I Make $40,000 a Year, How Much House Can I Afford?

On a salary of $40,000 per year, you can afford a house priced at around $100,000-$110,000, assuming you have some money — say, $10,000 or $15,000 — for a down payment and are not already carrying debt, such as a car loan or student loan. The number can change quite a bit when you factor in your specific numbers:

•   Your debt

•   Your down payment

•   Your taxes, insurance (and homeowners association dues, if applicable)

•   Your interest rate

•   Your loan type

•   Your lender

Understanding how these factors play into home affordability can get you closer to finding a home you can afford on your $40,000 salary.

What Kind of House Can I Afford With $40K a Year?

On a $40,000 salary, you want to get the nicest home you can. But what amount of home mortgage loan you qualify for depends on a number of factors, including your debt, income, interest rate, down payment, type of loan, and lender.

Understanding Debt-to-income Ratio

You may have heard that debt can seriously derail your plan to buy a house, but you might not know exactly how it does that. Here’s the scoop: A potential lender will calculate your debt-to-income (DTI) ratio by adding all your monthly debts and dividing that number by your monthly income.

Your DTI ratio determines how much home you can afford. If you have more debt, you can’t afford a bigger monthly housing payment, which means you’ll qualify for a smaller home loan. For example, if your total debt amounts are $3,000 each month and your income is $6,000 per month, your debt-to-income ratio would be 50%. This is well above the 36% guideline many mortgage lenders want to see.


💡 Quick Tip: To see a house in person, particularly in a tight or expensive market, you may need to show the real estate agent proof that you’re preapproved for a mortgage. SoFi’s online application makes the process simple.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

Questions? Call (888)-541-0398.


How to Factor in Your Down Payment

A down payment can also drastically impact home affordability. If you have a larger down payment, you’ll be able to afford a higher-priced home. With a down payment of 20% or more, you’ll be able to avoid the added expense of private mortgage insurance (PMI), which will in turn increase the loan amount you’ll be able to qualify for.

Try using a mortgage calculator to see how different down payment amount can affect how much home you’ll be able to qualify for.

Factors That Affect Home Affordability

To complete the picture of home affordability, you’ll also need to consider these factors:

•   Interest rates A higher interest rate means you’ll qualify for a smaller home purchase price. A lower interest rate increases how much home you’ll be able to afford.

•   Credit history and score You’ll also see that your credit score directly affects home affordability. With a good credit score, you’ll qualify for a better rate, which means you’ll qualify for a higher mortgage.

•   Taxes and insurance Higher taxes and insurance can also affect home affordability. Your lender has to take into account how much you’ll be paying in taxes and insurance and include it as part of your monthly payment.

•   Loan type Different loan types have different interest rates, down payment options, and credit requirements, which can affect home affordability.

•   Lender Your lender may be able to approve you at a higher DTI ratio — some lenders will allow the DTI to be as much as 50%.

•   Area The cost of living in your state is a top factor in determining home affordability. Price varies greatly around the country, so you may want to consider the best affordable places to live in the U.S. if you’re open to moving.

How to Afford More House With Down Payment Assistance

If you make $40,000, how much house you can afford also depends on what programs you’re able to qualify for. Down payment assistance programs can help with home affordability. These programs offer a grant or a second mortgage to cover a down payment. These programs are often offered by the state or city you live in. They may be restricted to first-time homebuyers or low-income borrowers, but these programs are worth looking into. Examples include Washington state’s Home Advantage DPA and Virginia’s HOMEownership DPA. Look for programs in your state, county, and city. You may also want to read tips to qualify for a mortgage.


💡 Quick Tip: Backed by the Federal Housing Administration (FHA), FHA loans provide those with a fair credit score the opportunity to buy a home. They’re a great option for first-time homebuyers.1

How to Calculate How Much House You Can Afford

There are some guidelines lenders use to qualify borrowers for a mortgage. Knowing how home affordability is calculated can help you understand what income you need to make and what debts you need to pay off to qualify for a mortgage. Lenders often follow the 28/36 rule, looking for a housing payment less than 28% of a borrower’s income and total debt payments less than 36% of your income. Here’s how to calculate it.

Back-end ratio (36%): The back-end ratio is your debt-to-income ratio. Add together all of your debts (including the new mortgage payment) to make sure all debts are under 36% of your income. If your monthly income is $3,333 ($40,000/12 = $3,333), your debts (including the mortgage payment) should be no more than $1,200 ($3,333*.36).

Front-end ratio (28%): With a monthly income of $3,333, this number works out to $933.

The 35/45 Rule: It’s possible to qualify for a larger mortgage based on the 35/45 guideline, which is used at the discretion of your lender. With a monthly income of $3,333, the housing allowance (35% of your income) increases to $1,167 and the total monthly debts (45% of your income) increases to $1,500.

An easy way to calculate how much home you can afford is with a home affordability calculator.

Home Affordability Examples

For homebuyers with a $40,000 annual income (a $3,333 monthly income), traditional guidelines of a 36% debt-to-income ratio give a maximum house payment of $1,200 ($3,333 * .36). Each example has the same amount for taxes ($2,500), insurance ($1,000), and APR (6%) for a 30-year loan term.

Example #1: Too much debt

Monthly credit card debt: $100
Monthly car payment: $300
Student loan payment: $300
Total debt = $700 total debt payments

Down payment = $20,000
Maximum DTI ratio = $3,333 * .36 = $1,200
Maximum mortgage payment = $500 ($1,200 – $700)

Home budget = $54,748

Example #2: Low-debt borrower

Monthly credit card debt: $0
Monthly car payment: $100
Student loan payment: $0
Total debt = $100

Down payment: $20,000
Maximum DTI ratio = $3,333 * .36 = $1,200
Maximum mortgage payment = $1,100 ($1,200 – $100)

Home budget = $141,791

How Your Monthly Payment Affects Your Price Range

As shown above, your monthly debt obligations affect how much house you can afford. With a lot of debt, it’s hard to make a mortgage payment that qualifies you for the home you want.

It’s also important to keep in mind how interest rates affect your monthly payment. By paying so much interest over the course of 30 years, even small fluctuations in interest rates will affect your monthly payment. That’s why you see your neighbors scrambling to refinance their mortgages when interest rates drop.

Recommended: Home Loan Help Center

Types of Home Loans Available to $40K Households

There are different types of mortgage loans available for households in the $40K range:

•   FHA loans: With Federal Housing Administration loans, you don’t have to have perfect credit or a large down payment to qualify. In fact, you can apply for a FHA loan with a credit score as low as 500.

•   USDA loans: If you live in a rural area, you’ll definitely want to look at United States Department of Agriculture loans. You may be able to qualify for a USDA mortgage with no down payment and competitive interest rates.

•   Conventional loans: For borrowers with stronger financials, conventional loans are some of the least expensive mortgages in terms of interest rates, mortgage insurance premiums, and property requirements. They’re backed by the federal government, and if you’re able to qualify for a conventional mortgage, it could save you some money.

•   VA loans: For qualified veterans and servicemembers, the U.S. Department of Veterans Affairs loan is quite possibly the best out there. There are zero down payment options with great interest rates. If your credit is hurting, you still might be able to get a loan since the VA doesn’t have minimum credit score requirements (though the individual lender may).

The Takeaway

With proper planning, a salary of $40K should be able to get you into a home in many U.S. markets. However, you’ll want to make sure you keep a close eye on your credit score and save up for a down payment or find programs to help with one. Over time, the small, determined steps you take will lead you to your goals.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Is $40K a good salary for a single person?

You work hard for your salary, and a $40,000 salary for a single person is a good start, though it is below the median income for a single person, which is $56,929, according to data from the U.S. Census.

What is a comfortable income for a single person?

Comfortable depends on the cost of living where you live and your personal needs, but it can range from around $45,000 per year in Mississippi to $112,000 in Hawaii.

What is a liveable wage in 2024?

Your liveable wage depends on your area, working household members, and children. For example, it can range from $15.89 per hour for a single living in Beaumont, Texas, to $44.99 per hour for a household with three children in St. George, Utah.

What salary is considered rich for a single person?

A salary of $234,342 would put you in the top 5% of all earners in the U.S.


Photo credit: iStock/stevecoleimages

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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
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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What Are the Different Types of Stocks?

There are numerous types of stocks, categorized by company characteristics, size, region, sector, and more. Equipped with an understanding of different stock types, an investor can start building a diversified portfolio. Though all stocks can experience volatility and potentially lose value, holding a mix of different types of shares can mitigate the risk of being too heavily invested in any one category.

An Overview Of Stocks

A stock represents a percentage of ownership in a publicly traded company. So essentially, investors can own small pieces or “shares” of companies.

Generating returns via the stock market can usually happen in one of two ways. First, the value of the stock can increase over time, something known as capital appreciation. The second is through dividend payments, where companies make cash payouts periodically to all owners of that company’s stock. Some people make investments based on a company’s ability to pay consistent dividends, or “income.” Utility and telephone companies often fit into this bucket.

When you own a stock, you hold equity (or ownership) in that company. That’s why stocks are sometimes referred to as equities. Each individual share represents an equal proportion of ownership. Owners of stocks are often referred to as stockholders or shareholders.

💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

Categories of Stocks

There are several ways that different stocks are categorized, which is important to know if you’re brushing up on the stock market basics. Stocks are also sometimes classified by styles of investing. These categories often have to do with how that company makes money and how the stock is valued. You may often hear this associated when discussing value vs. growth stocks.

Value Stocks

Value stocks are stocks that are considered to be trading below their actual worth, and are a key component in value investing. Investors hope that by buying companies that are priced below their “true” value, they can profit as the gap narrows over time.

Growth Stocks

Growth stocks are companies that are growing at a fast pace or those that are expected to continue growing at a faster rate than other stocks or competitors. Investors can encounter higher valuations in growth investing.

Common Stock

Common stock represents shares of ownership in a corporation. When an investor receives common shares, they are typically also granted voting rights to the company and can participate in shareholder voting processes — usually one vote for each share. For investors, it can be helpful to understand the differences between common versus preferred stock.

Preferred Stocks

Preferred stocks make regular dividend payments, but holders of preferred shares often have zero or limited voting rights. If a company becomes financially insolvent however, preferred stockholders have a claim on assets before common shareholders do.

Exchange-traded Funds (ETFs)

Exchange-traded funds, or ETFs, group multiple securities into a single share. For instance, a stock ETF will hold numerous companies, while a bond ETF can hold many individual bonds, whether it’s a collection of Treasurys or high-yield debt. ETFs are popular because of the cheap, instant diversification they offer.

There are many types of ETFs, too, including low cost ETFs, and ETFs with their holdings concentrated in certain sectors.

Initial Public Offerings (IPOs)

An initial public offering (IPO) is the process of a private company listing and debuting on a public stock exchange. Investors can buy IPO shares on their first day of trading.

Special Purpose Acquisition Companies (SPACs)

SPACs are shell companies that go public on the stock exchange, and then try to find a private operating business to purchase.

Real Estate Investment Trusts (REITs)

REITs are companies that own and operate real estate, usually focusing on one type of property, such as warehouses, hotels or office buildings. There are pros & cons to investing in REITs. For example, one pro is that they tend to pay consistent dividends. Cons include sensitivity to interest rates, and taxed dividends.

Blue-Chip Stocks

Blue-chip stocks are stocks that large, well-established companies issue and usually have a long-standing history of growth. They’re generally considered to be financially sound, and may be considered lower-risk than other stocks.

Cyclical and Non-Cyclical Stocks

Cyclical investing concerns making stock selections surrounding economic changes, and cyclical stocks are those that may see their performance closely align with larger economic shifts. Non-cyclical stocks, on the other hand, do not see their performance tied to larger economic changes.

Defensive Stocks

Defensive stocks may be used as a part of a defensive investing strategy, and usually involves investing in stocks that may be seen as lower-risk. This can include blue-chip stocks, or stocks from sectories like utilities and consumer staples.

Penny Stocks

Penny stocks are low-priced stocks that generally trade for less than $5 per share, and many trade for less than $1. They’re usually risky, and highly-speculative stocks.

Income Stocks

Income stocks are a category of stocks that tend to offer regular, steady income to investors. That income generally comes in the form of dividends.

Environmental, Social, and Corporate Governance (ESG)

ESG stocks are those that may have certain non-financial criteria that appeal to certain investors. ESG stocks are shares of companies that are socially and environmentally responsible, though there is no universally-shared or accepted set of ESG criteria.

Different Market Caps

The sizes of stocks are classified by the market capitalization of the company’s publicly traded stock. Market cap is calculated by multiplying the stock price by the total number of outstanding shares.

Generally speaking, larger companies tend to be older, more established, and have greater international exposure — so a higher percentage of a large-cap company’s revenue comes from overseas. Meanwhile, smaller-cap stocks tend to be newer, less established and more domestically oriented. Smaller-cap companies can be riskier but also offer more growth potential.

Similarly, if you’re interested in buying mid-cap stocks, that means you’re investing in mid-sized companies — generally speaking.

stock market caps

While the market-caps that determine which companies are small or large can shift, here’s a breakdown that gives some rough parameters.

   Micro-Cap: $50 million to $300 million

   Small-Cap: $300 million to $2 billion

   Mid-Cap: $2 billion to $10 billion

   Large-Cap: $10 billion or higher

   Mega-Cap: $200 billion or higher

Types of Stock Classes

There are also stock classes that investors should be aware of, and those generally involve Class A, Class B, and Class C shares, which all may be issued by the same company. The specifics of each category will vary from company to company, too.

For some rough guidelines, though, Class A shares tend to have more voting power and higher priority for dividends. Class B shares may have lesser voting power than Class A shares, but no preferential treatment for dividends. Class C shares are often given to employees as a part of a compensation package, and may have associated trading restrictions.

💡 Quick Tip: What makes a robo advisor effective? Typically these automated investing services offer automatic deposits, a diversified portfolio of low-cost ETFs, and automatic rebalancing — all of which are designed to help you reach a specific goal. They can be less flexible and cost more than some other options, however.

Stocks By Sector

stock sectors

Additionally, stocks are often grouped by the industry that that company works within. According to the Global Industry Classification Standard (GICS), there are 11 recognized sectors, with numerous industries within those sectors. They include (but are not limited to):

   Energy: Energy equipment and services, oil, gas, and consumable fuels. If you want to invest in energy stocks, this is the category to look at.

   Materials: Chemicals, construction materials, containers and packaging, metals and mining

   Industrials: Aerospace and defense, building products, machinery, construction and engineering, electrical equipment, industrial conglomerates

   Consumer Discretionary: Automobiles, automobile components, household durables, leisure products

   Consumer Staples: Food products, beverage, tobacco, household products

   Health Care: Health care equipment and services, pharmaceuticals, biotechnology, life sciences

   Financials: Banks, insurance, consumer finance, capital markets, financial services

   Information Technology: IT services, software, communications equipment

   Communication Services: Diversified telecommunication services, media, entertainment

   Utilities: Electric utilities, gas utilities, water utilities, independent power and renewable electricity producers

   Real Estate: Real estate management and development, various REITs (retail, residential, office, etc.)

Again, these categories can be helpful to investors looking to diversify their portfolios. If you want to add some real estate stocks, or even invest in tech stocks, sector investing may be something to research further.

Note, too, that there may be other categories or sectors of stocks not listed above, such as retail stocks.

Stocks by Country

Different overseas stocks can be classified by the country or region in which they’re headquartered, even if the company’s operations are global. Individuals looking to invest in international stocks have found that they can do so easily with ETFs, which hold numerous foreign companies within a single share.

Regions that are commonly used in the world of stock investing are:

EAFE is an acronym which stands for Europe, Australasia, and the Far East. Investors may see this used when making investment choices, as the MSCI EAFE is a common index used for international stock funds. These countries are all “developed” nations, which means they have established financial markets, stable political climates, and mature economies.

Emerging-market stocks, which stocks with companies based out of countries whose economies are described as developing. Brazil, Russia, Mexico, China, and India are just a few emerging markets. Emerging markets may be riskier to invest in but may pose an opportunity for high rates of growth.

The Takeaway

There are numerous types of stocks on the market, and it can be important for investors to understand the differences between them. The stock market can be volatile and prone to dramatic declines, but in order to shield themselves from the risks, investors often create diversified portfolios by stocking their holdings through various different stock types.

Diversification is easier to do if an investor understands the different types of stocks that exist in the U.S. equity market. From mega-cap stocks to ETFs to emerging-market companies, there are a myriad of investing opportunities in the equity market.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

What are the benefits of investing in different types of stocks?

Investing in different types of stocks can be beneficial to investors as it can diversify their portfolio, which may help reduce investing risk as the market fluctuates.

What is the riskiest type of stock?

Penny stocks are likely the riskiest type of stock, as they are shares of companies that are new, unproven, and highly volatile. While there’s a big potential upside to investing in penny stocks, the risks are significant.

What stocks are best for beginners?

While it’ll depend on the individual investor, beginner investors may want to look at investing in blue chip stocks, ETFs, or other stocks that have either built-in diversification, or a long track record of viability, which can be a sign of lower associated risks.

What are the risks and opportunities of investing in emerging markets?

Emerging markets can be volatile or unstable, and there may be political, monetary, and economic risks that investors are unaware of in those markets.


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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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5 Investment Strategies for Beginners

Investing is a powerful tool that allows you to put your money to work to help you reach future financial goals. But if you’re new to investing, you may be asking yourself what investment strategies should you pursue?

Here’s a guide to help you get started.

5 Popular Investment Strategies for Beginners

1. Asset Allocation

Once you’ve opened an investment account and you begin to build your portfolio, asset allocation is an important strategy to consider to help you balance potential risk and rewards. A typical portfolio might divide its assets among three main asset classes: stocks, bonds, and cash. Each asset class has its own risk and return profile, behaving a little bit differently under different market circumstances.

For example, stocks tend to offer the highest gains, but they are also the most volatile, presenting the most potential for losses. Bonds are generally considered to be less risky than stocks, while cash is typically more stable.

The proportion of each asset class you hold will depend on your goals, time horizon, and risk tolerance. Your goal is how much you aim to save. Your time horizon is the length of time you have before reaching your goals. And your risk tolerance is how much risk you’re willing to take to achieve your goals.

Your asset allocation can shift over time. For example, someone in their 30s saving for retirement has a long time horizon and may have a higher risk tolerance. As a result their portfolio may contain mostly stocks. As that person grows older and nears retirement, their portfolio may shift to contain more bonds and cash, which are typically less risky and less likely to lose value in the short-term.

💡 Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.

2. Diversification

Another way to help manage risk in your portfolio is through diversification, building a portfolio with a mix of investments across assets to avoid putting all your eggs in one basket.

Here’s how it works: Imagine you had a portfolio consisting of stock from one company. If that stock does poorly your entire portfolio suffers.

Now imagine a portfolio consisting of many stocks, from companies of all sizes and sectors. Not only that, it also holds other investments, including bonds. If one stock suffers, it will have a much smaller effect on your overall portfolio, spreading out the risk of holding any one investment.

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.


*Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

3. Rebalancing

Your portfolio can change over time, shifting your assets allocation and diversification. For example, if there is a bull market and stocks outperform, you may discover that you now hold a greater portion of your portfolio in stocks than you had intended.

At this point, you may need to rebalance your portfolio to bring it back in line with your goals, time horizon, and risk tolerance. In the example above, you might decide to sell some stock or buy more bonds, for instance.

4. Buy and Hold Strategy for Investing

Market fluctuations are a natural part of the market cycle. However, investors may get nervous and be tempted to sell when prices drop. When they do, investors might lock in their losses and miss out on subsequent market rebounds.

Investors practicing buy-and-hold strategies tend to buy investments and hang on to them over the long term, regardless of short-term movements in the market. Doing so may help curb the tendency to panic sell, and it might also help minimize fees associated with trading.

Buy and hold might also affect an investor’s taxes. Holding a long-term investment vs. short-term one can make a big difference in terms of how much an individual pays in taxes.

If you profit from an investment after owning it for at least a year, it’s a long-term capital gain. Less than that is short-term. Capital gains tax rates can change, but generally, longer-term investments are taxed at a lower rate than short-term ones.

💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

5. Dollar-Cost Averaging

Dollar-cost averaging is a strategy in which individuals invest on a regular basis by making fixed investments on a regular schedule regardless of price.

For example, say an investor wants to invest $1,000 every quarter in an exchange-traded fund (ETF) that tracks the S&P 500. Each quarter, the price of that fund will likely vary — sometimes it will be up, sometimes it will be down. The amount of money the individual invests remains the same, so they are buying fewer shares when prices are high, and more shares when prices are low.

This strategy can help individuals avoid emotional investing. It’s also straightforward and can help investors stick to a plan, rather than trying to time the market.

The Takeaway

Investing is an ongoing process. Your life, goals, and financial needs will all change as your circumstances do. For example, may you get a raise at work, get married and have a child, or decide to retire early. Factors like these will change how much money you need to save and how you invest. Monitor your portfolio and make adjustments as needed.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.


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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.


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


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


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

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

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Guide to Filing Your Taxes for the First Time

Beginner’s Guide on How to File Taxes

Welcome to the wonderful world of filing taxes, a key aspect of adulting. The process can be intimidating, especially for first-timers, but you will get the hang of it. Actually, once you’ve filed a couple of times, it can get easier, because you know just which documents and numbers you’ll need to complete your forms. That applies whether you file on your own or work with a tax preparer.

So, here’s a great starting point for learning how to file taxes when you aren’t so familiar with the procedure. Read on for the details you need, including:

•   What you need to file taxes

•   Where you can file your taxes

•   How can you pay your taxes

•   Tips for first-time tax filers

•   Mistakes to avoid when filing your taxes

What Do You Need to File Your Taxes?

If this is your first time filing, it’s a good idea to gather everything you need before you sit down at a computer or with an accountant. Here’s what you’ll need:

•   Social Security number: If you aren’t sure, ask your parents or legal guardians. Once you start filing taxes, it’s a good idea for you to keep your Social Security card and other important documents, like your birth certificate, instead of leaving them at your parents’ house.

•   Wage and income information: For most first-time filers, this will simply be a W-2 form from your employer.

◦   If you did any freelance or contacted work, you should receive 1099 forms from each entity that paid you.

◦   If you have a bank account or investments that earned interest, and you will have received forms for those, typically a 1099-INT or 1099-DIV.

•   Documentation for tax credits and deductions: When doing your taxes at a young age, it is unlikely that you will qualify for many tax credits and deductions, if any at all. And because the standard deduction has increased significantly over the years, you will likely take the standard deduction (instead of itemized), for which you won’t need any documentation.

◦   If you’re a student, also look for the form 1098-T from your school, which details tuition payments you have made and funds received (such as grants), to help you identify whether you are eligible for any deductions. In addition, be aware that some college scholarships or grants may be considered taxable income.

•   Bank account info: If you expect to receive a refund and want the money electronically deposited into your bank account, you need to have your account number and routing number at the ready. If you owe money, you can pay from your bank account, a credit or debit card, or a paper check or money order.

The IRS also advises checking with parents before filing to see if they are claiming you as a dependent.

💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 3.80% APY, with no minimum balance required.

Where Can You Fill Out Your Taxes?

When learning how to do taxes for the first time, one big question is exactly where to get this done. The IRS allows you to fill out your taxes in several ways, either on paper or electronically.

Filing Online

You can file online directly through the IRS website with a tool called IRS Free File. And if your adjusted gross income (AGI) is $84,000 or less, the IRS even offers free guided tax preparation software. Even if you brought in more than $84,000, the IRS makes its tax forms available for e-file free of charge.

However, navigating tax forms can be overwhelming. Purchased tax software comes with educational resources and interactive platforms that prompt you for the correct information. Using tax software could help filers avoid math errors and find deductions and tax credits they may not have otherwise known about.

As a filer, it’s up to you to research popular tax software solutions (such as TurboTax, H&R Block, TaxSlayer, and TaxAct) and find the option that suits you best. Prices can range from about $25 to $89 and up.

Filing Manually

The old method of filing by hand with pen and paper is still possible, though these returns may take longer to process.

Because pen and paper can potentially lead to errors, it is a good idea for first-time and veteran filers to utilize free or purchased online software or even a tax professional.

Recommended: How Long Does It Take for the IRS to Mail Tax Refund Checks?

Filing With a Professional

Tax professionals can file manually and online, but the IRS encourages all accountants to utilize the online option. For a speedy return and fewer errors, most tax professionals will likely file electronically for you.

As a first-time filer, your tax situation will not likely be complex enough to warrant a tax professional. But as your finances become more complicated — with investments, real estate, small business ownership, and more — a tax accountant may make sense.

Another benefit of working with an accountant can be their training and knowledge. A professional may be able to help you find (legal) ways to pay less taxes.

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How Do You Pay Your Taxes?

When filing taxes for the first time, there’s a good chance you will not owe anything. In the event that you do owe the government money, however, you have multiple options for paying your taxes:

•   IRS Direct Pay: The amount owed will be debited from a checking or savings account.

•   Credit or debit card: You can pay your outstanding tax balance with a debit or credit card online. This is a nice option if you have cash back rewards, but you will typically be paying a high interest rate if you carry a balance.

•   Check or money order: The IRS still accepts checks in the mail, as well as money orders.

•   Installment agreement: If you cannot afford your tax bill all at once, you can use the IRS Online Payment Agreement tool to apply for an installment plan.

Filing Tips for First-Timers

Feeling nervous about doing taxes for the first time? Here are some tips for making the experience easier; consider them steps for how beginners can file taxes.

1. Watch Your Income

To determine if you need to file, you can watch your income throughout the year. Once you pass a certain threshold, you will be required to file. This filing threshold can vary depending on your situation, so you’ll need to check out the IRS filing requirements .

If you know that you will make enough money to pay taxes, it’s a good idea to ensure your employer is withholding the proper amount of money from each paycheck for federal, state, city, and even school district taxes. If you believe your employer is not withholding enough (or is withholding too much), the IRS recommends filling out a Form W-4 to change your withholding.

Recommended: What Tax Bracket Am I In?

2. Gather All Necessary Documents

Tax documents will start arriving in the mail or digitally early in the new year, typically near the end of January or in early February. As these documents come in, it’s wise to store them in a safe place, like a manila folder in a fire safe or an encrypted folder on your computer. When it’s time to file, you’ll be able to access all your tax forms quickly and easily, rather than hunting all over for them. Being organized this way can also help you be aware of any missing tax documents.

If your tax situation is more complex — for instance, if you are self-employed, receive student loans, or make charitable donations — it’s a good idea to hold on to relevant forms throughout the year. Self-employed individuals, for example, may want to save receipts for business expenses incurred throughout the year. These can help you claim tax deductions for freelancers.

3. Learn About Potential Credits

When filing taxes for the first time, you may not be eligible for many tax credits. Tax preparation software, a tax professional, or even the IRS’s guided filing tool may be able to help you find out which credits you qualify for.

Before filing on your own, it could be wise to review the IRS list of tax credits for individuals to see if any apply to you.

4. Understand Potential Deductions

Similarly, most first-time filers will want to take the standard deduction instead of itemizing because it may offer the larger discount. However, the IRS does offer itemized deductions for student loan interest and work expenses, if you are self-employed.

You can familiarize yourself with IRS deductions, including tax deductions for college students (if that applies) before filing to determine if itemizing deductions is right for you.

5. Hit Your Deadlines

Tax Day in the United States is traditionally April 15, but if that date falls on a Saturday, Sunday, or legal holiday, the tax deadline moves out to the next business day.

If you owe estimated taxes each quarter (say, if you are self-employed), you will need to pay taxes four times a year. Working with a tax accountant may be in your best interest. Members of the Armed Forces may have special rules governing the due date of their taxes.

Individuals can also apply for a tax extension; this extends the due date of filing, but not the due date of payment. That means you might get a six-month extension to file the paperwork, but if you have not paid what you owe by April 15, you could be subject to late penalties.

Do You Need to File Taxes Every Year?

Not everyone is required to file tax returns every year. It all comes down to your unique tax situation and how much you earned. However, if you earn income throughout the year, there is a good chance you will need to file. It’s a good idea to review the IRS filing requirements or speak with an accountant if you are not sure.

Tax Filing Mistakes to Avoid

Working with tax preparation software or an accountant can help avoid some common mistakes when filing taxes, but familiarizing yourself with some of the most common errors can be helpful, no matter how you’re filing:

•   Forgetting about state and city. We often think about federal income taxes, but your city and state (and maybe even school district) could also have their own taxes that you are required to pay.

•   Not filing. Income thresholds can change each year. It’s always a good idea to check whether you are required to file taxes for a given year even if you didn’t have to for the previous year.

•   Not checking with parents. If you are filing taxes for the first time, your parents are likely used to claiming you as a dependent. Talking with them about dependent status before filing could be a smart move.

•   Filing without all your forms. Getting taxes over with early can relieve a lot of stress (and means you can get your tax refund early), but if you have any tax form stragglers, like a 1099, that appear in the mail after you’ve completed your taxes, you might land in trouble with the IRS.

•   Entering in the wrong info. Tax preparation is not something to speed through. Even though e-filing helps avoid simple pen-and-paper mistakes, it’s still possible to incorrectly enter things like your birth date or Social Security number. Slow and steady — with lots of double- and triple-checking — wins the race.

The Takeaway

Filing taxes as a beginner can be intimidating, but if you put some time and organizational effort into the process, it can go smoothly. You’ll also be better prepared for next year’s Tax Day once you’ve filed. Whether you do your own taxes or work with a tax professional, it’s wise to gather the necessary paperwork, understand your potential credits and deductions, and file on time and precisely.

The fastest way to get a tax refund, if you’re due one, is a direct deposit into your bank account. If you’re a first-time filer, it’s wise to have an account ready to receive any funds heading your way.

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 3.80% APY on SoFi Checking and Savings.

FAQ

What happens if you make an error on your taxes?

As soon as you realize you have made a mistake on your taxes, you can amend it with Form 1040-X or by calling the IRS at 800-829-1040. In general, the IRS does not consider mistakes to be tax fraud, though you may end up paying late penalties. If you have intentionally made errors and the IRS catches you, you could be charged with a tax crime.

How much income do I need to make in order to pay taxes?

The amount of income that you need to make to pay taxes can fluctuate each year and depends on your filing status (single; head of household; married, filing jointly; married, filing separately; qualifying widow/widower). For the 2024 tax year, a single filer under 65 needed to make $14,600 or more to file.

What is the deadline for filing taxes?

In general, the tax deadline in the U.S. is April 15. If this date falls on a weekend or legal holiday, the deadline shifts to the next business day. Members of the military may have special rules affecting their deadline, and self-employed individuals typically must pay quarterly estimated taxes throughout the year.

How can I avoid tax scams?

The best way to avoid tax scams is to educate yourself on what they look like. The most common tax scams are email phishing scams and phone scams. Remember that the IRS will never email you requesting personal or financial information nor will the IRS call you and threaten legal action or leave pre-recorded, urgent messages.


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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible 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 (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider 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 Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. 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.


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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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