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Guide to Improving Your Money Mindset
Achieving your financial goals in life isn’t just about how much you earn; it’s also about your money mindset. Some of our most deeply held beliefs are about money. Do you talk about money and seek to enhance your knowledge? Do you think of yourself as a spender or a saver? What does financial success look like to you? The answers to these questions all reflect our money mindset. Changing these ideas can be challenging but worth it.
To create a solid financial future, it’s essential to have a strong, positive money mindset. So, if your financial habits need a little (or a lot of) work, here’s how to change your money mindset. Read on to learn:
• What is a money mindset?
• What is a negative money mindset?
• How can I change my money mindset?
• Why is reshaping my money mindset important?
What Is a Money Mindset?
Your money mindset is your approach to handling money. It determines your spending and saving habits as well as your motivations for your financial management.
Whether you are aware of it or not, everyone has a money mindset — a collection of beliefs starting from childhood that shape what you do with your money. (Your money mindset could even be, “I never think or talk about money.”)
Your money mindset can lead to both positive and negative financial decisions.
For example, have you automated your savings, transferring cash out of your paycheck first and budgeting with the remainder? Or do you think saving isn’t something you need to or can focus on just yet? Do you use a budget? Can you treat yourself occasionally, or is buying a $5 coffee not a part of your financial plan? Your money mindset characterizes your relationship with money, and so it is essential to understand and possibly tweak it.
What Is a Negative Money Mindset?
A negative money mindset is a set of unhelpful financial beliefs that can lead to poor resource management. It often involves a constant feeling of stress or guilt regarding money or simply disorganization. It may also involve the belief that “if I just made more money, things would change or all my problems would be solved.” While a higher salary or inheritance might help you toward your financial goals, having more money won’t change your financial mindset.
While it may seem counterintuitive, your income level doesn’t automatically determine your sense of financial freedom. Additionally, it’s worth noting that your money mindset exists whether you’re conscious of how it influences your behavior or not.
Here are some examples of the ways in which a negative money mindset might have a bad influence on your life:
• You might spend too much money due to comparison with others. You see a friend or colleague renting a pricey apartment and think you should too. That can be an aspect of lifestyle creep, in which your spending increases as your income grows, preventing you from saving and acquiring assets.
• You might not save for long-term goals, like a house or retirement, because your parents never wanted to talk about money when you were growing up.
• Because money stresses you out, you might fail to set financial goals, like paying off your student loans on time.
If it feels like you’re in this negative zone when it comes to your finances, know that you are not saddled with it for life. We’ll explore how to develop a money mindset that’s more positive and productive later in this article.
How Your Beliefs on Money Affect Your Finances
Your primary, most powerful beliefs about money most likely come from your parents and your childhood. Every child absorbs financial beliefs from the most influential people in their life. Then, as you grow older and begin handling money, they live out those financial beliefs, for better or worse.
For example, if your parents modeled money as a way to pamper yourself, you may find that you impulse-shop when life becomes challenging. Your money mindset is that spending equals financial self-care.
On the other hand, you may have a reputation among your friends as “cheap” because you grew up in a penny-pinching household that considered luxuries a waste of money. In both cases, your money mindset puts your financial habits into motion.
These examples underscore that children tend to mimic the behaviors of their parents and adopt their money habits in their own adult life.
Why Reshaping Your Money Mindset Is Important
It’s crucial to address negative money mindsets. Otherwise, you’ll likely continue to act on the same faulty beliefs. For example, you might realize that your parents’ approach to money made a lasting impact because you always feel uneasy when treating yourself. Conversely, you might struggle to control your spending because none of your family or friends ever follows a budget.
Recognizing an unproductive facet of your money mindset gives you the power to change it. By asking yourself questions about how you currently treat your money and how you’d like to change, you can reorient yourself and create a long-term financial plan. In fact, reshaping your money mindset may include setting financial goals for the first time in your life.
By changing your money mindset you can take full control of your finances, break bad spending habits, and reach your financial goals.
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How to Change Your Money Mindset
So, you might wonder, exactly how can you change your mindset about money? While your upbringing and core experiences impact you in significant ways, you have the ability to recast your money mindset or create an all-new one. When reshaping your money mindset, the following tips can help you transform unhelpful financial behaviors into life-changing, literally enriching habits.
Success With Money Is a Possibility
One key to changing your money mindset is to increase your confidence in your abilities. Don’t count yourself out because of your background or financial circumstances — it’s possible to change these patterns.
Whether you’re working up the courage to sit down and make a beginner’s budget, tackle lingering debts, or give yourself permission to make a fun but totally unnecessary purchase, believing it’s possible is crucial for your success. Perhaps saying affirmations will help you, or maybe reading about others who have attained what you are dreaming of will work best. The right technique is a personal decision.
Understanding Why You Feel This Way
Money is emotional for everyone. Feeling anxious, worried, or excited about your money is normal. Our emotions are rooted in beliefs; therefore, you might feel elated or stressed on payday depending on the beliefs you’re associating with your money. You might crave the feeling of going shopping or you might wake up in the middle of the night worried about your car payments.
Delving into how much money you have coming in and going out may help you better manage your funds. If you have a financial plan that allows you to sock money away and also treat yourself a few times a month, getting paid might create feelings of satisfaction or confidence. Hence, your money mindset is creating positive emotions for you. However, if your paycheck reminds you of your mounting bills, it’s probably time to identify where these feelings are coming from. This way, you can start shifting your money mindset to elevate the stress and anxiety.
Additionally, the more you avoid money, the more intimidating it can feel. Even people with plenty of income might run from figuring out their living expenses because it sparks negative emotions.
Avoid Comparing Yourself to Peers or Social Media Standards
Parent’s aren’t the only ones who influence your money mindset. Peers and mainstream culture send messages about what success looks like or how to best manage your money.
Seeing what others do or think as irrelevant to your money mindset. What works for someone else may or may not work for you, especially if you have different goals. Plenty of general financial principles are worth adhering to, but even those aren’t set in stone. For example, there are many different types of budgeting methods, including the 50/30/20 budget rule. Therefore, it’s wise to understand your own financial situation and find solutions that work for you to improve your money mindset. Even if your twin sibling swears by a certain tactic, it may not be right for you, and that’s okay.
Overcoming Your Financial Fears
Change can be scary, and so can money, so cut yourself some slack if you’re afraid of changing your money mindset. It can be comfortable to settle back into the familiar, even when it’s not working.
However, overcoming financial anxiety and developing a positive money mindset is possible. Forge ahead at your own pace, and explore your money mindset. What are the things that worry you about money? Where are your biggest fears coming from?
As you unpack that, remind yourself of your motivation to change. Keep your goals at the forefront, and encourage yourself to take a step in that direction. Taking a small but concrete action toward your goals is how to develop resilience, a key characteristic for succeeding in life.
Recommended: Should You Pay Off Student Loans or Invest?
Avoid Dwelling on the Past
As you attempt to change your money mindset, there may be errors from the past sticking in your mind, reinforcing the idea that you are bad at financial management. Dwelling on the past can stop you from creating a different future. The failures, mistakes, and traumas from the past are real — but they don’t have to define you. For example, if you’ve endured a romantic breakup, that doesn’t mean you can’t date again and find love. In the same way, just because you had too much credit debt recently doesn’t mean you can’t get that issue wrangled.
It’s a good idea to jettison this kind of looking-back viewpoint. Instead, try putting your effort toward what you can change in the present and strive to achieve in the future.
The Takeaway
Your money mindset is the attitude and beliefs that form your relationship with your personal finances and it drives your financial habits. Since most people pick up unhealthy financial habits along with healthy ones, it’s crucial to recognize the financial beliefs that aren’t serving you. Then you can set about changing your money mindset and shifting your behavior to better achieve your goals.
If you need help saving and budgeting, see how SoFi can help you bank better. When you open an online bank account with us and sign up for direct deposit, you’ll enjoy a stellar APY, no account fees, and automatic saving features. Together, these perks can help you take control of your finances and improve your money mindset.
FAQ
How do I get rid of a money scarcity mindset?
The belief that you never have and never will have enough money is part of your money mindset. To change that belief, identify where the mindset came from and make a positive change, such as setting a small savings goal and achieving it.
What is a poor money mindset?
A poor money mindset consists of unproductive beliefs about money that lead to negative financial decisions and habits. An unhealthy relationship with money when growing up or having made past financial mistakes can create a poor money mindset.
How is a money mindset formed?
You form your money mindset through the financial beliefs you hold as true. Your childhood, peers, and financial successes and failures help define your money mindset.
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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 4.50% 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 8/27/2024. There is no minimum balance requirement. Additional information can be found at http://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.
SOBK0622041
Dec
14
2022
What Is a Shareholder Activist?
A shareholder activist is a hedge fund, institutional investor, or wealthy individual who uses an ownership stake in a company to influence corporate decision-making. Shareholder activists, sometimes called activist investors, typically seek to change how a company is run to improve its financial performance. However, they may also have other objectives, such as increasing transparency or promoting social responsibility.
Activist shareholders can impact the way a company is managed, thus affecting its stock price. As such, you may benefit from understanding shareholder activism and how these investors may impact the stocks in your portfolio.
How Shareholder Activism Works
Shareholder activism is a process where investors purchase a significant stake in a company to influence the management of the company. When an investor builds up a large enough stake in a company, this usually opens up channels where they may discuss business proposals directly with management.
Activist investors may also use the shareholder voting process to wield influence over a company if they believe it is mismanaged. This more aggressive tactic may allow activist shareholders to nominate their preferred candidates for the board of directors or have a say on a company’s management decisions.
Activist investors typically own a relatively small percentage of shares in a company, perhaps less than 10% of a firm’s outstanding stock, so they may need to convince other shareholders to support their proposals. They often use the media to generate support for their campaigns, discussing their plans with CNBC, Bloomberg, The Wall Street Journal, and other outlets.
Shareholder activists may also threaten lawsuits if they do not get their way, claiming that the company and its board of directors are not fulfilling their fiduciary duties to shareholders.
💡 Recommended: Stakeholder vs. Shareholder: What’s the Difference?
Activist investors’ goals can vary. Some investors may want to see companies improve their environmental and social impact, so they will suggest that the company adopt a Corporate Social Responsibility framework. Other investors try to get the company to adopt changes to unlock shareholder value, like selling a part of the company or increasing dividend payouts.
However, shareholder activism can also be a source of conflict between shareholders and management. Some activist investors may prefer the company unlock short-term gains that benefit shareholders, perhaps at the expense of long-term business operations. These investors may exit a position in a company once they unlock the short-term gains with little concern for the company’s future prospects.
Types of Shareholder Activists
There are three primary types of shareholder activists: hedge funds, institutional investors, and individual investors. Each type of shareholder activist has its distinct objectives and strategies.
Hedge Funds
Hedge funds are private investment vehicles usually only available to wealthy individuals who make more than $200,000 annually or have a net worth over $1 million. These funds often take a more aggressive approach to shareholder activism, like public campaigns and proxy battles, to force a company to take specific actions to generate a short-term return on its investment.
Institutional Investors
Institutional investors are typically large pension funds, endowments, and mutual funds that invest in publicly-traded companies for the long term. These investors often use their voting power to influence a company’s strategy or management to improve their investment’s financial performance.
Individual Investors
Though less common than hedge funds and institutional investors, very wealthy individual investors sometimes use their own money to buy shares in a company and then push for change.
Examples of Shareholder Activists
Shareholder activism became a popular strategy in the 1970s and ‘80s, when many investors – called “corporate raiders” – used their power to push for changes in a company’s management. Shareholder activism has evolved since this period, but there are still several examples of activist investors
For example, Carl Icahn is one of the most well-known shareholder activists who made a name for himself as a corporate raider in the 1980s. He was involved in hostile takeover bids for companies such as TWA and Texaco during the decade.
Since then, Icahn has been known for taking large stakes in companies and pushing for changes, such as spin-offs, stock buybacks, and management changes. More recently, Icahn spearheaded a push in early 2022 to nominate two new directors to the board of McDonald’s. His goal was to get McDonald’s to change its treatment of pigs. However, his preferred nominees failed to get elected to the board.
Another well known activist investor is Bill Ackman, the founder and CEO of Pershing Square Capital Management, a hedge fund specializing in activist investing. Ackman is known for his high-profile campaigns, including his battle with Herbalife.
In 2012, Ackman shorted the stock of Herbalife, betting the company would collapse. He accused Herbalife of being a pyramid scheme and called for a government investigation. Herbalife denied the allegations, and the stock continued to rise. Ackman eventually closed out his position at a loss.
💡 Recommended: Short Position vs Long Position, Explained
Other examples of shareholder activists include Greenlight Capital, led by David Einhorn, and Third Point, a hedge fund founded by Dan Loeb.
In 2013, Einhorn took a stake in Apple and pushed for the company to return more cash to shareholders through share repurchases and dividends. Apple eventually heeded his advice and initiated a plan to return $100 billion to shareholders through dividends and buybacks.
In 2011, Loeb’s hedge fund took a stake in Yahoo and pushed for the company to fire its CEO, Scott Thompson. Thompson eventually resigned, and Yahoo appointed Loeb to its board of directors. More recently, in 2022, Loeb took a significant stake in Disney and started a pressure campaign calling on the company to spin-off or sell ESPN. However, he eventually backed off that suggestion.
Is Shareholder Activism Good for Individual Investors?
Depending on the circumstances, a shareholder activist campaign may be good for investors. Some proponents argue that shareholder activism can improve corporate governance, promote ESG investing, and lead to better long-term returns for investors.
Others contend that activist investors are primarily interested in short-term gains and may not always have the best interests of all shareholders in mind. While individual investors may benefit from a stock’s short-term spike after an activist shareholder’s campaign, this rally may not last for investors interested in long-term gains.
The Takeaway
Shareholder activists use their financial power to try to influence the management of publicly traded companies. Because activist investors often leverage the media to promote their goals, individual investors may read about these campaigns and worry about how they could affect their holdings.
Generally, the impact of shareholder activism on investors depends on the specific goals of the activist and the response of the company’s management. If an activist successfully pressures management to make changes that improve the company’s performance, this can increase shareholder value. However, if an activist’s campaign is unsuccessful or the company’s management resists the activist’s demands, this can lead to a decline in the stock price.
Though it seems like the actions of activist investors can lead to stock volatility and uncertain outcomes, it doesn’t mean you should avoid investing in the targeted companies. The stocks targeted by a shareholder activist can still be part of a well-rounded portfolio, particularly if you believe in the proposed changes. And if you want to build your own diversified portfolio, SoFi can help. With a SoFi online brokerage account, you can buy and sell stocks and exchange-traded funds (ETFs) with no commissions, for as little as $5.
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SoFi Invest® INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
SOIN0522007
Dec
13
2022
January Effect: What It Is and Is It Good for Investors?
The January Effect is a term that some financial market analysts use to classify the first month as one of the best-performing months, stock-wise, during the year. Analysts and investors who believe in this phenomenon claim that stocks have large price increases in the first month of the year, primarily due to a decline in share prices in December. Theoretically, following the dip in December, investors pour into stocks and boost prices in January.
However, many analysts claim that the January Effect and other seasonal anomalies are nothing more than market myths, with little evidence to prove the phenomenon definitively. Nonetheless, it may be helpful for investors to understand the history and possible causes behind the January Effect.
What Is the January Effect?
As noted above, the January Effect is a phenomenon in which stocks supposedly perform well during the first month of the year. The theory is that many investors sell holdings and take gains from the previous year in December, which can push prices down. This dip supposedly creates buying opportunities in the first month of the new year as investors return from the holidays. This buying can drive prices up, creating a “January Effect.”
Believers of the January Effect say it typically occurs in the first week of trading after the New Year and can last for a few weeks. Additionally, the January Effect primarily affects small-cap stocks more than larger stocks because they are less liquid.
To take advantage of the January Effect, investors can either buy stocks in December that are expected to benefit from the January Effect or buy stocks in January when prices are expected to be higher due to the effect. Investors can also look for stocks with low prices in December, but have historically experienced a surge in January, and buy those stocks before the increase.
💡 Recommended: How To Know When to Buy, Sell, Or Hold a Stock
What Causes the January Effect?
Here are a few reasons why stocks may rise in the first month of the year.
Tax-Loss Harvesting
Stock prices supposedly decline in December, when many investors sell certain holdings to lock in gains or losses to take advantage of year-end tax strategies, like tax-loss harvesting.
With tax-loss harvesting, investors can lower their taxable income by writing off their annual losses, with the tax timetable ending on December 31. According to U.S. tax law, an investor only needs to pay capital gains taxes on their investments’ total realized gains (or losses).
For example, suppose an investor owned shares in three companies for the year and sold the stocks in December. The total value of the profit and loss winds up being taxed.
Company A: $20,000 profit
Company B: $10,000 profit
Company C: $15,000 loss
For tax purposes, the investor can tally up the total investment value of all three stocks in a portfolio — in this case, that figure is $15,000 ($20,000 + $10,000 – $15,000). Consequently, the investor would only have to pay capital gains taxes on $15,000 for the year rather than the $30,000 in profits.
If the investor still believes in Company C and only sold the stock to benefit from tax-loss harvesting, they can repurchase the stock 30 days after the sale to avoid the wash-sale rule. The wash-sale rule prevents investors from benefiting from selling a security at a loss and then buying a substantially identical security within the next 30 days.
💡 Recommended: Tax Loss Carryforward
A Clean Slate for Consumers
U.S. consumers, who have a robust say in how the American economy will perform, traditionally view January as a fresh start. Adding stocks to their portfolios or existing equity positions is a way consumers hit the New Year’s Day “reset” button. If retail investors buy stocks in the new year, it can result in a rally for stocks to start the year.
Moreover, many workers may receive bonus pay in December or January may use this windfall to buy stocks in the first month of the year, adding to the January Effect.
Portfolio Managers May Buy In January
Like consumers, January may give mutual fund portfolio managers a chance to start the year fresh and buy new stocks, bonds, and commodities. That puts managers in a position to get a head start on building a portfolio with a good yearly-performance figure, thus adding more investors to their funds.
Additionally, portfolio managers may have sold losing stocks in December as a way to clean up their end-of-year reports, a practice known as “window dressing.” With portfolio managers selling in December and buying in January, it could boost stock prices at the beginning of the year.
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Is the January Effect Real?
The January Effect has been studied extensively, and there is evidence to suggest that it is somewhat real. Studies have found that small- and mid-cap stocks tend to outperform the market during January because they are less liquid.
But some analysts note that the effect has become less pronounced in recent years due to the rise of tax-advantaged investing accounts, like 401(k)s and individual retirement accounts (IRAs). Investors who use these accounts may not have a reason to sell in December to benefit from tax-loss harvesting. Therefore, while the January Effect may be somewhat real, its impact may be more muted than in the past.
January Effect and Efficient Markets
However, many investors claim that the January Effect is not real because it is at odds with the efficient markets hypothesis. An efficient market is where the market price of securities represents an unbiased estimate of the investment’s actual value.
Efficient market backers say that external factors — like the January Effect or any non-disciplined investment strategy — aren’t effective in portfolio management. Since all investors have access to the same information that a calendar-based anomaly may occur, it’s impossible for investors to time the stock market to take advantage of the effect. Efficient market theorists don’t believe that calendar-based market movements affect market outcomes.
The best strategy, according to efficient market backers, is to buy stocks based on the stock’s underlying value — and not based upon dates in the yearly calendar.
History of the January Effect
The phrase “January Effect” is primarily credited to Sydney Wachtel, an investment banker who coined the term in 1942. Wachtel observed that many small-cap stocks had significantly higher returns in January than the rest of the year, a trend he first noticed in 1925.
He attributed this to the “year-end tax-loss selling” that occurred in December, which caused small-cap stocks to become undervalued. Wachtel argued that investors had an opportunity to capitalize on this by buying small-cap stocks during the month of January.
However, it wasn’t until the 1970s that the notion of a stock rally in January earned mainstream acceptance, as analysts and academics began rolling out research papers on the topic.
The January Effect has been studied extensively since then, and many theories have been proposed as to why the phenomenon may occur. These include ideas discussed above, like tax-loss harvesting, investor psychology, window-dressing by portfolio managers, and liquidity effects in stocks. Despite these theories, the January Effect remains an unexplained phenomenon, and there is a debate about whether following the strategy is beneficial.
The Takeaway
Like other market anomalies and calendar effects, the January Effect is considered by some to be evidence against the efficient markets hypothesis. Nevertheless, there is evidence that the stock market does perform better in January, especially with small-cap stocks.
Whether one believes in the January Effect or not, it’s always a good idea for investors to use strategies that can best help them meet their long-term goals.
Ready to start investing or expanding your existing portfolio? A SoFi Invest® online brokerage account offers both active investing, which allows members to choose stocks and ETFs, as well as automated investing, where your money will be invested based on your goals and risk tolerance.
SoFi Invest® INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
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.
SOIN1122040
Nov
21
2022
15 Ways to Save Money on Clothes
For many people, clothing is a favorite purchase, and shopping for new looks is practically a hobby. Fashion is a way to express your personal style; a new pair of jeans or boots can be a major mood-lifter.
But let’s face it, clothes can be expensive. If fashion is your weakness, it can take a big bite out of your budget. According to the Bureau of Labor Statistics, the average American household spends $1,754 a year on apparel and related services. A survey by Credit Donkey found women spend an average of $571 per year on clothing, compared to men who spend an average of $323 per year.
But some people spend considerably more, ringing up bigger bills by buying the latest handbag or designer clothes that can add the equivalent of a student loan payment to your monthly bills.
These purchases can add up over time and feel like a waste of money of your hard-earned cash. So here, learn some ways to reduce the amount you spend on garments, including:
• How to save money on clothes
• How to know when to shop to get the best deals
• How to trade what you own (but are tired of) for new gear
• How to care for your clothing so it lasts longer.
Money-Saving Tips for Buying Clothes
There are ways you can cut down on your clothing expenses but still score some pieces you can’t wait to wear. Here’s 15 suggestions on how you can save money on clothes without feeling deprived or out of sync with the latest styles.
1. Shop the End-of-Season Sales
Ever notice how spring and summer clothing seems to go on sale in June or July? Or fall and winter clothes in January? The reason is because stores need to sell that merchandise so they can make room for next season’s items. Time it right, and you can scoop up current seasonal clothing at steep discounts. Just don’t go shopping the second that next season’s looks hit the racks.
2. Host a Clothing Swap
You know the saying, someone else’s trash might be your treasure. A cost-free way to get some new pieces is by arranging a clothing swap. The ground rules: Everyone brings clean, gently used clothes they’re looking to unload, and attendees get to sift through other’s clothing and add to their wardrobe for free.
A clothing swap is a great way to combine socializing and “shopping.” If you want to host one, heed this advice:
Make sure you’ve got a big enough space where everyone can comfortably peruse and try on items.
• Invite people who are roughly the same clothing size.
• Set a minimum number of pieces they need to bring.
• Don’t feel like being the coordinator? Check out Meetup.com and Eventbrite.com to find swaps near you.
3. Ask for a Discount on Damaged Clothing
Here’s how to save money when shopping for clothes: If you find something you love but notice slight imperfections such as a small tear, loose thread, or a flaw in the fabric, bring it to the attention of a store employee. You might be able to get some dollars knocked off the retail price. If the salesperson doesn’t offer this, you can politely ask if the price can be lowered to reflect the garment’s condition.
Think it’s not worth the trouble? Remember why saving money is important. Every little bit of extra cash you sock away can be used to pay down debts or go towards a goal like funding a summer vacation.
4. Look for Coupon or Promo Codes
Before making a purchase, search the internet to see if the retailer offers a store coupon or promo code you can use when shopping online. You can find available coupon or discount codes at sites such as Retailmenot.com, Rakuten.com and BeFrugal.com, which all offer cash back for purchases made. Many times, if you are a first-time customer, you can snag a discount and/or free shipping by signing up for email announcements.
Quick Money Tip:Typically, checking accounts don’t earn interest. However, some accounts will pay you a bit and help your money grow. An online bank account is more likely than brick-and-mortar to offer you the best rates.
5. Mend Your Clothes
Are there things hanging in your closet you’re not wearing simply because a button is missing or the garment has a small hole? Instead of taking it to a tailor, buying something new, or avoiding it altogether because it needs repair, try fixing it on your own. Basic mending doesn’t require a lot of tools and is pretty easy.
As long as you’ve got the basics such as a needle, thread, scissors, or buttons if needed, you’re good to go. If you’re not sure about your hand sewing skills, you can find a slew of how-to videos on YouTube.com. Also check out Japanese mending, which elevates visible mending into an art form.
5. Buy Generic Brands for the Basics
When it comes to certain articles of clothing, purchasing a generic brand over a name or designer one can save you money without jeopardizing your style. Any item you wear under something, like a tank top or a tee shirt, doesn’t need a fancy label to serve the purpose. Why buy a white tee at a high-priced store for $50 or $90 when a similar one at a national chain retailer costs only $5?
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6. Create a Capsule Wardrobe
Having a capsule wardrobe means you’ve created a streamlined clothing collection that features well-made, non-trendy pieces that can all be mixed and matched. The idea is to spend a little more on the items initially. In the long run, however, you save money because these higher quality garments will last longer and not have to be replaced every few months.
A capsule wardrobe also offers timeless, versatile clothing choices instead of a closet full of flash-in-the-pan styles. Not having a large wardrobe may also benefit your overall wellness. One study found 37% of people said minimizing their wardrobe would reduce the stress of getting ready every day.
7. Wash Your Clothes Properly
Laundry mistakes can damage your clothes. For instance, washing certain fabrics in hot water can cause shrinkage, fading, and wrinkling, as well as can trigger dye to run. However, using cold water is much more clothing-friendly so you won’t be in danger of destroying a garment. You can also save on your gas or electric bill since an estimated 75% to 90% of all of the energy used in your washer goes to heating up the water.
Another way to extend the life of your clothes is by not washing every single item after one wear, with the exception of course, of underwear and socks. Why? Each time you wash your clothes, you’re putting stress on the fabric. By wearing your clothes a few times before washing, you can minimize any damage. Doing so will not only save your clothes, but you’ll also spend less on laundry detergent.
8. Borrow from a Friend
Going to a gala event or attending a wedding but can’t afford to buy anything? Consider asking that generous, stylish friend if you might be able to borrow from their closet. This can spare your bank account and allow you to get dressed up in something new and fresh to you. The only cost you might incur is taking the garment to the dry cleaners after.
Don’t have a friend with a fab wardrobe? Consider renting an outfit for your big night out.
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9. Figure Out Cost Per Wear
Looking for more ideas for how to save money on clothes? Maybe it’s time for a bit of easy math. Since you likely want to feel as if you’re getting your money’s worth when you buy an article of clothing, pay attention to how often things get worn. If a piece is costly and you’ve only worn it once, you’re not reaping its full value.
You can figure out if your money was well spent by calculating the cost-per-wear ratio. Just divide the item’s cost by how many times you wear it. For example, if you buy a coat for $100 and wear it 100 times, your cost per wear is $1. On the flip side, if you’ve only worn it five times, each wear is equivalent to $20 which probably hasn’t given you the most bang for your buck. Before you buy the clothing, take time to do the math to assess how many times you realistically expect to wear it.
10. Upcycle Your Clothes
Upcycling clothing is taking something old, recycling it, and making it into something new to wear. Repurposing clothing is one of the many interesting ways you can save money.
Upcycling clothes can include sewing, cutting, dyeing, or even updating a cardigan with new buttons. Fun examples of upcycling include hand-painting a jean jacket, cutting a pair of jeans into shorts, creating a tote bag from a sweatshirt, or transforming a wool blanket into an autumn coat or cape.
Upcycling is also eco-friendly. According to the Council for Textile Recycling, the average American throws away 70 pounds of clothing and other textiles every year. Not only does upcycling help you buy less and keep excess fabric out of landfills, it’s a way to save money and live sustainably.
11. Retool Your Clothing Budget
One way to stop overspending on clothing is to figure out how much you’re actually shelling out each month and then set a limit. There are several different budgeting techniques, such as the 50-30-20 rule. This divides your take home money into three categories: needs (50%), wants (30%) and savings and debt repayment (20%). ****
The needs category encompasses expenses you can’t avoid like groceries, housing, and utilities. Generally clothes fall into the discretionary wants group along with entertainment, dining out, monthly subscription expenses. Some financial experts suggest limiting clothing spending to 2 to 2.5% of your take-home pay which equals between 6 to 8% of the 30% of non-essential purchases. If you make $4,000 a month, 30% of that amount equals $1,200. 6 to 8% of that figure equals an allotment of $72 to $96 a month for apparel. If that doesn’t sound like enough, you’ll want to see what other non-essentials in the wants category you can scale back.
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12. Go Shopping in Your Own Closet
Do you really know what’s in your closet or tucked into all your dresser drawers? Go through your entire wardrobe, and you might find things you forgot you had or thought you got rid of years ago. Unearthing items you haven’t seen or worn in awhile can spark creativity with clothing combinations and stretch your wardrobe.
On the other hand, you may realize some pieces lingering in the corners of your closet hold no interest. If that’s the case, keep reading for details on how you might get some money for it.
13. Buy and Sell Used Clothing
There’s no question you can save money by shopping for second-hand clothing. You can find bargains at a variety of places including thrift stores, consignment shops, garage, yard, or stoop sales, and even for free through community groups such as Buy Nothing. Two sites, among others, where you can sell your old stuff are Poshmark.com and Depop.com. Both are great for finding brand-name and designer garb for cheap.
And, the pickings are plentiful since secondhand shopping is at an all time-high with 82% of Americans buying or selling used goods, according to OfferUp’s Recommerce Report.
What’s more, some vintage and used clothing shops also buy from people like you. Check out Buffalo Exchange and Crossroads Trading; you might get cash for your gear or be able to swap it for pieces you love.
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14. Don’t Give into Temptation
One way to curb clothes spending is to put a temporary kibosh on shopping for these items. Try not to put yourself in situations where you may feel the urge to buy clothing. For instance, many people spend money when bored. Instead of going shopping when you have an unplanned afternoon, perhaps you could explore new hobbies.
Also, when you find yourself with the urge to shop, stop and ask yourself, “Do I truly need this or do I simply want it?”
You can also commit to a 30-day no-spending challenge on shopping for anything to wear. You may notice you have more money, less credit card debt, and don’t feel the need to buy unnecessary clothing items after you see the rewards of this month of not buying.
Recommended: Questions You Should Ask Before Making an Impulse Buy
15. Learn When Retailers Have Their Biggest Sales
Start paying attention and you’ll see a pattern as to when major retailers host their big sales. Holiday weekends such as Martin Luther King Jr.’ Day, Memorial Day, Labor Day, and the Fourth of July are popular times for stores to feature great buys along with Black Friday. For online shopping, check out deals on Cyber Monday (the Monday right after Thanksgiving) and Amazon Prime Day.
You can also ask a salesperson at your favorite stores to give you the inside scoop on when certain items might be going on sale.
The Takeaway
Clothes shopping can be fun and an ego boost, but if you’re not mindful, it’s easy to rack up the bills and possibly find yourself mired in unnecessary debt. Many times, there are ways to cut back on buying clothes, make the pieces you have last longer, and breathe new life into your wardrobe without going broke. With creativity, knowledge, and some smart moves, you can still feel good about what you wear without spending as much.
FAQ
How can I stop spending money on clothes?
One of the best ways is to simply remove the temptation, especially if you’re prone to impulse spending. If you like to shop online, unsubscribe from retailer emails so you won’t be alerted to new items and sales. Feel the itch while scrolling your phone? Put it down; pick up a book, or watch a movie instead. When you’re out and about, resist going into your favorite stores. Vow to commit to a 30-day shopping sabbatical and see how much money you’re able to save as a result.
Are there ways I can take better care of my clothing so they’ll last longer?
Yes. Follow the washing instructions carefully, let items air-dry when possible (instead of exposing them to a hot dryer), and store them in a cool, clean, and dry environment out of the sunlight, which can cause fading. Also fold heavy sweaters instead of hanging them to prevent the fabric from stretching.
Should I only buy cheaper clothes?
No. Sometimes spending more means you’ll get a well-made, high-quality garment that will last for years. Look for these pieces on sale at major department stores and at discount retailers such as T.J. Maxx and Marshalls.
Photo credit: iStock/Phiwath Jittamas
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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