Aug
27
2024

Guide to Achieving Financial Minimalism: 12 Ways

By | Debt Payoff, Financial Independence, money | Comments Off on Guide to Achieving Financial Minimalism: 12 Ways

Minimalism is a lifestyle choice that centers on embracing simplicity and eliminating physical, mental, or emotional clutter. Financial minimalism is an extension of that idea. It advocates for spending less on material items and investing your time, money, and energy into experiences that enrich your life in some way.

Becoming a financial minimalist can help you to improve your money situation if you’re able to pay down debt, grow savings, and invest to build wealth while still enjoying life. Adopting a minimalist finance approach can take some getting used to, but can have a significant payoff, including less financial stress.

Read on to learn:

•   What financial minimalism means.

•   What the benefits of financial minimalism are.

•   How to practice financial minimalism.

What Is Financial Minimalism?

There’s no set definition of financial minimalism or what it means to be a financial minimalist. Broadly speaking, financial minimalism is about taking a “less is more” point of view when it comes to spending on unnecessary things and focusing more of your attention, money, and energy on experiences and purchases that add value to your life.

Minimalist finance emphasizes being intentional about how you use your money. Rather than spending money impulsively or mindlessly, you’re considerate of whether a particular purchase might offer any lasting benefit. Instead of clearing out the junk in your home, you’re clearing out the clutter in your financial life.

In this way, becoming a financial minimalist can alleviate some money stress. You have guardrails in place for spending, you likely make fewer purchases, and you hopefully have less debt to worry about as well.

💡 Quick Tip: Most savings accounts only earn a fraction of a percentage in interest. Not at SoFi. Our high-yield savings account can help you make meaningful progress towards your financial goals.

How Does Financial Minimalism Work?

Financial minimalism works by requiring you to be conscious of how you spend money. Becoming a minimalist with money doesn’t mean you live a deprived lifestyle. Instead, you choose to include only those things in your life that are meaningful to you and align with your values and minimalist belief.

Here’s what financial minimalists don’t do:

•   Spend money aimlessly, without thought to what they’re spending it on

•   Rack up high-interest credit card debt for unnecessary purchases

•   Live above their means and spend more than they earn

•   Forget about planning for the future and their long-term goals

•   Neglect saving and investing.

Because financial minimalists don’t do these things, they also don’t worry as much about money, as mentioned above.

A full 88% of adults feel some level of financial stress, and 65% say finances are their biggest source of stress, according to an April 2024 survey by MarketWatch Guides. Adhering to a minimalist finance strategy could help you to overcome the money stress in your life.

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Benefits of Financial Minimalism

The exact benefits financial minimalism can deliver will depend on how you apply it. But generally, financial minimalism can benefit you in the following ways:

•   Minimalist finance can help you reduce or eliminate unnecessary spending from your budget.

•   Spending less allows you to save more or use extra money in your budget to pay off debt more quickly.

•   You may be less likely to run up new debts if you’re living within or below your means.

•   Minimalism can help you clarify and prioritize needs vs. wants in your budget.

•   Being intentional with spending can help you to plan out your financial goals and direct money toward the things that matter most to you.

•   Your home is likely to be less cluttered with “stuff,” since you’re cutting back on unnecessary spending.

•   Your mind may feel less cluttered as well if you’re not constantly worrying about how much debt you have or how to stretch your budget and bank account until your next payday.

Those are all good reasons to consider minimalism. It can be an especially wise path if you’re interested in how to gain financial freedom for yourself and your family.

Tips for Achieving Financial Minimalism

Ready to give financial minimalism a try? These tips can help you create a personal financial plan for embracing a minimalist lifestyle.

1. Removing Monthly Subscriptions

Streaming and subscription services can seem like a money-saver if it allows you to cut the cable cord. The problem is these monthly fees can add up, and many people end up paying for subscriptions they don’t use. That can include not only streaming services bit also gym memberships, subscriptions for apps or financial products like credit reporting, magazine subscriptions, and other recurring memberships.

Auditing your subscription services can help you find ones that you aren’t using and can afford to cut out. Even eliminating $25 or $50 a month in unnecessary subscriptions can free up money that you can use for something else.

💡 Quick Tip: Tired of paying pointless bank fees? When you open a bank account online you often avoid excess charges.

2. Budgeting

A budget can be essential for managing your money and pursuing a minimalist lifestyle. When you have a budget, you have a plan for how you’ll spend each month. If you don’t have a budget, it’s a good idea to make one (even a basic line-item budget) before tackling anything else on this list.

Here’s how you make a budget:

•   Add up your monthly after-tax income.

•   Make a list of basic living expenses (your needs, including debt payments).

•   Make a second list of everything else you spend money on (your wants).

•   Subtract expenses from income.

Ideally, you have money left over after doing the math. Those funds might go towards savings goals. If you don’t, you’ll need to go back to your expenses to see what you can reduce or eliminate in order to bring your budget in line.

3. Being Mindful of All Your Purchases

Financial minimalism is all about not spending money on things you don’t need. If you struggle with impulse spending, you might try imposing a 48-hour waiting period on purchases that you didn’t plan for in your budget. That cooling off period can give you time to decide if it’s something you really need.

You could also try a no-spend challenge where, for a certain period of time, you challenge yourself not to spend money on anything that isn’t necessary. No coffee to-go, movies on-demand, and so on. Some people pull this off as a 30-day no-spend challenge.

4. Cutting Eating Out and Focusing on Eating at Home

Eating out can kill your budget and sabotage your financial minimalist efforts. Planning meals at home and grocery shopping only for the items on your list can be an easy way to get food spending under control.

If you’d still like to eat out occasionally, you can set up what’s known as a sinking fund just for dining out and add a little money to it every payday. For example, you could save $20 per month in the fund, then once you hit $100 you could treat yourself to a meal out. That way, you still get a reward while being disciplined about saving and planned spending.

5. Not Showing Off for Social Media

FOMO or fear of missing out can lead you to make poor financial decisions in order to keep up with what everyone on Instagram is doing. If you’re tempted to show off on social media and purchase things to do so, consider a social media fast. Taking a break from your social accounts can be a good way to put what matters to you into perspective. You may well feel less pressured — and less tempted — to spend money on things that don’t align with your financial goals.

6. Reducing Debt If Possible

Getting rid of debt can allow you to reduce your monthly expenses and stretch your money further. If you have credit card debt, student loans, and/or other debts, consider which ones you’d like to pay off first. Then formulate a plan for paying down the balances. There are ways to pay off debt without using savings.

If you’re struggling with debt and can’t see a light at the end of the tunnel, you might also seek guidance from a nonprofit like the National Foundation for Credit Counseling, or NFCC.

7. Cutting Out Unnecessary Expenses

Anything you don’t need to live is technically an unnecessary expense. You might try minimizing purchases in certain categories that aren’t vital. Depending on what your budget looks like, that might include new clothes, electronics, online shopping, or anything else that doesn’t add positive value to your life in some way. The more unnecessary expenses you can cut out, generally the better when aiming for financial minimalism.

8. Living Below Your Means

If you’re looking for ways to improve your financial health, take note of this idea. Living below your means simply means that you don’t spend more than you earn. If you’ve done your budget and your expenses are higher than your income, you’ll either need to find ways to cut spending down or earn more money. The wider the gap between what you spend and what you earn, the more money you’ll have to fund the financial goals that are important to you.

Recommended: Guide to Financially Downsizing Your Life and Saving Money

9. Getting Rid of Items You No Longer Need

Extra stuff can make your home feel cluttered and disorganized. Ditching things you no longer need or use can make it easier to breathe and reinforce your commitment to living simply. As you sort through your things, consider what you can donate or give away, what should be trashed, what can be recycled, and what you might be able to sell for a little extra cash. Whether you try a Freecycle site, post things on eBay, or give your excess stuff to a local charity, your loss can be someone else’s gain.

10. Investing If Possible

Saving money is important, but investing it can be the best way to build wealth. If you’ve pared down your budget and have money to save and invest, consider putting some of it into the market for long-term goals. While there is risk involved, historically you can reap the best rewards this way. Following advice about investing for beginners can help you get started.

11. Embracing Free Time

When financial minimalism is the goal, you sometimes have to be creative about how you spend your time. Rather than going out for a pricey dinner with friends, for example, you may be spending more time at home instead. Hosting a potluck or taking a walk with a friend can be an inexpensive way to socialize.

Finding ways to embrace your free time can be a good reminder of why you’ve chosen to pursue minimalism. Some of the ways you can do that include exploring free (or low-cost) hobbies, getting into an exercise or meditation routine, or contemplating your financial goals and your next steps along the minimalist path.

12. Separating Money for Yourself First

“Pay yourself first” is an oft-repeated piece of financial advice and it simply means that before you pay any other bills or expenses, you set aside something in savings. How much you should save a month will vary person to person, and where the money goes may differ.

It could mean depositing $50 to start an emergency fund whenever you are paid or contributing 10% of your annual salary to a 401k at work. Automatic transfers on payday can help whisk the money to where you want it, rather than have it hit your checking account and tempt you to spend it.

Managing Your Finances With SoFi

If you want to spend less, save more, and lower your money stress, giving financial minimalism a try could help. Becoming a financial minimalist can help you really take control of your money and grow it.

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

Can minimalism cause financial freedom?

Minimalism can help you to achieve financial freedom if you’re committed to paying down debt, cutting out unnecessary spending, saving, and investing. If you follow minimalist principles, it’s possible to live well on less, build wealth, and perhaps even retire early.

Can minimalism hurt financial freedom?

Minimalism won’t necessarily hurt financial freedom. However, it may take some getting used to in the beginning if you feel deprived because you’re spending less. Implementing one or two steps toward financial minimalism at a time can make it easier to transition to this kind of lifestyle gradually.

Is it OK if I am not a financial minimalist?

Financial minimalism may not be right for everyone and that’s perfectly acceptable. You can, however, apply some of the principles of financial minimalism to improve your money situation. For example, making a budget and dropping a subscription or two can be relatively easy ways to help rein in overspending and avoid debt.

Photo credit: iStock/mphillips007

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

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SoFi members with direct deposit activity can earn 4.00% 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.

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

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Jul
28
2024

Budgeting for a Quinceañera

By | Budgeting & Goals, Family Finances, money | Comments Off on Budgeting for a Quinceañera

A quinceañera, the celebration of a girl’s 15th birthday, is a rite of passage that many young women and their families look forward to for years. These parties can be lavish and, therefore, expensive to host, so understandably many parents tend to budget for them far in advance.

If you’re planning one, whether it’s coming right up or years away, it’s typical to wonder: How much does a quinceañera cost? How can I make it affordable? How do I budget for a quinceañera? Read on for answers.

What Is a Quinceañera?

A quinceañera is a unique type of party that celebrates a girl’s 15th birthday in certain Latin American cultures. The term “quinceañera” translates to “the girl who is 15,” but it represents something much larger than that. A quinceañera signifies when a young girl becomes a woman who is mature, capable, and independent. This event also serves as a symbolic gesture that reaffirms her religious beliefs and commitment to the church.

Usually, a quinceañera involves hosting a religious ceremony and then following that ceremony with a party. When it comes to planning a quinceañera, many people take it as seriously as a wedding, and the expense can be similar to how much a wedding costs.

Average Cost of a Quinceañera

The cost of a quinceañera can vary greatly depending on where the party takes place, how many people are invited, and what kind of event is hosted.

In terms of ballpark figures, how much a quinceañera costs usually ranges from $5,000 to $20,000. To sock away that much cash, it’s a good idea to start putting aside some money every month in a high-yield savings account, starting well ahead of the event.

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Common Expenses for a Quinceañera

To set and stick to a budget, it can be wise to look at the different components of a quinceañera. How much this party costs will depend on what is spent on things like food, decorations, and clothing. When creating a budget for a quinceañera, it can be helpful to plan for the usual expenses and to determine where it’s a good idea to splurge and where to save.

What follows is a quinceañera budget list with some of the key expenses to keep in mind.

Recommended: How Much Money Should I Save A Month?

Venue

Similar to hosting a wedding, the venue can be one of the more expensive aspects of throwing a quinceañera. It typically accounts for at least 10% of one’s budget but can go much higher. The more people invited, the larger the event space will need to be, and the more this cost can rise. Also consider whether the location you are interested in comes with tables and chairs or whether you will also need to rent those, adding to the price tag.

Recommended: Affordable Wedding Venue Ideas

Food

How much food is required and the type of food and service style can affect the cost of food for a quinceañera. Whatever the case, this is typically among the big-ticket items in a budget, often accounting for 35% of the total expense.

Having a buffet where guests serve themselves tends to cost less than hiring servers to bring the food to each individual table. Choosing to serve late-night snacks and to have an open bar for the adults can also affect the price of food.

Recommended: How to Set and Reach Savings Goals

Attire

The birthday girl normally wears a dress similar to a wedding dress, which can be costly, and close family members may also require formalwear for the event. This typically is a celebration that involves some serious wardrobe shopping that can easily cost around 10% of the total budget.

Photo and Video

Many families choose to hire a professional photographer, videographer, or both to capture special moments from the event. If you are among their ranks, then you need to include that expense in your party planning and plan how you want to stick to that budget. This can take about 12% of your total funds for the celebration.

Entertainment

Some parents will want to hire a DJ, live band, or other form of entertainment for the quinceañera. Mariachi bands and photo booths are other popular features of these celebrations.

Decorations

Decorations are a good example of a quinceañera expense that can vary greatly depending on how much someone wants to spend on flowers, linens, flatware, and other decorations.

Recommended: 20 Ways to Celebrate the Holidays Affordably

Party Planner

Because planning a quinceañera can be a lot of work, some families may choose to hire a party planner to help them out. This person will typically have an extensive network of resources and can take the time and stress of planning off the hands of the parents.

Tips for Budgeting for a Quinceañera

After crunching the numbers on the expenses mentioned above, some families may find they need to scale back on their plans. Saving money is important, and no one should be saddled with major debt for a celebration. Let’s look at a few ways to make planning a quinceañera on a budget easier.

Planning the Date in Advance

The closer it gets to the event date, the more venues and other vendors are likely to charge. Planning the event far in advance can make it easier to select less expensive dates for the party and to have a top pick of vendors. The less expensive vendors may book up faster than the pricier ones.

Renting Attire

The clothes for this big celebration are likely to be worn only once. Why pay a steep price and then have them gathering dust? Renting formal dresses, shoes, tuxedos, or suits instead of buying them can help lower the cost of clothing for the event.

Finding a Reasonable Venue

Another reason it helps to plan the event far in advance is because it gives parents and their daughter time to look for different venus. Community centers, churches, or a family home may all present affordable options for a quinceañera.

DIY Decorations

It’s time to get crafty. Instead of buying expensive decorations, have some fun by planning some DIY projects and save some cash at the same time. Arranging your own store-bought flowers, for instance, can save a bundle.

Recommended: 9 Cheap Birthday Party Ideas

Limiting the Number of Guests

As tempting as it can be to invite tons of family and friends to such an important event, the more people invited to a quinceañera, the more the party will cost. Limiting the guest list to just nearest and dearest friends and family can make it easier to find a smaller and more affordable venue. It can also mean that you will spend less on food, drinks, and decor.

Sending E-invites

Paper invites and stamps add up surprisingly fast, especially when you have a long guest list. Consider keeping things low-cost and environmentally friendly by sending out e-invites instead. This is a quick way to cut a major cost from a quinceañera budget.

Tapping a Talented Friend for Videos and Photos

As noted briefly earlier, hiring a professional photographer or videographer can be expensive. Asking a friend or family member who enjoys photography or videography to capture the event can help cut down on this expense or even make it free.

Recommended: 15 Creative Ways to Save Money

Banking With SoFi

Working towards a big financial goal like hosting a quinceañera? SoFi can help. 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. 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 much does a typical quinceañera dress cost?

While quinceañera dresses tend to cost around $200 to $300, they can be much more expensive. Renting a dress or buying a used one can help save money here. Don’t forget to budget for alterations and accessories like shoes and jewelry.

Who traditionally pays for a quinceañera?

The parents of the birthday girl are the ones who usually pay for a quinceañera. That’s why it’s important they have a quinceañera budget so they can save accordingly.

How long should you plan for a quinceañera in advance?

It can be helpful to plan for a quinceañera at least a year in advance, especially if the parents hosting the event need to save money for it. Depending on the scale of the event, parents may want to start saving even sooner. Parents can create a quinceañera cost breakdown so they know what to save for and where to cut back.

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

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

SoFi members with direct deposit activity can earn 4.00% 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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

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Jul
10
2024

Guide to Bank Reserves

By | Family Finances, Life & Career, money | Comments Off on Guide to Bank Reserves

Bank reserves refer to the amount of funds a financial institution must have on-hand at any given time. These reserves are a percentage of its total deposits set aside to fulfill withdrawal requests, and comply with regulations and can also provide a layer of trust for account holders.

Bank reserves act as assurance to depositors that there is always a certain amount of cash on deposit, so the scenario mentioned above doesn’t happen. No one wants to ever withdraw some cash and be left empty-handed. As a consumer with a bank account, it can be important to understand the role bank reserves play in the financial system and the economy.

What Are Bank Reserves?

Bank reserves are the minimum deposits held by a financial institution. The central bank of each country decides what these minimum amounts must be. For example, in the United States, the Federal Reserve determines all bank reserve requirements for U.S. financial institutions. In India, as you might guess, the Reserve Bank of India determines the bank reserves for that country’s financial institutions.

The bank reserve requirements are in place to ensure the financial institution has enough cash to meet financial obligations such as consumer withdrawals. It also ensures that financial institutions can weather historical market volatility (that is, economic ups and downs).

Bank reserve requirements are typically a percentage of the total bank deposit amounts determined by the Federal Reserve Board of Governors. Financial institutions can hold their cash reserves in a vault on their property, with the regional Federal Reserve Bank, or a combination of both. This way, the financial insulation will have enough accessible funds to support their operational needs while letting the remaining reserves earn interest at a Federal Reserve Bank.

💡 Quick Tip: Most savings accounts only earn a fraction of a percentage in interest. Not at SoFi. Our high-yield savings account can help you make meaningful progress towards your financial goals.

How Do Bank Reserves Work?

Bank reserves work to ensure that a certain amount of cash, or percentage of overall deposits, is kept in a financial institution’s vault.

Suppose you need to withdraw $5,000 to purchase a new car. You understand savings account withdrawal limits at your bank and the amount you need is within the guidelines, so you head to your local branch. When you arrive, you’re told they don’t have enough money in their vault to meet your request.

This is what life could be like without bank reserves. The thought of not being able to withdraw your own money might be upsetting, worrisome, and deeply inconvenient. To prevent this kind of situation is exactly why banks must have a certain percentage of cash on hand.

In addition to ensuring consumers have access to their money, bank reserves may also aid in keeping the economy functioning efficiently. For example, suppose a bank has $10 million in deposits, and the Federal Reserve requires 3% liquidity. In this case, the bank will need to keep $300,000 in its vault, but it can lend the remaining $9.7 million to other consumers via loans or mortgages. Consumers can use this money to buy homes and cars or even send their children to college. The interest on those loans is a way that the bank earns money and stays in business.

Bank reserves are vital in helping the economy control money supply, interest rates, and the implementation of what is known as monetary policy. When the reserve requirements change, it says a lot about the economy’s direction. For example, when reserve requirements are low, banks have more opportunity to lend since more capital is at their disposal. Thus, when the money supply is plentiful, interest rates decrease. Conversely, when reserve requirements are high, less money circulates, and interest rates rise.

During inflationary periods, the Federal Reserve may increase reserved requirements to ensure the economy doesn’t combust. Essentially, by decreasing the money supply and increasing interest rates, it can slow down the rate of investments.

Recommended: Understanding Fractional Reserve Banking

Types of Bank Reserves

There are two types of bank reserves: required reserves and excess reserves. The required reserves are the percentage of deposits the institution must have in cash holdings and deposit balances to abide by the regulations of the Federal Reserve. Excess reserves are the amount over the required reserve amount that the institution holds.

Excess reserves can provide a larger safety net for the financial institution and enhance liquidity. It can also contribute to a higher credit rating for institutions. On the other hand, excess reserves can also result in losing the opportunity to invest the funds to yield higher returns. In other words, since the extra money is sitting in cash, it will not generate the same returns it might yield by lending or investing in the market.

Recommended: What Is Quantitative Easing?

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History of Bank Reserves

Reserve requirements first came about in 1863 during the passing of the National Bank Act. This act intended to create a national banking system and currency so money could flow easily throughout the country. At this time, banks had to hold at least 25% reserves of both loans and deposits. Bank reserves were necessary to ensure financial institutions had liquidity and money could continue circulating freely throughout the nation.

But despite the efforts to establish a robust banking system, banking troubles continued. After the panic of 1907, the government intervened, and in 1913, Congress passed the Federal Reserve Act to address banking turmoil. The central bank was created to balance competing interests and foster a healthy banking system.

Initially, the Federal Reserve acted as a last resort and a liquidity grantor when the banks faced trouble. During the 1920s, the Federal Reserve’s role expanded to playing a proactive role in the economy by influencing the credit conditions of the nation.

After the Great Depression, a landmark in the history of U.S. recessions and depressions, the Banking Act of 1935 was passed to reform the structure of the Federal Reserve once again. As part of this act, the Federal Open Market Committee (FOMC) was born to oversee all monetary policy.

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How the 2008 Crisis Impacted Bank Reserves

Prior to the global financial crisis of 2008, financial institutions didn’t earn interest on excess reserves held at a Federal Reserve Bank. However, after October 2008, the Federal Reserve was granted the right to pay interest to banks with excess reserves. This encourages banks to keep more of their reserves. The Board of Governors establishes the interest on reserve balances (IORB rate). As of July 2024, the IORB was 5.4%.

Then, after the recession subsided in 2009, the Federal Reserve turned its attention to reform to avoid similar economic disasters in the future.

Recommended: Federal Reserve Interest Rates, Explained

How Much Money Do Banks Need to Keep in Reserve?

Reserve requirements vary depending on the size of the financial institution. As of July 2024, reserve requirements are 0%, where they’ve been since early 2020 and the onset of the COVID-19 pandemic.

Prior to this revision, banks with between $16.9 to $127.5 million in deposits were required to have 3% in reserves, whereas banks over this amount had to have at least 10% in bank reserves.

Recommended: Investing During a Recession

What Is Liquidity Cover Ratio (LCR)?

Bank reserve requirements aside, financial institutions want to ensure they have enough liquidity to satisfy the short-term financial obligations if an economic crisis occurs. This way, they know they will be able to weather a crisis and not face complete bankruptcy. Therefore, financial institutions use the Liquidity Coverage Ratio (LCR) to prevent financial devastation resulting from a crisis.

The LCR helps financial institutions decide how much money they should have based on their assets and liabilities. To calculate the LCR, banks use the following formula:

(Liquid Assets / Total Cash Outflows) X 100 = LCR

Liquid assets can include cash and liquid assets that convert to cash within five business days. Cash flows include interbank loans, deposits, and 90-day maturity bonds.

The minimum LCR should be 100% or 1:1, though this can be hard to achieve. If the LCR is noticeably lower than this amount, the bank may have liquidity concerns and put the bank’s assets at risk.

The Takeaway

Financial institutions must have a certain amount of cash on hand, referred to as bank reserves. These assets are usually kept in a vault on the bank’s property or with a regional Federal Reserve Bank. These cash reserves ensure financial institutions can support consumer withdrawals and withstand a financial crisis.

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

Are bank reserves assets or liabilities?

Bank reserves are considered an asset since they’re an item the bank owns. Other bank assets can include loans and securities.

How are bank reserves calculated?

Bank reserve requirements are calculated as a percentage of the institution’s deposits. So, if the reserve requirement is 3% for banks with $10 million in deposits, the bank would have to hold $300,000 in its reserves.

Where do banks keep their reserves?

Financial institutions usually keep a certain amount of their cash reserves in a vault to meet operational needs. The remaining amount may be kept at Federal Reserve Banks so the balance can generate interest.

Photo credit: iStock/Diy13

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.

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

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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Jul
03
2024

Financial Planning Tips for Your 40s

By | Budgeting & Goals, money, Preparing for Retirement | Comments Off on Financial Planning Tips for Your 40s

Your 40s can be a pivotal decade in your life. It’s typically a time of peak earnings, growing family responsibilities, and an increased focus on long-term financial stability. You may have a house, kids, and a busy job. College expenses may be looming. Maybe you’re hatching a plan to start your own business or buy a beach house that’ll one day be your empty-nester home.

To navigate these years successfully, it’s essential to make strategic financial moves that can secure your future and make your plans and dreams a reality. Here are some critical financial planning tips to consider as you move through your 40s.

7 Financial Moves to Make During Your 40s

In your 40s, you’re old enough to know what you want and likely have enough earning years ahead to achieve your goals — if you manage your money right. The following strategies can help you build wealth in your 40s.

1. Maintain or Replenish Emergency Funds

Life is full of unexpected twists and turns. Not all of them are fun, such an expensive car or home repair, a medical emergency, or losing your job. An emergency fund offers financial stability during a stressful time. It also saves you from running up expensive debt that could derail your financial goals.

A general rule of thumb is to have six to 12 months’ worth of living expenses stashed away for the unexpected. If you already have an emergency fund but it has been partly or fully depleted, you’ll want to prioritize replenishing it to maintain financial security.

Consider setting up automatic transfers into savings to build your emergency fund consistently. Keep these funds in a liquid, easily accessible account, such as a high-yield savings account, to ensure you can access the money quickly when needed.

2. Manage Your Debt

Debt management is a crucial aspect of financial planning at any age, but it becomes even more critical in your 40s. Since high-interest debts, like credit card balances, can significantly hinder your ability to save and invest for the future, you’ll want to prioritize paying them off as quickly as possible.

One strategy that can help is the avalanche payoff method. Here, you list your debts in order of interest rate from highest to lowest, then put extra money toward the highest-interest debt, while continuing to pay the minimum on the others. Once that debt is paid off, you put your extra funds toward the debt with the next-highest rate, and so on.

Alternative approaches to paying down high-interest debt include getting a low- or no- interest balance transfer credit card or taking out a personal loan for debt consolidation with a lower rate than you are paying on your cards.

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3. Revisit Retirement Saving

In your 40s, you’re roughly at the midpoint between entering the workforce and traditional retirement age. How you invest and save for retirement at this point in your career can strongly impact your future assets and ability to one day retire comfortably.

If you’re not currently contributing to a retirement plan, such as a 401(k) or individual retirement account (IRA), now’s a good time to start. If you have been, it’s time to assess your progress. Consider how much of a nest egg you will need to retire and, using an online retirement calculator, whether your current plan will get you there.

If you’re behind on your savings, consider stepping up your contributions or, if you’re already contributing the max allowed, making “catch-up” contributions down the road. Starting at age 50, the IRS allows higher maximums designed to help people catch up on their retirement savings goals.

4. Plan for Childrens’ College Expenses

If you have kids, planning for their future education expenses may be top of mind. College costs continue to rise, and early planning can alleviate future financial stress. If you haven’t started saving for college expenses, you may want to explore opening a 529 college savings plan, which offers tax advantages and can be a flexible way to save for educational expenses.

An online college cost estimator can help you determine how much you need to stash away each month or year, based on the year your child will likely attend college and the type of school they might choose.

Just keep in mind that it’s important to balance college savings with other financial goals, like retirement. As kids get closer to leaving the nest, you may also want to encourage them to apply for scholarships and grants, and explore financial aid options.

5. Choose or Reevaluate Insurance Coverage

Insurance is an important component of financial planning in your 40s. You’ll want to evaluate your current insurance coverage and make sure it’s adequate to meet your family’s needs. This includes not only health and home insurance, but also life and disability insurance.

Life insurance provides financial security for your family should you die prematurely. If you don’t currently have a life insurance policy, consider purchasing one. If you do have one, you’ll want to make sure your policy’s coverage amount is sufficient to cover your family’s current living expenses, outstanding debts, and future financial needs, such as college tuition for your children.

It’s also a good idea to review your disability insurance, which protects your income if you’re unable to work due to illness or injury. Many companies provide a policy through work. However, you may want to consider supplementing employer-provided coverage or, if you’re self-employed, getting your own policy. This offers a different, but equally important, safety net for you and your family.

Recommended: Which Insurance Types Do You Really Need? Here Are 6 to Consider

6. Invest Outside of Retirement

While retirement accounts are crucial, investing outside of retirement can diversify your portfolio and help you achieve goals that may be five or 10 or more years away, such as a downpayment on a vacation home or a child’s wedding.

Though investing carries risk and can be volatile in the short term (which is why you generally don’t want to invest funds you’ll need in the next few years), an investment account has the potential to grow more than other types of accounts over the long term. Consider taxable investment accounts that align with your risk tolerance and financial objectives.

7. Meet with a Financial Professional

Getting expert advice on managing your finances can be invaluable at this stage of life. Whether you opt for regular meetings or simply go for a one-time consultation, a financial professional can provide valuable insights and help you navigate complex financial decisions.

An advisor will typically look at your whole financial picture and assist you with creating a comprehensive financial plan. This may include optimizing your investment strategy and ensuring you’re on track to meet your goals, including retirement, investments, and college savings.

The Takeaway

It’s never too late to take control of your finances. In your 40s, you are likely entering your prime earning years, so it’s a good time to focus on paying down debt, preparing for the next chapter of your children’s lives, and saving and investing for your future retirement. With some wise money moves, you’ll be set to make the most of this decade and beyond.

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 financial goals should a 40-year-old have?

Ideally, a 40-year-old will want to focus on several financial goals. These include:

•   Establish or maintain an emergency fund with three to six months’ worth of essential living expenses.

•   Reduce financial burdens by paying off high-interest debt.

•   Ensure you’re on track with retirement savings by maximizing contributions to retirement accounts.

•   Start or continue saving for children’s college expenses through plans like 529s.

•   Consider investing outside of retirement to diversify your portfolio and build wealth.

How much should a 40-year-old have saved?

By age 40, financial advisors often recommend having three times your annual salary saved for retirement. This benchmark ensures you’re on track to meet long-term financial goals and maintain your desired lifestyle in retirement.

In addition, you’ll want to maintain an emergency fund with three to six months’ worth of living expenses.

Savings outside of emergency and retirement, such as investments in taxable accounts, can further enhance financial security. The exact amount can vary based on individual circumstances, income, lifestyle, and future goals.

How can I build my wealth in my 40s?

To build wealth in your 40s, you’ll want to focus on several strategies:

•   Maximize retirement account contributions, taking full advantage of employer matches.

•   Pay off high-interest debts to free up resources for savings and investments.

•   Establish or maintain an emergency fund to cover unexpected expenses without derailing financial goals.

•   Consider additional income streams, such as side businesses or rental properties.

•   Diversify investments across stocks, bonds, real estate, and other assets to balance risk and growth potential.

Photo credit: iStock/shapecharge

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.

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.

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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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Jun
24
2024
Business Check vs. Personal Check: What's The Difference?

Guide to Business Checks vs Personal Checks

By | Budgeting & Goals, Financial Independence, money | Comments Off on Guide to Business Checks vs Personal Checks

While business checks and personal checks may seem like the same thing, there are actually some important differences. Sure, all checks can be used to pay bills or cover other expenses using funds in a linked checking account. But the main difference between a personal check and a business check is the source of funds. Personal checks are drawn on personal accounts; business checks are drawn on business checking accounts.

Learn more about how these checks work and how they differ.

What Is a Business Check?

A business check is a check that’s written from a business checking account. Banks and credit unions can offer business checking accounts to sole proprietors, limited liability companies (LLCs), and other kinds of businesses that need a safe, secure place to keep their money. Business checks are often one of the features included with these accounts.

Business bank accounts can also offer a debit card for making purchases or cash withdrawals. They typically allow for ACH transfers of funds to pay bills or vendors. But there are some instances where it could make sense — or even be necessary — to use business checks instead. For example, you may need to write or print paper checks to cover payroll for employees.

💡 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.

How Does a Business Check Work?

When someone opens a business bank account, the bank may give them a set of business checks and a checkbook. If you are wondering what a checkbook is, they are simply a small folder or book that contains your checks and a check register, which is where you’ll write down deposits and credits for your account. Check registers can help you balance your checkbook.

To use a business check, you’d simply make the check out to the payee, then fill in the required information. That includes the date and amount of the check, as well as a signature. Business checks typically have a memo line where you can record what the check is being used for.

The payee can then take that business check to their bank to deposit it or cash it. The amount written on the check is then deducted from the business checking account on which the check is drawn. When the check is deposited, it typically takes two days to clear (or for the funds to become available).

What Does a Business Check Look Like?

Business checks look much like personal checks, in terms of the type of information they include. On the front of a business check, you should see the following:

•  Business name and address

•  Check number (in the upper right hand corner)

•  Payee name (where it says Pay to the Order of)

•  Date

•  Dollar amount, in numbers

•  Dollar amount, in words

•  Payer’s signature

•  Memo line

•  The bank’s routing number

•  The account number

•  Bank’s name and address

Business checks may also include room to include the business logo or a watermark.

There may be an attached transaction stub on the left hand side of the check. You can use this stub to record the details of the transaction, including the date the check was written, the amount, and to whom it was paid.

Business checks can be hand-written like personal checks, or they can be filled digitally and printed out.

What Is a Personal Check?

A personal check, on the other hand, is a check that’s drawn against a personal checking account. Most but not all checking accounts offer checks and check-writing; some even offer free starter checks to new customers.

Personal checks are paid using personal funds. So you might write a personal check to repay a friend you borrowed money from, for example, or to pay your rent. Likewise, you could receive a personal check made out to you that you could deposit into your bank account or cash it. In terms of where to cash personal checks without a bank account, the options include check cashing services, supermarkets, and convenience stores.

Personal checks are not the same as other types of checks, including certified checks and traveler’s checks. (If you’re unfamiliar with how to use traveler’s checks, these are paper certificates that can help you pay for things overseas without having to exchange hard currencies.)

How Do Personal Checks Work?

Personal checks work by allowing individuals to pay bills or make other payments to individuals, businesses, and other organizations. When you open a checking account, the bank may give you paper checks with your name and account number printed on them. You can then use these checks to make payments.

When someone receives a personal check and deposits it in their account, their bank requests the transfer of funds from the bank on which the check was drawn. These transfers are processed electronically. Processing times can vary, though it typically takes a couple of business days for a check to clear.

If someone writes a personal check and doesn’t have sufficient funds in their account to cover it, that check will bounce. When a check you write bounces, it may be returned unpaid or your bank may cover the amount for you but they can charge overdraft or non-sufficient funds (NSF) fees for that convenience.

Bounced checks typically don’t show up on consumer credit reports or affect credit scores, though banks may report them to ChexSystems. A consumer credit reporting agency, ChexSystems collects information about closed checking and savings accounts.

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Can I Use a Personal Check for a Business Account?

Personal accounts and business accounts are separate banking products. That being said, you could use personal checks to pay for business expenses. For example, you could write out a personal check to pay a business lease or make payments to a business loan. And you could use funds in a business account to pay for personal expenses.

If you feel you must use personal checks for a business account or business checks for personal expenses, proceed with caution. Many personal checking account agreements specifically prohibit using this kind of account for business purposes. Familiarize yourself with your account guidelines. This should only happen in very limited circumstances and not as a regular practice.

What’s more, mixing your accounts this way can complicate matters when it comes time to pay your taxes and figure out personal vs. business deductions. If you ever need to review your business or personal account (say, for legal reasons or an audit), it can be hard to remember which funds were used where.

Using Business Checks vs. Personal Checks

When you need to write a business check vs. personal check can depend on the circumstances. For instance, some of the most common uses for business checks include:

•  Employee payroll

•  Federal and state tax payments

•  Making payments to vendors

•  Paying operating costs, such as rent or utilities

•  Repaying a business loan

•  Making any large purchases that are necessary for the business.

Personal checks can be used to meet a different set of needs. Examples of when you might write a personal check include:

•  Paying utility bills, rent, or the mortgage

•  Buying groceries

•  Repaying personal debts

•  Making payments to loans

•  Covering school-related expenses if you have kids (like lunch money or PTA fundraisers)

•  Paying college tuition

•  Covering doctor bills.

Whether you need business checks or personal checks, it helps to know where to order checks safely. You can get checks online from check-printing companies or order them through your bank.

Recommended: How Do I Sign Over a Check to Someone?

Differences Between a Business and Personal Check

Whether you’re using business checks or personal checks, one thing is true: They can be a dependable, convenient way to move money. They provide an alternative to using a debit card, credit card, ACH transfer, or wire transfer. But if you’re still wondering how business checks are different from personal checks, here are a few other noteworthy distinctions.

Size of the Check

Personal checks are usually somewhere around 6″ x 2″ x 3″ in size. Business checks, on the other hand, might or might not be larger in size. For example, they may be 8″ x 2″ x 3″ instead. The larger size allows for easier printing and more room for writing out checks by hand.

Security of the Check

Check fraud can threaten a business’s bottom line. For that reason, many check printers include built-in security measures to minimize the chances of a business check being stolen or otherwise used fraudulently. Those measures can include holographic features, thermochromatic ink, and chemically sensitive paper. These features all help to verify a check’s authenticity.

How Much Each Check Costs

As mentioned, banks can sometimes offer starter checks for free when you open a new checking account. This benefit may not be included with business checking accounts, which means you might need to buy checks yourself. The amount you pay can depend on the type of check, any added features you choose to include, and the number of checks printed. You might pay three cents per check or a quarter or more per personal check, depending on where you order from, the features you want, and how quickly you want them printed and delivered.

Business checks range in cost, but many online retailers charge 20 to 30 cents each.

There can be other charges associated with checks. For example, you may also pay separate fees when purchasing cashier’s checks for a business or personal account. Cashier’s checks are drawn against the bank’s account, not yours, though a cashier’s check looks very much like a personal or business check.

Check Conversion Protection

Check conversion is a process in which paper checks are converted to electronic ACH debits. Both consumer and business checks can be converted in this way. Converted checks usually clear faster, but it’s possible that you may not want this for checks written from a business account. In that case, you could order business checks that include an optional Auxiliary On-Us field to exclude them from conversion.

Why to Consider Having Separate Checks

Using one bank account for business and personal expenses might seem simpler and less stressful, since you’re moving money in and out of the same place. However, as noted above, which kind of check to use is not typically a matter of personal choice. Personal checking accounts usually have restrictions against use for business purposes.

What’s more, establishing a business account has other benefits:

•  Writing checks with your business name can add credibility to your venture, since it looks more professional.

•  A business account helps you keep track of business finances and expense reporting for tax purposes.

•  Establishing a business checking account could make it easier to get approved for business loans or lines of credit if you have a good banking history.

•  Having separate business and personal checking accounts can provide an added protection against creditor lawsuits. Depending on how your business is structured, money in a personal checking account may be safe from collection efforts if you’re sued by a creditor.

The Takeaway

Business checks and personal checks serve similar functions; they both transfer funds from one account to another. However, they do have some important differences, and you typically cannot use a personal check for business purposes.

For your personal bank accounts, see what SoFi offers.

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

Can you cash a business check?

You can cash a business check if your bank allows it. You’ll need to endorse the check properly and show proof of identification to cash it, the same as you would with any other type of check.

What should be on a business check?

A business check should include the business name and address, the payee’s name, the amount of the check, the date, and the payer’s signature. The check will likely be pre-printed with the bank’s name and address, a routing number and account number, as well as a check number. A business check may also include a memo line to record the purpose of the check.

Do checks need to say LLC?

Checks do not need to say LLC unless your business is structured as an LLC. If your business operates as a sole proprietor, partnership, S corporation, or anything other than an LLC, then you wouldn’t need to include that designation.

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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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

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

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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