Sep
01
2023
What Is Hedging & How Does It Work? Strategies & Examples

What Does Hedging Mean? How Does It Work? Strategies & Examples

By | Growing Wealth, invest, Investing | Comments Off on What Does Hedging Mean? How Does It Work? Strategies & Examples

Hedging is a type of investment strategy that seeks to limit risk exposure in different parts of your portfolio. Essentially hedging involves taking a position with one investment to offset the risk of loss in another investment.

Hedging methods vary widely depending on what the investor views as the main risks they face. Common hedges include derivatives like options and futures contracts, or investments in commodities like gold or oil, or cryptocurrencies, or fixed-income investments like Treasury bonds.

What Is Hedging?

You can define hedging as an investment that’s made to reduce the risks associated with another investment.

Most often, investors will hedge to protect themselves in the event that their investments go down in value and limit potential losses. While there are many ways to hedge, many investors go about hedging with options, purchasing securities that move in the opposite direction of the main investment.

Another common hedge is an investment whose price movements historically do not correlate to the main investment.

For investors, protecting a portfolio against downside risk can be as important as generating returns.


💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

How Does Hedging Work?

In many ways, hedging investments work like an insurance policy. A homeowner may purchase insurance to protect their home from fire or other potential risks. That insurance policy costs money, which is an investment of sorts. So if there’s a fire, that insurance may protect the homeowner from greater losses.

Hedging is like that insurance policy. Investors can’t protect against all risks. But with the proper hedges in place — the right insurance policy — they can protect their holdings from certain dangers. But, like insurance, those hedges cost money to make.

Hedging may also reduce an investor’s exposure to the upside of the other elements of their portfolio.

Pros & Cons of Hedging

In addition to investors, companies that operate with heavy exposure to the prices of certain commodities like oil, or whose business model only works in stable interest-rate environments, also use hedges to protect their business.

To understand the pros and cons of hedging, consider an airline, whose fuel costs impact the company’s profitability. The airline may have a trading desk whose sole job is to buy and sell options and futures contracts related to crude oil, as a way of protecting the company against the shock of a sudden upturn in oil prices.

The first pro of hedging for the airline is that those financial derivative instruments allow it to project its fuel costs with some degree of certainty at least a few months into the future.

The other pro of hedging comes when the price of oil skyrockets for whatever reason. In that case, the airline knows it can buy oil at the previously predetermined price in the oil futures contracts it owns.

The con of hedging would be the constant ongoing expense of maintaining it. The airline has to pay for the oil futures contracts, even if it never exercises them. Futures contracts expire on a regular basis, requiring the company to continue buying them. And if fuel costs don’t go up, then it’s likely that the futures contracts the airline buys will be worthless when they expire.

Recommended: What Is a Future’s Contract? How Do They Work?

The company also has to devote personnel to maintaining the portfolio of its hedges, to buy and sell the derivatives, and to periodically test the hedge to make sure it continues to protect the company as the markets shift. For the airline that represents money and talent that is diverted away from its core business.

The analogy for investors is clear. While hedges can protect an investment plan, they also come with a cost in time and money. And it’s up to each investor to determine whether the cost of a hedge is worth the protection it offers.


💡 Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, options trading can be risky, and best done by those who are not entirely new to investing.

Hedging Examples and Strategies

There are several ways that investors can use hedging to protect their portfolios.

Diversification

Portfolio diversification is probably the best known and most widely used risk management strategy. It relies on a broad mix of investments within a portfolio to help protect the portfolio from facing too large of a loss if one investment loses value.

A diversified portfolio will hold several distinct asset types to reduce its exposure to any single investment risk. For example, investors may balance out the risk of a stock holdings with bond securities, since bonds tend to perform better in markets where stocks struggle.

Spread Hedging

Spread hedging is a risk-management strategy employed by options traders. In this strategy, a trader will buy options with two separate strike prices to earn a small return and protect themselves against price movements in the security that underlies the options. In a bull put spread, for example, a trader might purchase one long put with a lower strike price and one short put with a high strike price.

Forward Hedge

Forward contracts are financial derivatives used mostly by businesses to protect themselves from changes in the value of a currency. For the purchaser, the contract effectively fixes the rate of exchange between two currencies for a period of time. The airline example discussed above is a forward hedge.

Delta Hedging

Delta hedging is a strategy used by options traders to reduce the directional risk of price movements in the security underlying the options contracts. In the strategy, the trader buys or sells options to offset investment risks and reach a delta neutral state, in which the investment is protected regardless of which way the asset price moves.

Tail Risk Hedging

Tail risk hedging refers to an array of strategies whose goal is to protect against extreme shifts in the markets. The strategies involve a close study of the major risk factors faced by a portfolio, followed by a search for the least expensive investments to protect against the most extreme of those risks.

For example, an investor overweight U.S. equities might purchase derivatives based on the Volatility Index, which tends to negatively correlate to the S&P 500 Index.

Binary Options Hedging Strategy

In a binary options hedging strategy, the investor buys both a put and a call on the same underlying security, each with a strike price that makes it possible for both options to be in the money at the same time. Binary options only guarantee a payout if a predetermined event occurs.

Forex Hedging

A forex hedge refers to any transaction made to protect an investment from changes in currency values. As a hedge, they may be used by investors, traders and businesses. For example, since GBP/USD and EUR/USD typically have a positive correlation, you could hedge a long position in GBP/USD with a short position in EUR/USD.

Another example of forex hedging is purchasing a currency-hedged ETF. Doing so gives investors the protection of a forex hedge against the investments within their ETFs, without having to actually purchase the hedge on their own.

Recommended: What Is Forex Trading?

Hedging for Hyperinflation

Inflation hedges are those investments that have outperformed the market when inflation is a major factor in the economy. While every inflationary period is different, with other global, market and macroeconomic factors in play, investors have historically found shelter — and even growth — during inflation by investing in certain assets.

Some investments that have a reputation as inflation hedges include precious metals such as gold, and commodities like oil, corn, beef, and natural gas. Other inflation hedges include REITS and real estate income.

Dollar-Cost Averaging

Some investors view dollar-cost averaging, which involves investing a set amount of money at preset intervals regardless of market performance, as a way to hedge against market volatility. That’s because dollar-cost averaging, by definition, means that you’re buying investments when they’re both high and low — and you don’t have to worry about trying to time the market.

Is Hedging Viable for Retail Investors?

Yes. While some hedging involves complicated options strategies, you can also hedge your portfolio by simply making sure that you have diversified holdings. If you’re investing to protect against certain risks, such as inflation or interest rate increases, that’s also an example of hedging.

The Takeaway

Hedges are investments, often derivatives, that help protect investors from risk. Hedging is a common strategy to use certain types of securities to offset the risk of loss from another security.

However, it’s possible to hedge some investments without investing in derivatives. Building a diversified portfolio of stocks and bonds, for example, or investing in real estate to protect against inflation risk are also examples of hedging.

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

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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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Aug
25
2023

Calculating If It’s Cheaper To Drive Or Fly Somewhere

By | Budgeting & Goals, money | Comments Off on Calculating If It’s Cheaper To Drive Or Fly Somewhere

Maybe you are heading up the California coast to visit Yosemite, or perhaps there’s a wedding coming up at a small town in the Midwest that you definitely can’t miss. You may be stymied about whether it makes more sense to drive to your destination or fly and which is kinder on your wallet. There are a variety of factors to consider, such as how quickly you need to get where you are going; how expensive airfare is vs. a rental car and hotel room; whether you love road tripping or perhaps hate flying; and more.

So before you start booking flights for a getaway or thinking about tuning up your car for an adventure across several states, take a look at whether it’s cheaper to fly or drive. It may be an obvious choice or a personal decision, but here’s how to size up the dollars and cents.

Pros and Cons of Driving vs Flying

It can be easy to assume that the main benefit of flying is saving time and the main advantage of driving is saving money. However, it’s not quite so simple. In fact, the pros and cons of driving vs. flying depend on the type of trip you’re taking, your priorities, and your personal preferences. Here’s a look at some of the factors worth weighing.

Pros of Driving

When thinking about driving vs. flying, there are plenty of good reasons to get behind the wheel rather than head to the airport.

•   When it comes to the “is driving cheaper than flying” question, the answer is often yes! It can be significantly cheaper to travel by car than by air, especially if you’re going with a large group of people. After all, six people flying to Vegas will each need their own ticket, but they can all pile into the same minivan.

•   Also, will you need a car when you get to your destination? If you’re going to, say, spend a week at a national park that’s a two-hour flight from home, it might be less costly to drive there. That way, you don’t need to rent a vehicle as well as buy plane tickets so the money you need to save in a travel fund could be a lower amount.

•   When considering the flying vs. driving conundrum, it’s worth noting that traveling by car can have other benefits beyond saving money. You can easily indulge in some sightseeing. Traveling by car offers flexibility so you can see the sights you want, whether that’s a quick detour through a national forest on your way across the country or planning a route that takes you from the Air and Space Museum in Washington, D.C., to the National Blues Museum in St. Louis, to the Buffalo Bill Museum in Colorado. You can have fun and create memories while saving money on family travel too.

•   Driving also means you can more easily access any type of food your heart desires, not just what’s available in the airport. Some people even plan their road trip routes to go through foodie cities — whether that means enchiladas and sopapillas in Santa Fe or pierogies in Pittsburgh — around dinner time to take advantage of local restaurants. (Of course, making smart choices about where to stop and what to order is one way to save money on a road trip.)

•   Driving is likely more comfortable than being constrained to an airplane seat. If you’re six foot six and aren’t interested in spending five hours with your knees touching your chin, you might be more inclined to ride out a trip in the car — where you can stop to stretch as often as you need.

•   If you’re traveling with a pet, such as a large dog, a car could be more comfortable for both of you as well.

One other benefit? Science shows us that the anticipation that builds in advance of a trip may lead to a happiness boost before the trip and could even help you enjoy the vacation more. That means that a long drive to get to your vacation destination might make the trip even sweeter when you finally do arrive.

Cons of Driving

Let’s be honest, though: When thinking about diving vs. flying, hitting the road has its downsides, too, however.

•   One of the more significant disadvantages, of course, is that you can’t just sit back and relax while you’re driving — you’re the one responsible for making sure the car gets there safely.

•   It also can take more work to plan a trip, as you have to choose what route you’ll take, where you’ll stay, and whether you’ll be hitting drive-throughs from California to New York or making reservations at noteworthy restaurants along your route. If you don’t do that prep work, you may end up piling into any motel you can find and grabbing food at any dingy rest stop. Nothing like driving for hours with greasy fast-food bags stinking up your car with stale french fry smell, right?

•   There’s also the consideration of the cost of gas and wear and tear to your car — though there are, of course, steps you can take to increase mileage and save money on gas. When you get on the road, you are risking a flat tire or worse, so it’s worth thinking about how you’d handle a roadside emergency. And the fact that you need to bring your A game and alertness for a long-haul trip.

•   And we can’t forget one of the main reasons many people choose to fly vs. drive: it takes a whole lot longer to drive than to fly. Think about cruising cross-country by car versus hopping a red-eye from Los Angeles to New York: One takes days, the other takes hours.

Pros of Flying

Booking a plane ticket is often the best option when deciding whether flying vs. driving is the best way to travel.

•   It’s faster — a whole lot faster! If you’re taking a business trip to attend a crucial half-day meeting in another city, your highest priority might be the speed of flying in and out. That time-saving advantage is one of the biggest pros when it comes to choosing to fly. A trip that could take days of driving might only take hours in the air.

•   Air travel can be more relaxing. You’re free to close your eyes and snooze away the hours until you arrive at your final destination. There’s no question of what route to take, where to stop, and when you’ll leave and arrive — the airline has that all figured out for you. You can take off from New York and wake up in L.A. ready to roll, without the exhaustion of a multi-day road trip holding you back.

•   Flying can be cheaper than driving. How, you ask? If your road trip involves an overnight stay at a hotel, it might tip the car travel into more expensive territory. The driving vs. flying cost might wind up surprising you!

Cons of Flying

Of course, there are downsides to flying to mull over also.

•   You’ll pay a premium in exchange for a speedy arrival and the convenience of flying. It is often more expensive to fly than to drive — possibly a lot more expensive. And if you are traveling with your squad or family, that price differential will be magnified.

Sometimes, on short flights, the time differential between flying and driving isn’t that much. If you’re thinking of taking a 60-minute flight versus a five-hour drive, it might be a wash when you think about getting to the airport, going through security, waiting to board, retrieving your luggage…you might actually be better off driving in terms of time invested.

•   You might also have to sacrifice a little personal space and dignity when flying. Airplane seats can be a tight squeeze, and more and more people are packed onto flights. This means that you can pretty much count on being kind of uncomfortable while you engage in a silent but cutthroat battle with your seatmate over who gets to use the single armrest.

•   And if you’re a nervous flier, the anxiety of air travel might outweigh the benefit of getting to your destination sooner.

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

Is It Cheaper to Fly or Drive?

For many people, the factor of whether it’s cheaper to fly or drive will determine how they travel. While you may be tempted to merely compare ticket prices to gas prices to decide which one is cheaper, don’t forget to take into account extra costs like eating out, luggage fees, and hotel rooms. These can wind up emptying out your checking account rather quickly! Let’s break this down for you in a bit more detail.

Calculating the Cost of Driving

Here are a few travel costs of driving to consider:

•   Gas

•   Hotel rooms

•   Eating out

•   Car maintenance

•   Possibility of having to rent a car if you don’t own one or yours isn’t available

•   Tolls

Hotel Rooms

There is of course a huge price spread in hotel rooms. If you are going to stay in a motel when driving, it will be much more affordable than pulling into a city and staying at a posh hotel fee where even garaging your car can be a considerable expense.

Maybe, however, you could use points from your rewards credit card to book a room, or perhaps you are a frequent guest at a hotel chain and could bring the cost down. These are among the many ways to lower hotel costs.

Opportunity Cost of Time Spent Driving

Another thing to consider is what you lose if you spend more than, say, a day driving. Do you have to take unpaid time off from work? Do you need to hire childcare since your kids are in school while you’re away? Think through the implications before you opt for a long haul on the highway.

Calculating the Cost of Flying

Now, think about the costs associated with flying:

•   Ticket

•   Seating choice

•   Luggage fees

•   Eating out

•   Transportation to and from the airport

•   Airport parking

•   Car rental, if needed

Rental Cars

The cost and availability of a rental car can vary tremendously. If you are renting a car in a small suburb, it likely won’t cost as much as hopping into the driver’s seat over Memorial Day weekend at a major city’s airport. Your destination city, location of car pickup and dropoff, size and style of car, and timing will all matter.

You can scan what rental company or credit card rewards might lower the price if you need to rent a car after a flight.

Accessing Remote Areas

Another factor to consider is where you’re heading to. Not all locations are easily and affordably accessed by plane. For instance, if you are heading to a destination wedding in the Rockies over the summer, you may find that the direct flights that were plentiful and lower-priced during ski season have become sparse, booked-up, and pricier than you expected.

Or you might find that the closest airport is hours away from your destination, so you will be renting a car and driving anyway. That could tip the balance and lead you to decide to drive the whole way vs. flying.

💡 Quick Tip: Bank fees eat away at your hard-earned money. To protect your cash, open a checking account with no fees online — and earn up to 0.50% APY, too.

A Rule of Thumb for Deciding Which Saves You More Money

As far as rules of thumb, some say for trips of around 600 miles or shorter, it’s wiser to drive.

For longer trips, the value of driving will decline as the distance increases, unless of course you want to experience the pleasures of a road trip and stop off at some other places en route.

Obviously, there are also such variables as whether you are traveling a common and readily available route, such as from New York, New York, to Orlando, Florida, or if you are covering ground between two Western US locations that have infrequent and expensive flights.

Luckily, in this day and age, you don’t need a map and a calculator to figure out which transportation method will be more cost-efficient. You can easily use an online calculator like this one from Travelmath or this
one from BeFrugal to get an idea of how travel costs may compare whether you are driving or flying. Thankfully, technology is here to help you make the best choice for whatever trip you may be planning. Bon voyage!

SoFi: Better Banking at Home and on the Road

Technology isn’t just making travel-planning better; it’s improving banking too. And at SoFi we use it to bring you smart, seamless, and super-simple ways to manage your money.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

Is driving cheaper than flying?

Driving typically costs less than flying, but if you wind up needing to pay for lodging en route, it might not be as good a deal. You can use online tools to compare driving and flying costs for different itineraries.

How much more expensive is flying than driving?

Flying is typically more expensive than driving, but it’s important to consider other factors. For instance, if you fly to your destination, will you then need to rent a car? It can be helpful to use online tools to compare costs and find the best deal for the particular itinerary you have planned.

Is it more energy-efficient to fly or drive?

In recent years, studies have indicated that flying may be better than driving. However, the answer to this question depends on how many people are in your party. When multiple people share a road trip, the emissions per person are lowered. This, in turn, makes driving more environmentally friendly than taking to the skies. But if the choice is flying or driving cross-country solo, you’d be better off with the plane.

Should you drive 5 hours or fly?

If you drive five hours at 60 miles per hour, you will cover about 300 miles. That is considered a fairly short trip and so you may well be better off driving.

Is it better to drive 12 hours or fly?

If you drive 12 hours at 60 miles per hour, you will cover about 720 miles. That’s a significant distance, and it will deprive you of a day and a half of productive time, whether that means earning money or taking care of your family. Only you can assess which option makes more sense, based on cost, scheduling, and other factors.

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SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

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Aug
23
2023
How to Use a Personal Loan for Loan Consolidation

How to Use a Personal Loan for Loan Consolidation

By | Debt Payoff, Financial Independence, personal_loan | No Comments

If you have multiple loans or credit cards with high interest rates, you might feel like you are continually paying interest and not making much headway on the principal of the debt. By consolidating those debts into one loan — ideally with a lower interest rate — you may be able to reduce your monthly payments or save on interest. Using a personal loan to consolidate debt can be one way to accomplish this goal.

This guide tells you everything you need to know about how loan consolidation works, what types of loans benefit from consolidation, and when to start the consolidation process.

Key Points

•   Loan consolidation is the process of combining multiple debts into one, usually using a new loan or line of credit to pay off existing debts.

•   Types of loan consolidation include student loan consolidation, credit card consolidation, and general loan consolidation.

•   Loan consolidation can help simplify finances, lower interest rates, and shorten the time until debt is paid off.

•   Downsides to loan consolidation include potentially high interest rates, fees, and the possibility of adding to debt if credit cards are used again.

•   Using a personal loan for loan consolidation can be a financially savvy move if you have a good credit history and score.

What Is Loan Consolidation?

Loan consolidation, at its most basic, is the process of combining multiple debts into one. Usually, this means using a new loan or line of credit to pay off your existing debts, consolidating multiple payments into one.

For example, imagine you have the following debt:

•   $5,000 on a private student loan

•   $10,000 in credit card debt on Card A

•   $10,000 in credit card debt on Card B

Your private student loan may have a high interest rate, and your credit card interest rates probably aren’t much better. Each month you’re making three different payments on your various debts. You’re also continuing to rack up interest on each of the debts.

When you took out those loans, maybe you were earning less and living on ramen you bought on credit. But now you have a steady job and a good credit score. Your new financial reality means that you may qualify for a better interest rate or more favorable terms on a new loan.

A personal loan, sometimes called a debt consolidation loan, is one way to help you pay off the $25,000 you currently owe on your private student loan and credit cards in a financially beneficial way.

Using a debt consolidation loan to pay off the three debts effectively condenses those debts into one single debt of $25,000. This avoids the headache of multiple payments with, ideally, a lower interest rate or more favorable repayment terms.

Recommended: Using Credit Cards vs. Personal Loans

What Types of Loan Consolidation Are Available?

There are different types of loan consolidation. Which one is right for you depends on your financial circumstances and needs.

Student Loan Consolidation

If you have more than one federal student loan, the government offers Direct Consolidation Loans for eligible borrowers. This program essentially rolls multiple federal student loans into one. However, because the new interest rate is the weighted average of all your loans combined, it might be slightly higher than your current interest rate.

You may also be able to consolidate your student loans with a personal loan. If you’re in a healthy financial position with a good credit score and a strong income (among other factors), a personal loan might give you more favorable repayment terms, including a lower interest rate or a shorter repayment period.

Consolidating federal student loans may not be right for every borrower. There are some circumstances in which consolidating some types of federal student loans may lead to a loss of benefits tied to those loans. By the way, you don’t have to consolidate all eligible federal loans when applying for a Direct Consolidation Loan.

Credit Card Consolidation Loan

If you’re carrying balances on multiple credit cards with varying interest rates — and those interest rates are fairly high — a credit card consolidation loan is one way to better manage that debt.

Credit card loan consolidation is the process of paying off credit card debt with either a new, lower interest credit card or a personal loan that has better repayment terms or a lower interest rate than the credit cards. Choosing to consolidate with a personal loan instead of another credit card means potential balance transfer fees won’t add to your debt.

General Loan Consolidation

Let’s say you have multiple debts from various lenders: some credit card debt, some private student loan debt, and maybe a personal loan. You may be able to combine these debts into a single payment. In this case, using a personal loan to consolidate those debts would mean you would no longer have to deal with multiple monthly payments to multiple lenders.

Awarded Best Personal Loan by NerdWallet.
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Why Consider Loan Consolidation?

There are many reasons to consider loan consolidation, but here are some of the most common:

•   You’re a minimalist. Did you join in the “pandemic purge”? If your home looks less cluttered and you’d like your finances to match, you might be thinking about financial decluttering by consolidating some of your high-interest debt into one personal loan that has a lower interest rate or terms that work better for your budget.

•   Your financial circumstances have improved. Maybe you spent some time living off student loans to finish your degree, and now you’ve started your dream job. You have a steady salary, and you’ve taken control of your finances. Because of your financial growth, you may be able to qualify for lower interest rates than when you first took out your loans. Loan consolidation can reward all that hard work by potentially saving you money on interest payments.

•   Your credit card interest rates are super high. If thinking about the interest rate on your current credit cards makes you want to hide under your desk, consolidating those cards with a personal loan may be just what you’re looking for. High interest rates can add up over the time it takes to pay off your credit card. Using a personal loan to consolidate those cards can potentially reduce your interest rate and help you get your debt paid off more quickly.

Are There Downsides to Loan Consolidation?

Using a personal loan to consolidate debt may not be the right move for everyone. Here are some things to think about if you’re considering this financial step.

Potentially High Interest Rate

Not everyone can qualify for a personal loan that offers a lower interest rate than the credit cards you want to pay off. Using a credit card interest calculator will help you compare rates and see if consolidating credit cards with a personal loan is worth it for your financial situation.

Fees May Apply

Looking for a lender that offers personal loans without fees can help you avoid this potential downside. Keep an eye out for application fees, origination fees, and prepayment penalties.

Recommended: Find Out How a Balance Transfer Credit Card Works

Putting Your Assets at Risk

If you choose a secured personal loan, you pledge a particular asset as collateral, which the lender can seize if you don’t pay the loan according to its terms.

Possibility of Adding to Your Debt

The general idea behind consolidating debt is to be able to pay off your debt faster or at a lower interest rate — and then have no debt. However, continuing to use the credit cards or lines of credit that have zero balances after consolidating them into a personal loan will merely lead to increasing your debt load. If you can get to the root of why you have debt it may make it easier to remain debt free.

The Takeaway

Using a personal loan to consolidate debt can be a financial savvy move — especially if you have the credit history and score to qualify for a low interest rate and favorable loan terms. Consolidating multiple credit cards and loans with a single personal loan can help simplify your finances, lower the interest you pay, and shorten the time until you’re debt free.

If you’re thinking about consolidating credit card or other debt, a SoFi Personal Loan is a strong option to consider. SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

Learn more about unsecured personal loans from SoFi.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Student Loan Refinance
SoFi Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org). SoFi Student Loan Refinance Loans are private loans and do not have the same repayment options that the federal loan program offers, or may become available, such as Public Service Loan Forgiveness, Income-Based Repayment, Income-Contingent Repayment, PAYE or SAVE. Additional terms and conditions apply. Lowest rates reserved for the most creditworthy borrowers. For additional product-specific legal and licensing information, see SoFi.com/legal.


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

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

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22
2023
Mother with child on floor

Top Budgeting Tips for Single Parents

By | Budgeting & Goals, Family Finances, money | No Comments

Single parents typically carry a lot of weight on their shoulders, paying for their child’s food, clothes, medical care, after-school programs, and more.

It can be challenging to make ends meet and avoid credit card debt. Saving for the future (including college) can be difficult.

But that doesn’t mean it’s impossible. There are smart strategies that help make it possible for single moms and dads and their kids to thrive. Establishing a basic budget, knowing how to handle taxes, and whittling down debt can all play a part in boosting your financial wealth.

Here, learn some important financial moves for single parents.

9 Ways to Budget As a Single Parent

Setting up a simple budget can be a smart move for a single parent. It can help you take control of your cash and also make your money work harder for you.

1. Crunching the Numbers and Creating a Single Parent Budget

A great way to get a better financial path is to first figure out where you currently stand and come up with a monthly budget.

How to budget as a single mom or dad is similar to what anyone else would do. You can do this by gathering your financial statements for the past several months, then using them to figure out your average monthly income (after taxes), including any child support or alimony you receive.

Next, you can tally up your fixed expenses (monthly bills) and variable expenses (clothing, food, entertainment) to see how much, on average, you are spending each month.

Ideally, you want your monthly inflow to be larger than the outflow — that way, you have money left over for savings and paying off debt. One smart technique can be the 50/30/20 budget rule, which divides your income into three parts: 50% for needs, 30% for wants, and 20% for savings and paying off debt beyond the minimum.

If your current income isn’t high enough to make that work, you can re-jigger the percentages and come up with a spending and saving plan that works for you.

2. Trimming Expenses in Your Single Mom Budget

Next, you need to figure out how to live on a budget.

If you find yourself breaking even or, worse, going backwards each month, you may next want to look hard at your list of expenses and start searching for ways to save money.

A key single parent budgeting move is to hone in on your recurring bills to see if there are any ways to lower them. You may now be living on a single income, which can involve some lifestyle tweaks. You might be able to switch to a cheaper cell phone, for example. Or, maybe you can find a better deal on car insurance or ditch your cable subscription.

You can also look for ways to cut everyday spending, such as breaking a morning coffee shop habit, cooking more often and getting less take-out, and using coupons (say, via RetailMeNot or Coupons.com) whenever you shop.

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

3. Opening an Interest-Bearing Account

Once you start freeing up some money each month, it can be a good idea to start siphoning it off into a high-yield savings account. This can help you create some financial security for your family, as well as help you reach short-term goals, like going on a vacation or putting a downpayment on a home.

Even if you can only afford to set aside $25 or $50 per month, it will begin to add up.

Some good places to stash cash you may need in the next two or three years include a high-yield savings account, an online savings account, or a checking and savings account. These accounts typically earn more interest than a standard savings account, yet allow you to have easy access to your money when you need it.

You may want to keep an eye out for fees, and shop around for financial institutions that won’t charge you monthly and other account fees (which can take a bite out of your hard-earned savings).

Get up to $300 when you bank with SoFi.

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4. Prioritizing Emergency Savings

Expensive problems you can’t plan for often come up, like a car or home repair, taking a child to urgent care, or a sudden loss of income. Without a cushion, small money problems can quickly balloon into big ones if you are forced to run up high interest credit card debt to deal with them.

As you start building savings as part of your monthly single parent budget, it can be wise to prioritize emergency savings. Experts often recommend having at least three- to six-months worth of living expenses stashed away in a separate savings account where you won’t be tempted to spend it. That way it’s there when you need it.

5. Paying Off Your Credit Cards

A debt elimination plan can make a significant change in your monthly cash flow. When creating a budget for a single mom (or dad), it can be a good idea to leave room for credit card payments that are higher than the minimum.

You may want to start with the debt that has the highest interest first since borrowing from those creditors is costing you the most money. However, if you’re likely to get discouraged because it’s taking a long time to pay off that debt, you can start with the lowest balance debt. Getting some small debts paid off may motivate you to keep going.

Whatever debt you target, you can then pay more than the minimum payment on that debt while continuing to pay the minimum on others, with the goal to eliminate them one by one.

Another option: personal loans for single moms can help pay off the debt and substitute a lower-interest payment for what you were paying the credit card company. This may be an avenue to explore.

6. Planning for the Future

Once you’ve mastered your day-to-day finances, you may want to look toward your two big long-term financial security goals: retirement and your children’s college education.

If you can’t comfortably save for both at the same time, you may want to begin with retirement. While your kids can likely get loans for college, there aren’t loans for retirement.

You may want to start by contributing to any employer-sponsored 401(k) plan. If your employer is matching contributions, it can be a good idea to chip in at least enough to get the match (otherwise you’re turning away free money!). Or you can set up an IRA; even $25 or $50 a month at first is a start.

When you’re in the habit of regularly contributing to a retirement savings account, you may want to turn your attention to saving for college: An ESA (education savings account) or 529 college savings fund can help you save towards college expenses while getting a tax break.

💡 Quick Tip: Want a simple way to save more each month? Grow your personal savings by opening an online savings account. SoFi offers high-interest savings accounts with no account fees. Open your savings account today!

7. Automating Your Finances

As a single parent, you may be super busy, making it easy to pay bills late simply because you forgot. Automating your finances can simplify your budget (and your life) and help ensure you don’t get slapped with expensive fees or interest charges for being late with payments.

A good place to start is to set up autopay for all your recurring bills, either through your service providers or your bank. This way you don’t have to stay on top of due dates and remember to make every payment.

Automating can also be a great idea when it comes to saving. Often referred to as “paying yourself first,” you may want to set up an automatic transfer of money from your checking to your savings account on the same day each month, perhaps right after your paycheck gets deposited. This prevents you from spending those dollars or having to remember to transfer the funds to your savings at a later time.

8. Increasing Your Income

If your budget is super tight even after cutting expenses, then you may want to find ways to increase your income. This can help take a lot of the stress off budgeting as a single mom or dad.

There are many ways you can increase your income. For starters, if you’ve been at your job for a while and are performing well, you may want to consider asking for a raise. It can be helpful to research what the industry average pay is for your position with your experience to get an idea of how much you should ask for.

Another way to increase your income is to start a side hustle, like walking dogs, becoming a virtual assistant, taking on freelance work in your profession, selling your crafts, becoming a tutor, caring for other people’s kids, or offering music lessons.

9. Taking Advantage of Tax Breaks

Tax credits for single vs. married people can vary. When you’re budgeting as a single mom or dad, it can be smart to be aware of all the tax benefits you may be entitled to. A tax credit is directly subtracted from the amount you owe in taxes, while an exemption means that amount is deducted from your total income before your taxes are calculated.

Here are few tax benefits that may be worth investigating:

•   Filing as “Head of Household” instead of “Single.” If you meet the requirements, you may be able to get a higher standard deduction.

•   The child tax credit. If you share equal custody with your child’s other parent, only one of you can claim this. You may want to consider alternating years.

•   The earned income tax credit. Single working parents with low to moderate incomes often qualify.

•   The child and dependent care credit. If you’ve been paying for childcare so that you can work (or look for work), you may be entitled to this. But only one parent can claim it each year.

The Takeaway

Budgeting as a single mom or dad can be challenging. With some simple financial planning, however, you can start to feel less stressed about money and get closer to both your short- and long-term goals.

Key steps for single moms and dads include taking a close look at your monthly cash flow, trimming expenses, paying off your credit cards, taking advantage of tax benefits for parents, and saving a little each month to create financial security. If you’re looking for a simple way to stay on top of your single parent budget, you may want to consider if you have the right banking partner.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

How do single parents survive financially?

Single parents can survive financially by taking control of their money and budgeting, managing expenses, building up an emergency fund and savings, and minimizing debt. Budgeting for single moms and dads is important since you are likely the only income stream so every dollar counts.

How can a single parent afford everything?

To afford everything (meaning all the expenses related to raising a child), single parents can budget wisely, seek child support, bring in additional income, and seek government assistance if needed.

How much should a single parent have in savings?

It’s important for single parents to have an emergency with a minimum of three to six months’ worth of living expenses set aside. This can help if there’s an unexpected medical or car repair bill or if you are laid off; since you don’t have another income in the family, this is a very important move. Beyond that, experts recommend saving 20% of your salary if possible.

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The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

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

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

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.

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21
2023
How Can I Pay My Bills When I Lost My Job?

Paying Bills When You’ve Lost Your Job

By | Budgeting & Goals, Financial Independence, Life & Career, money | Comments Off on Paying Bills When You’ve Lost Your Job

Figuring out how to pay your bills when your usual income stream is interrupted by job loss can be a difficult task. You probably know to cut back on dining out and movie nights, but what can you do about bills for your rent, student loans, and other vital expenses?

Plenty of people confront this situation, and there are ways to navigate this challenge. If you are wondering how to pay bills when you lose your job, it’s a matter of knowing how to recognize the most pressing bills, organize your assets, and seek additional income and assistance if needed.

Here, learn more, including:

•   Which bills to prioritize if you lose your job.

•   How to develop a survival budget.

•   Where to access funds until you find your next job.

What Bills Should I Prioritize?

If you’ve lost your job, you may feel as if you can’t pay all your bills. In this situation, it’s crucial to prioritize certain ones to make sure you can meet your basic necessities. This means looking at your list of bills and determining ones that should be at the top of your list (or close to it).

In addition to the bills that keep your daily life running, you also want to consider the damage unpaid charges can do to your credit rating. The goal is to balance these factors with the funds you do have available.

Bills you should probably prioritize include:

Rent

Having a roof over your head is important for you and those who live with you, so contact your landlord as soon as possible to discuss alternative payment arrangements. Perhaps you can negotiate lower payments for a window of time. Otherwise, if you don’t communicate and don’t pay, you could find yourself facing eviction.


💡 Quick Tip: Want to save more, spend smarter? Let your bank manage the basics. It’s surprisingly easy, and secure, when you open an online bank account.

Mortgage Payments

If you have a home loan, falling behind on payments can have serious consequences, one of which is foreclosure. Non-payment can lead to default and the bank has the right to recoup their property (aka the home) and sell it to attempt to make back the money it lost.

If you’re wondering what to do about loans when you’ve lost your job, contact your lenders as soon as possible. Many offer forbearance or alternative repayment programs.

Student Loans

Falling behind on student loans could mean you’ll go into default. In some cases, the lender may have the right to garnish your wages. If you’re handling student loans during a job loss, consider applying for an income-driven repayment plan for federal student loans or contacting your private lender to see what options are available.

Car Loans

You’ll most likely need your car to run errands or look for work. Staying on top of payments for your loan or lease can help ensure you won’t risk having your vehicle repossessed.

Insurance

Non-payment could result in denial of coverage, which might not be helpful if you need to see medical treatment or are in a traffic accident, for instance.

Utilities

Not paying these types of bills can result in your electricity, water, phone, and internet being shut off. These are obviously vital for daily life and, in terms of connectivity, job hunting.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

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How to Create a Survival Budget

If you’ve lost your job, it’s important to create a survival budget to help prepare for the lean times ahead. This type of budget only takes into account the bare necessities with whatever savings or income sources like unemployment benefits you currently have.

The main goals of a survival budget: to ensure you and your family are taken care of, and then turn your attention to any creditors as necessary. What this means is that even without a job, you pay the bills that will ensure you can survive first — such as food and housing.

Taking Stock of Your Expenses

To start, look at all of your current expenses and eliminate anything that isn’t really and truly a necessity.

•   You can’t get rid of your food expenses, but you can temporarily cut back on dining out. Cook your meals instead, and ditch your takeout coffee habit for now.

•   If you have a cell phone, you can consider downgrading your service for a cheaper plan to save some money.

Look at the funds you have available for the next couple of months as you job hunt. Deduct the priority expenses, and then evaluate what is left and how you can budget those funds. Be strict with yourself: Now is the time to unsubscribe from all those streaming services and save your money for what’s vital.

If you’re not sure if you have enough cash to pay for the necessities and debt payments, it’s best to seek options like forbearance and deferment — negotiate with your lenders to see what you can do.

Where Can I Turn for Money?

Here are some income sources you can turn to when you’re unemployed. It’s hard to pay bills with no job, but these resources may get you through a tough time:

Credit Cards

Using credit cards or even taking out a personal loan when unemployed can be a quick source of funds if you need to make purchases such as groceries and gas. While the interest rates tend to be high, you’ll have a grace period before your balance is due, giving you a buffer to get another income source.

Otherwise, you can make the minimum payment for the time being and make a plan to pay it back once you’re employed again.

Also, see if you can negotiate with your card’s issuing company; you might be able to delay credit card payments. You may also want to explore balance transfer credit card offers, which give you a window of low or no interest.

Retirement Accounts

Tapping into a retirement account like a 401(k) or an IRA is typically seen as the last resort because the downsides typically outweigh the benefits. However, if you’re running out of resources and you have a decent chunk in there, you may not have another choice.

You can choose to tap into your retirement accounts in the following ways:

•   Take out a 401(k) loan: Depending on the terms of your 401(k) plan, you may be able to borrow up to a certain amount — usually up to $50,000 or half of your vested amount — and pay it back within a predetermined amount of time (in most cases, five years). Keep in mind you could face additional penalties if you don’t pay back the loan, such as the loan amount being subject to taxes. In addition, loan and management fees may apply.

•   Withdraw from your retirement accounts: If you have an IRA or taxable brokerage account, you can make withdrawals. Keep in mind with IRA accounts, you may be subject to a penalty and taxes on the amount you withdraw.

Government Assistance

You’ll want to find out how unemployment works if you lose your job; it can help get some cash flowing your way. Those funds can help you pay for your necessities as you seek other work.

If you’ve been unemployed for a while or face mounting pressures on things like an unexpected medical expense, you may be able to seek other forms of government assistance. These sources can be helpful if you feel as if you’ve lost your job and can’t pay your bills. To see what you may qualify for, you can search on Benefits.gov , your local state or municipal office, and even local charity organizations and churches.

How Setting Up a Bank Account Can Help You When You Are Not Working

When you’re unemployed, setting up a bank account (if you don’t already have one or one you love) may seem like the last thing on your mind, but doing so can help. For one, it can help you to keep track of your finances and apply for products such as credit cards and loans if you need these sources of income.

Plus, many banks offer tools to help you budget your money, a useful feature considering you need to watch your money more carefully. These pros of opening an account can make this moment of unemployment a good one to explore your options.

How to Budget and Save with a Bank Account

Here are some ways in which you can make a budget and save using a bank account when you are unemployed and navigating the job market:

•   Divide money into multiple checking or savings accounts for each type of expenses so you can ensure you have enough money for necessities as well as bills.

•   Set up automatic transfers so you can ensure you’re setting aside money from any income to save or pay bills on time.

•   Set up direct deposit for unemployment benefits or government assistance.

•   Set up card controls or features from your bank to restrict spending.

•   Turn on balance alerts to notify you when your account falls below a certain balance, so you can decide to pause or delay certain purchases.

•   Earn interest with a high-interest savings account.

Alternative Sources of Possible Income

For some people, the above options for money won’t be a good fit; for others, additional funds will be needed. If you have learned how to apply for unemployment and taken other steps to get money but are still seeking other sources of income, consider these options to get cash flowing:

•   Borrow from friends and family.

•   Look for work on freelance marketplace sites like Upwork and Fiverr.

•   Sell things you own or make online via eBay, Etsy, or other sites.

•   Participate in paid market research.

•   Look locally for jobs like dog-walking.

•   Explore passive income ideas, including renting out your car or your tools.

Protecting Your Finances from Future Job Loss

There are also steps you can take to bring in income and prepare for any future financial setbacks you may endure. Consider these options:

Starting a Side Hustle

A side hustle is a gig you start that doesn’t have to be full-time but fits into pockets of time you have available. One of the key benefits of a side hustle is bringing in income.

Side hustles can include anything from driving a rideshare to delivering food. You might sell your nature photography online or help local businesses with their social media part-time.

Building an Emergency Fund

Starting an emergency fund can help protect your finances if you were to lose your job. This involves saving money so it’s there if you are laid off or encounter an unexpected expense, such as a major car repair or dental bill.

In terms of how much money should be in an emergency fund, aim for three to six months’ worth of basic living expenses. Of course, it’s fine to build that up over time versus coming up with the whole amount. Even putting aside $20 a month is a start. And by keeping the funds in a high-interest savings account, you’ll help it grow.

It’s important to know when to use an emergency fund. Losing one’s job is an emergency; it’s exactly what the money is there to pay for. However, the opportunity to travel at a deeply discounted rate or buy designer shoes for 50% off are not good reasons to tap this account.

Starting a Budget

Developing a budget and following it can help you get through challenging financial moments and thrive in good times. A budget helps you balance the money you have coming in, your spending, and your saving. It helps you get a better handle on your financial situation and make adjustments in real time.

•   One popular budget is the 50/30/20 budget rule. This says that, of your take-home pay, 50% should go to basic living expenses, 30% to spending on your wants (such as eating out), and 20% should go to savings and debt payments beyond the minimum.

•   If you have lost your job, you can minimize the 30% by trimming back your spending on wants as much as possible and then attributing more to the basic living expenses and debt payments.

•   The 20% saving figure can be a way to plump up that emergency fund that can help sustain you during a job loss.

The Takeaway

Paying bills when you lose your job can feel stressful, but it’s not impossible. Some key steps may include prioritizing your bills and focusing on budgeting for the bare necessities. It’s also wise to negotiate lower or delayed payments where possible and look for other interim streams of income while you look for your next job.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

What happens to debt when you lose your job?

Your debt does not go away when you lose your job. You want to keep paying at least the minimum due. However, you may be able to negotiate a way to lower your interest rates or defer payment while you are out of work. Contact your creditors and see what can be worked out.

What bills should I pay first?

When you are unemployed and need to pay bills, prioritize basic living expenses, such as housing, food, and healthcare. It’s also important to stay current on loans, such as student or car loans.

How do you budget if you are unemployed?

If you are unemployed, focus your budget on paying for your basic living expenses (food, shelter, healthcare, etc.) and paying the minimum on your debt. Trim down your discretionary spending; negotiate with creditors to keep debt manageable; and look into borrowing or earning additional funds.

Photo credit: iStock/Delmaine Donson

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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

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

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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.

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.

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.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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