consider setting up an organization station with three in-boxes: “to pay,”“to file,” and “requires action.” Set a day and time each month to go through these boxes to make sure nothing gets ignored.

How do I organize my monthly bills?

Start by making a master list of all of your regular bills, including the provider, billing amount, and due date. To simplify payment (and avoid late payments and fees), consider setting up autopay for each bill. If you prefer to handle payments yourself, set aside a day and time each month that’s dedicated to bill paying. A structured schedule will help you meet all of your deadlines. An alternate approach is to pay each bill as soon as it comes in, then file it away.

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Nov

2023

Counter Checks: What Are They & How Do They Work?

By Alene Laney | Financial Independence, money | Comments Off

If you’ve ever sat down to pay bills only to realize you’ve run out of checks, you may be relieved to know you can use counter checks. Counter checks are temporary checks printed at your bank that can help you make payments in a pinch.

Even in our era of autopay and P2P apps, checks are still a popular way for many to transfer funds.

Key Points

• Counter checks are temporary checks printed by a bank that can be used for payments when personal checks are not available (such as when you first open an account or if you run out of checks).

• Counter checks can be obtained from a bank by requesting them, showing ID, and paying a small fee.

• Counter checks may not be accepted by all merchants and organizations due to their lack of personalization and information.

• Counter checks differ from cashier’s checks as they are drawn from personal accounts and are not widely accepted.

• Alternatives to counter checks include online bill pay, money orders, cashier’s checks, mobile app payment services, and paying over the phone.

What Is a Counter Check?

Counter checks, also called temporary or starter checks, are a set of plain, printed checks from your bank that include your account information and the bank’s routing number. They can be used like personal checks. (In terms of how long a check is good for, these are typically valid for six months, like standard checks.)

Counter checks may not have the personalization that a set of pre-printed checks would have. You may need to fill out your personal information normally found at the top left of a check (such as your address) on a set of lines instead.

Typically, you can get counter checks while waiting for your pre-printed checkbook to arrive in the mail. This might occur when you open a new bank account or simply run out of your usual checks. Counter checks can be useful for paying merchants who don’t accept electronic payments, mobile app payments, or debit cards.

How Do Counter Checks Work?

You may get some counter checks when you first open your account; otherwise, you must request them from your bank. Here’s what you’ll do:

1. Request counter checks from your bank (typically).

2. Bring and show your ID.

3. Wait a short time as the bank prints them.

4. Pay a small fee, usually around $3 for a sheet of three checks.

5. Use them just as you would a personal check. Just be sure to ask the recipient if they’re willing to accept a counter check before you fill it out. Some merchants are not comfortable accepting these non-standard checks.

When Would Someone Use a Counter Check?

Counter checks are useful in a few situations. If you need to pay someone with a check ASAP and you’re out of personal checks, then a bank counter check may be your best option. Or, if you recently opened a new checking account but haven’t yet received your printed checks in the mail, a counter check can enable you to pay a bill that’s due. Compared with a cashier’s check or a money order (learn more about these options below), they’re usually less expensive, too.

However, there’s an issue to note: Not all merchants, individuals, and organizations will accept a counter check in place of a standard check. Because a counter check does not have as much information printed on it as a typical check, some may reject it, skeptical that it is valid. It’s important to note this when planning to write a counter check. You may want to check first with the intended recipient to make sure it won’t be returned.

How Does a Counter Check Differ From a Cashier’s Check?

A counter check shouldn’t be confused with a cashier’s check. They’re both issued by your bank, but they work very differently. A cashier’s check is a special check that is actually drawn on the bank’s funds vs. your account’s funds.

Here’s a quick comparison of a certified check vs. cashier’s check.

Counter Check	Cashier’s Check
Funds come from your personal account	Funds come from the bank. They are guaranteed by the bank because you pay upfront for the amount on the check (plus a fee)
Not widely accepted	Widely accepted as a very secure form of payment
Printed without the amount of funds specified	Printed with the recipient and amount of funds specified
Written by the consumer	Written by the bank cashier
Fees are around $1 per counter check	Fees are around $10 to $20 per cashier’s check

Tips for Getting a Counter Check

If you know how to order checks, you are probably aware that the process can take a couple of weeks to get personal checks. Getting some temporary counter checks can be faster, but you’ll need to get them from your bank. If you feel you need them urgently, it may be wise to visit a branch in person. Be sure to bring your ID with you. They may be printed on the spot for you.

Writing a Counter Check

Writing a counter check is nearly the same as writing a personal check. The only difference is you may need to fill out some personal information if your bank hasn’t printed it on the check. This generally includes your name and address, though a merchant may also request your driver’s license number when you pay with a counter check.

To write the check, you’ll want to:

1. Write the date in the upper right hand corner.

2. In the “Pay to the order of” line, write the name of the recipient of the check.

3. Write the amount of the transaction in numerical form in the box to the right.

4. Write out the amount in words (say, “two hundred dollars”) on the line below it.

5. Include a memo in the bottom left corner, if you like, noting what the check is paying for.

6. Sign the check in the bottom right corner.

All of these elements are necessary in order for a check to be valid.

Recommended: Signing over checks to someone else

Pros and Cons of Counter Checks

While counter checks can serve as a temporary solution while you wait for your checks to arrive, it’s not a perfect solution. There are some advantages, as well as drawbacks to consider.

Pros of Counter Checks	Cons of Counter Checks
Immediately available	Not universally accepted
Act like a personal check	Fees can be high, as much as $3 per page of checks
	Not numbered
	Often may not have personal information pre-printed on the checks

Recommended: How to determine if a check is real

Alternatives to Counter Checks

You have other options for paying bills if you’re out of checks. Here are a few of the methods available to transfer funds.

• Online bill pay. A quick and easy way to send payment is to set up online bill pay through your bank. It’s usually free and incredibly convenient. You can add vendors to pay and then automate monthly payments for things like car payments, mortgages, student loans, and more.

Typically, your bank can pay merchants and organizations electronically, but if there’s a company that doesn’t accept electronic payments, you may have to do online payments manually or mail a check. In some situations, an online bill pay service may be able to write and mail the check for you.

• Money order. A money order is like a pre-paid check. You’ll pay the amount that you’re sending, plus a fee (typically just a couple or a few dollars), and you get a check issued by a third-party provider. You can often get money orders at a variety of locations, such as the post office, your bank, your grocery store and your favorite retail stores.

• Cashier’s check. A cashier’s check is a check you can buy from the bank where they guarantee the funds. The bank writes a check to any third party; you, in turn, pay the financial institution the amount of the payment, plus the fee for the cashier’s check (which may be in the range of $20). It’s considered a safe way to make a large payment.

• Certified check. A certified check is a check you get from your bank that guarantees the funds from your personal account. This kind of check signals to the recipient that the cash has been earmarked from the payer’s personal account. It can add a level of security and comfort for the payee.

• Mobile app payment services. There are a host of peer-to-peer or P2P payment options that make paying someone very convenient. Some of the most popular apps include Venmo, Cash App, PayPal, Google Pay, Zelle, and others.

• Pay over the phone. Some merchants will take a payment over the phone. You can provide your bank’s routing number and your account number, and they may be able to process a payment over the phone. You may also be able to use a debit card for payment.

Banking With SoFi

Counter checks are a useful tool if you run out of your standard checks or have recently opened a new checking account. These checks are quickly available, but they are usually not printed with all of the standard information, and not all merchants and organizations will accept them. Still, they may allow you to pay some pressing bills when other means are not available.

If you are in the market for a convenient and adaptable banking partner, consider SoFi Checking and Savings. We’ll help you bank better. When opened with direct deposit, a SoFi bank account offers no account fees, and you’ll earn a competitive APY.

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

Is a counter check the same as a personal check?

A counter check can be equivalent to a personal check, and it may be presented as legal tender like a personal check. The main difference is that a counter check is likely to lack the more detailed identifying information that’s pre-printed on a personal check.

Can I pay someone with a counter check?

Not all merchants take counter checks. Because they look temporary and are typically not numbered, businesses may not accept payment via counter check. If you need to pay bills with a counter check, make sure the recipient is willing to accept it before you fill it out and send it.

How long is a counter check good for?

Like a personal check, a counter check is typically good for around six months.

Photo credit: iStock/RyanJLane

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.

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.

SOBK0622013

Nov

2023

Discretionary Income Definition and Explanation

By Diana Kelly Levey | Budgeting & Goals, Financial Independence, money | Comments Off

Discretionary income is defined as the cash you have available to spend after your necessary payments are covered. Those necessities are typically made up of basic living expenses, such as housing, utilities, food, healthcare, and insurance costs. (In some cases, minimum payments toward debt may be included as well.)

So what does discretionary income equal in daily life? It’s the post-tax money you can put toward things like eating out, entertainment, travel, clothing, electronics, and gym memberships. You might think of discretionary income as paying for the wants in life vs. the needs.

In this guide, you’ll learn more about the definition of discretionary income, read examples of this type of income and how to use it, and understand how to calculate this money in your budget. It can be an important number to know, as you’ll see, especially if you’re repaying student loans.

Key Points

• Discretionary income is the money left after paying for necessary expenses like housing, utilities, food, healthcare, and insurance.

• It can be used for non-essential expenses like eating out, entertainment, travel, clothing, and electronics.

• Discretionary income is important for budgeting and can be used to pay down debt or save for goals like vacations or home improvements.

• Some people may not have discretionary income if they struggle to cover essential expenses or have variable income.

• Calculating discretionary income involves subtracting necessary expenses from take-home pay; it’s important to have a budget to manage that money effectively.

What Is Discretionary Income?

Discretionary income is the amount of post-tax income that is left over after you have paid for all the essentials of daily life. These expenses include your mortgage or rent, utilities, and car payments or bills, as well as food, healthcare, and occasionally clothing (if it is needed, not just wanted). To phrase it another way, no, a Netflix subscription or your AM latte isn’t a “necessity.”

It’s worth noting that not everyone has discretionary income; some people struggle just to cover the “essentials” when it comes to paying their bills.

• Gig, seasonal, and part-time workers: The concept of discretionary income can get a little more complicated if you aren’t a person who gets a steady paycheck. If you have a variable income due to the nature of your work (maybe you’re a gig worker or freelancer), you’ll need to make sure you have enough money set aside in savings if you have a shortfall.

If your income dips and you can’t pay for the basics in life, let alone have some discretionary income, that could mean you’ll get hit with overdraft or late fees or wind up with excessive credit card debt to pay off.

• Discretionary income and savings: Also worth noting (warning, buzzkill ahead): Discretionary income isn’t just to be spent on cool stuff and fun experiences. It’s wise to put a portion of it toward savings. Some people will include debt payments as part of the “necessities” bucket of your budget; others will say that a portion of discretionary income is what goes toward debt.

One key kind of debt to consider in this scenario: student loans. There are four programs for repaying federal educational loans in which your discretionary income can be a factor. It’s vital to make sure you have the right income-driven repayment plan (IDR) that works for your financial situation when it comes to paying down federal student loans.

What if despite your best efforts to pay back your loans, you are still feeling the financial pinch? It’s a common situation as basic bills and student loans conspire to vacuum up all your moolah. Refinancing your student loans to a lower rate can help free up additional discretionary income each month.

💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure mobile banking app.

7 Examples of Discretionary Income and Expenses

Now that you know what discretionary income is, it’s worth mentioning that the phrase is sometimes used interchangeably with discretionary expenses. To be clear, discretionary income is what is spent on discretionary expenses.

And what are discretionary expense examples? Here are several:

1. Entertainment and Eating Out

This category includes such expenses as dining out, getting drinks, splurge-y takeout food (pizza delivery, we’re looking at you!), and fancy coffees. In terms of entertainment, the following would be considered discretionary: Concert, play, and movie tickets; museum admission; books, magazines, and streaming services; and similar costs.

2. Vacations and Travel

Taking a vacation, whether you go to the other side of the planet or an hour’s drive away, is not a necessity, despite how you may feel about it.

3. Luxury Items

These expenses could be anything from a pricey sportscar to designer clothes to jewelry to wine. While clothing and a car may be necessities in life, when you pay extra for top-notch prestige brands, you enter the realm of discretionary expenses.

4. Memberships and Hobbies

Yes, joining a gym or taking up a musical instrument are admirable things. But they are not vital to your survival. For this reason, things like yoga or Pilates classes, crafting supplies, and similar expenses are considered discretionary.

5. Personal Care

A basic haircut or bottle of shampoo may not be discretionary, but pricey blowouts, manicures, massages, skincare items, and the like are.

6. Upgrading Items

If your current phone is functional but you get the latest one, that’s a discretionary expense. The same holds true for being bored with your couch and getting a new one or remodeling your bathroom just because.

7. Gifts

Of course you want to show you care for your loved ones. But buying presents for others isn’t vital to survival, so this should be earmarked as a discretionary expense.

Recommended: How to Save on Streaming Services

Income vs Disposable Income

If you are wondering how income vs. disposable income stacks up, here’s the difference. Income refers to all the funds you have coming in, whether from your salary, any side hustles, interest or dividends, and other sources.

Disposable income, however, is what is left of your post-tax money after you have paid for your necessities, as described above. If, say, you follow the popular 50/30/20 budget rule, 50% of your money goes toward needs (necessities), 30% would go toward wants (discretionary expenses), and 20% toward saving. Together, those account for all of your after-tax money, aka your disposable income.

💡 Quick Tip: Want a new checking account that offers more access to your money? With 55,000+ ATMs in the Allpoint network, you can get cash when and where you choose.

How Is Discretionary Income Used?

Discretionary income can be used for a number of fun things, from buying the latest mobile phone to taking a pal out for their birthday to spending a day at a theme park with the kids. You could also use discretionary income to make a future dream come true. You could, say, contribute to a fund for your next vacation or the down payment on a house. Another way to allocate discretionary income is to use it for home improvement projects, especially ones that could increase the value of your home. Heck, you could even save it in your bank account, plain and simple, if you wanted.

Also, it’s wise to recognize the fact that some people may need to use their discretionary money for an income-based repayment plan to pay down student loan debt. There may not be a lot of wiggle room there. Others must put this money toward paying down their credit card bills; those high-interest debts can grow over time and do damage to your credit score.

(One tip for those who get paid every other week: When you get an “extra” paycheck that doesn’t need to go to bills, consider it discretionary income that you could put toward an extra payment on debts or to toss into savings.)

How to Calculate Discretionary Income

One way to calculate your discretionary income is to calculate your take-home pay each month and subtract your “fixed” or “necessary expenses” from that. The money you have left over is your discretionary income which can be used for the kinds of expenses we highlighted above.

What if, when you tally your discretionary income, you wound up with a negative number? This means you do not have any earnings left over to address discretionary expenses. In this situation, it’s important to keep spending under control and look for ways to free up funds.

One other angle to consider about this topic: If you have student loans to pay off, discretionary income can be used for an income-based repayment plan.The federal government offers income-based plans, and each one has its own discretionary income requirements.

These programs often put your student loan payments notably under what you might otherwise pay. Some of the factors taken into consideration are income and family size; you also must meet certain requirements to qualify for these repayment plans. You can see how the options stack up by plugging your details into the federal government’s loan simulator tool.

What Is A Good Amount of Discretionary Income?

When you’re considering how much discretionary income you should have, you might want to consult a discretionary income calculator. Many options for these calculators are available online.

Hopefully you have some money left each month after you’ve paid your basic living expenses. As you look at your overall budget and discretionary income, you might benefit from exploring the 50/30/20 rule, as noted above.

Example of Using 50/30/20 Rule to Calculate Discretionary Income

If your monthly net (take-home) income was $5,000, $2,500 would be siphoned off for your “needs,” $1,500 would be allotted for discretionary income, and $1,000 would go toward savings and investments. This can be a really helpful way to understand how to “bucket” your money and keep your finances healthy.

As you think about discretionary income and related concepts, you’ll probably realize how important it is to have a budget; this will inform where your money has to go as well as what’s left after those bills have been paid. It will help keep you on track for your discretionary income, reining in excessive spending and guiding you toward saving well and staying out of debt. There are a variety of different budget methods; try a couple and see which works best for you.

💡 Quick Tip: When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.

Discretionary vs. Disposable Income

The phrases “discretionary income” and “disposable income” might be used interchangeably in conversations among your friends, but — sorry — that’s not necessarily correct.

• Disposable income is how much money you have left from your earnings after tax withholdings are taken out but before deductions are also removed. That’s likely going to be a much higher number than your discretionary income.

• Discretionary income is the amount left after your taxes and deductions (like health insurance, retirement contributions, etc.) are taken out, and then you’ve paid all of your essential living expenses (home, utilities, food, car).

It’s important to be aware that these definitions may be used differently in some circumstances, like if a court is going to garnish your wages or back-owed tax payments during a bankruptcy consideration. These are distressing circumstances, yes, but they happen every day to regular people, so it’s good to have the vocabulary down if you ever face these situations.

Get Ready to Bank Better with SoFi

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

FAQ

What is the meaning of discretionary income?

Discretionary income is defined as the cash you have available to spend after your taxes are deducted and necessary payments are covered.

What is an example of discretionary income?

Here’s an example of discretionary income: If your post-tax earnings were $100K and you spent $50K on necessities and $20K went into your retirement savings, the remaining $30K would be discretionary income.

What is the difference between discretionary and disposable income?

Discretionary income is the money that you spend on non-essential items, or the wants in your life vs. needs. Disposable income, however, is your total after-tax income.

Photo credit: iStock/Gearstd

SOBK0523026

How to Prepare Financially for a Divorce

7 Steps to Financially Prepare for a Divorce

Step 1: Gather Your Financial Statements

Step 2: Document Your Assets

Step 3: Track Your Finances

Step 4: Prepare to Make Some Difficult Choices

Step 5: Be Frugal

Step 6: Seek Out the Right Professional Help

Step 7: Separate Your Finances

FAQ

How much money should I save for a divorce?

Should you separate finances before a divorce?

How to Set and Reach Savings Goals

1. Identifying Your Goals

2. Determining Monthly Amounts

3. Writing Down Your Goals

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

4. Tracking Your Progress

5. Celebrating Small Successes

6. Automating

7. Choose a High-Yield Savings Account

8 Ways to Keep Your Finances Organized

How to Keep Your Finances Organized

Get up to $300 when you bank with SoFi.

1. Set Some Financial Goals

2. Create a Budget and Stick to It

3. Get Help From an App

Automate Bill Payments

5. Put Saving on Autopilot

6. Manage Mail as Soon as It Arrives

7. Organize Your Online Accounts

8. Make a Plan to Manage Debt

The Takeaway

FAQ

How do I organize my personal household finances?

How do I organize my monthly bills?

Counter Checks: What Are They & How Do They Work?

What Is a Counter Check?

How Do Counter Checks Work?

When Would Someone Use a Counter Check?

How Does a Counter Check Differ From a Cashier’s Check?

Tips for Getting a Counter Check

Get up to $300 when you bank with SoFi.

Writing a Counter Check

Pros and Cons of Counter Checks

Alternatives to Counter Checks

Banking With SoFi

FAQ

Is a counter check the same as a personal check?

Can I pay someone with a counter check?

How long is a counter check good for?

Discretionary Income Definition and Explanation

What Is Discretionary Income?

7 Examples of Discretionary Income and Expenses

1. Entertainment and Eating Out

2. Vacations and Travel

3. Luxury Items

4. Memberships and Hobbies

5. Personal Care

6. Upgrading Items

7. Gifts

Income vs Disposable Income

How Is Discretionary Income Used?

Get up to $300 when you bank with SoFi.

How to Calculate Discretionary Income

What Is A Good Amount of Discretionary Income?

Discretionary vs. Disposable Income

Get Ready to Bank Better with SoFi

FAQ

What is the meaning of discretionary income?

What is an example of discretionary income?

What is the difference between discretionary and disposable income?

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