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What Are Liquid Assets?

Liquid assets are any assets that can be easily and quickly converted into cash. In fact, people often refer to liquid assets as cash or cash equivalents, because they know that the asset can be exchanged for actual cash without losing value.

Here’s a look at which assets are considered liquid — and which are not — and why liquid investments are important.

What Makes an Asset Liquid?

What is a liquid investment, and where does it fit into your financial picture? First it helps to understand liquidity. While you might own any number of valuable assets (e.g., your home, retirement accounts, collectibles), and these can be considered part of your overall net worth, only liquid assets can generate cash quickly, when circumstances demand it.

For an asset to be considered liquid it must be traded on a well-established market with a large number of buyers and sellers, and it must be relatively easy to transfer ownership. Think: stocks, bonds, mutual funds and other marketable securities.

Generally, you can sell stocks and obtain cash readily. By contrast, you probably couldn’t sell your home that fast, and even if you could there are a number of factors that might influence how much cash value you might obtain from the sale.

To recap: The number of willing market players, high trading volumes, and easy transfers mean that liquid investments can be sold for cash quickly and without losing much value in the process. And although cash and cash equivalents pose very little risk of loss, they also have little or no capacity for growth.

What Investments Are Considered Liquid Assets?

As you can see, the primary advantage of liquid assets is that they can be converted to cash in a short period of time. For example, stock trades must be settled within three days, according to Securities and Exchange Commission rules. Here are other assets that are considered liquid:

Examples of liquid assets

•   Stocks. Stocks are often considered liquid assets because they can be converted into cash when you sell them. Keep in mind, though, that the most liquid stocks might be the ones that many people want to buy and sell. You may have a more difficult time liquidating stocks that are in lower demand.

•   U.S. Treasuries and bonds. These instruments are relatively easy to buy and sell, and are usually done so in high volume. They have a wide range of maturity dates, which helps you to figure out when you want to liquidate them. Because U.S. Treasuries are often considered relatively safe and dependable, the interest rates are somewhat lower and could be a good fit for investors who are looking to mitigate risk.

•   Mutual funds. Mutual funds are pooled investment vehicles that hold a diversified basket of stocks, bonds, or other investments.

   Open-end mutual funds are considered more liquid than closed-end funds because they have no limit on the number of shares they can generate, and investors can sell their shares back to the fund at any time.

   Closed-end mutual funds, on the other hand, are less common. These funds raise capital from investors via an IPO; after that, the number of shares are fixed, and no new shares are created. Instead, closed-end funds shares can only be bought and sold on an exchange, and thus are considered less liquid than open-end fund shares because they’re more subject to market demand.

•   Exchange-traded funds and index funds. Like mutual funds, exchange-traded funds (ETFs) and index funds allow individuals to invest in a diversified basket of investments. ETFs are traded like stocks, throughout the day on the open market, which makes them somewhat more liquid than index funds, which only trade at the end of the day.

•   Money market assets. There are two main types of money market assets:

◦   A money market fund is a type of mutual fund that invests in high-quality short-term debt, cash and cash equivalents. It’s considered low-risk and offers low yields, and therefore thought of as relatively safe. You can cash in your chips at any time, making money-market funds a liquid investment.

◦   Money market funds are different from money market accounts, which are a type of FDIC-insured savings account.

•   Certificates of deposit. If you have money in a certificate of deposit or CD, this might be considered semi-liquid because your money isn’t available until the official withdrawal date. You can withdraw money if you need it, but if you’re doing so before the maturity date, you’ll likely pay a penalty.

What Assets Are Considered Non-Liquid?

There are, of course, many assets that are not easy to liquidate quickly. These assets typically take a long time to sell or for the deal to close. You’ll get your money, but most likely not right away, and there may be time or costs associated with the conversion to cash that could impact the final amount. That’s why assets like these are considered illiquid or non-liquid assets.

Examples of non-liquid assets

•   Collectibles. Items like jewelry and art work, and hobby collections like stamps and baseball cards may be hard to value and difficult to sell.

•   Employee stock options. While stock options can be a valuable form of compensation for employees, they may also be highly illiquid. That’s because employees must typically remain with a company for years before their options vest, they exercise them and they finally own the stock.

•   Land and real estate. These investments often require negotiation and contracts that can tie up real estate transactions for weeks, if not months.

•   Private equity. There are often strict restrictions about when you can sell shares if you’ve invested in private equity assets such as venture capital funds.

Liquid Assets in Business

If you’re running a business, accounts receivable — the money you’re owed from clients — are often considered to be a liquid asset, because you can typically expect to be paid within one year of the billing.

Any inventory you have on hand, such as office furniture or a product you’re selling, can also be considered liquid, because you could sell them for cash if need be. The liquid assets on your company balance sheet usually list cash first, followed by other assets that are considered liquid, in order of liquidity.

Having more liquid assets is desirable because it indicates that a company can pay off debt more easily. When businesses need to determine how cash liquid they are, they often look at the amount of their net liquid assets. When all current debts and liabilities are paid off, whatever remains is considered their liquid assets.

Are Retirement Accounts like IRAs and 401(k)s Liquid Assets?

Retirement accounts, such as Individual Retirement Accounts (IRAs) and 401(k)s are not really liquid until you’ve reached age 59 ½. Withdraw funds from your account before then and you may face taxes and a 10% early withdrawal penalty.

What’s more, you can hold a variety of assets inside retirement accounts. For example, if you hold a money-market fund inside your IRA, that is a liquid asset. But you could also hold real estate, which very much isn’t.

Reasons Why Liquid Assets Matter

Other than the most obvious reason, which is that cash gives you a great deal of flexibility and can be essential in a crisis, liquid assets serve a number of purposes.

•   Calculating net worth: To calculate your net worth, subtract your liabilities (your debt) from your assets (what you own, which can include your liquid assets).

•   Applying for loans: Lenders might look at your liquid assets when you apply for a mortgage, car loan, or home equity loan. If your liquid assets are high, you may get better terms or lower interest rates on your loans. Lenders want to know that if you were to lose your job or your income you would be able to continue to pay back the loan using your liquid assets.

•   Business interests: Having liquid assets on your balance sheet is a signal that your business is prepared for an emergency or a market shift that could require a cash infusion.

Are All Liquid Assets Taxable?

While income is money you earn or receive, an asset is something of value you possess that can be converted to cash at some point in the future. Thus owning an asset doesn’t make it taxable, but converting it to actual cash would, in most cases.

The IRS has many rules around how the proceeds from the sale of assets can be taxed.

The IRS considers taxable income to include gains from stocks, interest from bonds, dividends, alimony, and more. Gains on the sale of a home might be taxed, depending on the amount of the gain and marital status. If you aren’t sure whether income from the sale of an asset is taxable, it might be wise to consult a professional.

Is It Smart to Keep Cashing In Liquid Assets?

The point of maintaining a portion of your assets in liquid investments is partly for flexibility and also for diversification. The more access to cash you have, the more prepared you are to navigate a sudden change in circumstances, whether an emergency expense or an investment opportunity.

Having a portion of your portfolio in cash or cash equivalents can also be a hedge against volatility.

Thus, it may be worth keeping a mix of both liquid and non-liquid assets to help you reach your financial goals. And while cashing in liquid assets might be necessary, it’s also prudent to keep enough cash on hand, in case you need it.

There is no set formula for every investor’s situation, but beginning investors may want to focus on gathering a few months of liquid assets for the sole purpose of emergencies and unexpected expenses.

How Liquid Are You?

To figure out how liquid you are, make a list of all your monthly expenses, from rent/mortgage on down, even your streaming service subscription. Then, make a list of all your liquid assets and investments (being careful to pay attention to the definition of liquid assets vs. illiquid assets, as it can be confusing).

Then, total all your monthly expenses, and compare that sum to the liquid assets in your possession.

Does your total savings cover six months worth of monthly expenses? If so, congrats! If not, you’re not very liquid. Don’t despair, though. There are ways to build more liquidity.

Where to Start Building Liquid Assets

As you start to build your liquid assets, first consider saving a cash cushion in the form of an emergency fund, which should be enough to cover any unexpected expenses that might come along. Envision how much you might need in the event of a crisis (e.g., a job loss, divorce, health event, and so on).

Aim to save three to six months worth of expenses to cover basic bills, repairs, insurance premiums and copays, as well as any other personal or medical expenses.

One good way to build liquidity is to set money aside every week, month, or have a set savings amount auto-deducted from each paycheck. The digital age has made it easier than ever to put automatic deductions in place. Simple savings or checking accounts can be a good place to start.

From there, you may consider opening a retirement account or a taxable brokerage account where you can invest in potentially more lucrative liquid investments, such as stocks, bonds, mutual funds and ETFs.

The Takeaway

Liquid assets are simple enough on the surface. Unlike illiquid or non-liquid assets that can keep your money tied up and can be hard to sell (like a home, a car, collectibles), liquid assets can be converted into cash relatively easily — typically with little or no loss in value. Liquid assets can include cash equivalents like money market accounts, or marketable securities like stocks, bonds, mutual funds, and ETFs.

Liquid investments can play a surprisingly important role in your portfolio (as an individual investor) or your business.

While cash and cash equivalents can be relatively safe, they also offer more flexibility — which can be essential in life and in business. Having ready access to cash can help you pay off debt, cover a crisis, or be able to invest in new opportunities.

To start building more liquidity, you need access to an account like SoFi Money® — a cash management account that can hold your cash savings. You pay no annual, overdraft, or other account fees.

You can sign up for SoFi Money right on your phone. In fact, your phone allows you to make mobile transfers, photo check deposits, and access customer service. Your SoFi Money account is FDIC-insured up to $1.5 million, with additional protection against fraud.

Check out SoFi Money today!


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The Problems with Online Payday Loans and Fast Cash Lending

The Problems with Online Payday Loans and Fast Cash Lending

Life happens, which means sometimes you need cash fast, and you just don’t have it. Whether you need to pay for an emergency root canal or have unexpected home repairs, sometimes life just doesn’t wait for your next paycheck.

If you’ve spent some time researching how to access cash quickly, you might think that online payday loans are the answer. Lenders that offer payday loans typically promise you things like quick applications, no credit checks, and expedited approvals. They say you’ll get the cold hard cash you need the very next day. It’s an easy solution, and hey, what could possibly go wrong?

How Do Payday Loans Work?

Payday loans are so called because they’re meant to be paid back the next time you get a paycheck. They’re generally for small amounts, and don’t require collateral — or even necessarily a credit check — to get them.

The catch? Payday loans come at a price—and a high one, at that. They can have interest rates of more than 600%, depending on the lender you choose and which state you’re in. (Some states have stronger protective laws, including rate caps, than others.)

Such high interest rates, not to mention other associated fees, can quickly lead to situations where you end up getting behind on the loan and have to borrow more and more in order to pay it back — especially since each loan might come due in only two weeks or a month. Soon you’re in a hole so deep you might not know how to get out. It can be costly, greatly damage your credit, or even lead to bankruptcy.

How Much Does a Payday Loan Cost?

The short answer: a lot. But let’s look at an example.

Say you take out a $500 payday loan at an annual percentage rate (APR) of 300%. You would only pay that full 300% if you took a whole year to pay the loan off, because the APR is what you would be charged in interest over 12 months.

However, even if you only borrow money for one month, you’d have to pay 1/12 of 300%, which translates to 25%. Here’s where the math gets ugly: 25% of $500 is $125, which means that when your loan comes due at the end of its very short term, you’ll owe $625 — which might be pretty tough to meet, especially if you’re in a situation where you needed a payday loan in the first place.

What Is a Direct Payday Loan?

Payday loans are offered by a wide variety of vendors, but mainly, they all break down into two categories: direct payday loans and those offered through a broker.

Direct payday loans are those wherein the entire loan process, from application to funding to repayment, is all managed by the same company. Although these can be slightly better than indirect loans — which may involve multiple fees, longer funding wait times and harder-to-pin-down communication — they’re still a bad idea in general.

Why Is it Best To Avoid Payday Lending?

Other than the possibility that you can get money quickly if you have bad credit, there aren’t many benefits associated with payday loans. You’ll end up paying a significant amount in interest, and you’re usually expected to pay the money back in a very short period of time — usually not more than 90 days, but two weeks on average.

The interest on your loan can also compound daily, weekly, or monthly. This means that interest charges will start accumulating on the interest you already owe, which will inflate your loan balance even more.

Depending on how much you borrowed and your financial situation, compounding interest can make it incredibly difficult for you to pay back the loan. Many times borrowers end up taking out additional loans to pay off the payday loan, which can lock them into a seemingly endless cycle of debt.

You’re also unlikely to be able to borrow a large amount of money because payday and fast cash loan lenders typically have low maximum borrowing amounts.

Just to twist the knife, you won’t even be building your credit if you do manage to pay the loan back on time, because most of these lenders don’t report your behavior back to credit bureaus. In contrast, above-board lenders will report back to credit bureaus when you’re paying your bills on time and in full, and that can boost your credit score.

What Are Some Alternatives to Payday Loans?

While in an ideal world, you’d avoid any kind of consumer debt, sometimes it’s simply unavoidable. Still, there are financially favorable alternatives to consider before you sign up for a dangerous payday loan.

Paycheck Advance

The best kind of money to borrow is money you’ve already earned. While not every employer offers it, a paycheck advance can be a relatively low-risk way to fund last-minute emergencies. An advance on your paycheck basically means getting paid earlier than you normally would, with the balance deducted from your future paycheck.

But tread carefully: many employers offer paycheck advances through apps and platforms that may assess a one-time fee, or even charge interest. While the rates may not be as astronomical as payday loan rates, it’s still worth taking a second look at the paperwork to ensure you understand what you’re signing up for ahead of time.

Debt Settlement

Another option is debt settlement, which is where you offer a creditor a lump sum payment on a delinquent debt — a lump sum that often ends up being far less than the original amount you owed.

However, doing this does require some negotiating, and sometimes even some legal know-how, which is why many people seek the help of professional debt settlement companies. This, too, is tricky, because scams abound, and some debt settlement companies may try to charge exorbitant fees to “eliminate your debt,” all without actually doing any work on your behalf. The FTC has more information on debt settlement and how to look for a reliable firm, if you choose to go this route.

Personal Loans

Many personal loans are unsecured loans — meaning no collateral is involved — that can be used to pay for just about anything. And although they tend to have higher interest rates than secured loans, like mortgages or auto loans, those rates are still much lower than payday loans.

With its lower interest rate and longer term, a personal loan will likely cost you less money than a payday loan in the long run. And some online personal loan lenders can process your application quickly and even get you the money you need in a matter of days.

Unlike payday loans, you have to go through a credit check to qualify for a personal loan. However, if you have a steady income and meet the lender’s eligibility requirements, you’re likely to qualify for a lower interest rate than you would if you used an online payday loan.

Your repayment timeline may probably be much less stressful if you opt for a personal loan rather than a payday loan. Personal loans come with the option of longer terms — a few years instead of a few months.

And because you can pay your loan off over a longer term, your monthly payments might be more manageable than a payday loan. There also tend to be fewer fees attached to personal loans, and you might be able to borrow more because personal loans have higher loan maximums.

Personal loans aren’t much more difficult to apply for than payday or fast cash loans. You can typically get pre-qualified online by answering a few questions about your income, financial history, and occupation.

The Takeaway

Of course, it’s always important to repay debts on time and in full to avoid late fees and exorbitant interest charges, but a personal loan is generally more manageable than a payday loan would be.

If you need cash fast, but you want to borrow money from a reputable lender without risking out-of-control interest payments, a SoFi personal loan might be right for you. Learn more today.


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6 Strategies for Becoming Debt Free

It isn’t just the $5 cups of coffee. Or the $50 a month for the gym.

It isn’t just that new smartphone, or your shoe addiction, or even that pricey cable subscription. These are common things everyone likes to waggle their finger at when they talk about overspending. But it isn’t necessarily any one of those expenses that really gets people into debt. It’s usually all of them. And then some.

Though frivolous or impulsive spending can be part of the problem, the slide sometimes starts with the best of intentions — with the desire to get a college education, perhaps, or to own one’s own home. Although mortgages and student loans are among the leading sources of debt in the U.S., the number-one culprit, outside of homeownership, is credit card debt. In fact, almost a third of the average American’s monthly income goes toward paying off debts other than their mortgage — which is why it’s so important to have a plan for how to become debt free.

Getting Out of Debt With Frugal Living

The key to how to be debt free sounds simple in theory, but it’s not always easy to put into practice: finding ways to spend less than we earn, thus avoiding the necessity of borrowing money that isn’t ours in the first place.

Of course, once you’re already in debt, getting out of it involves concerted effort by finding ways to chip away at your existing debt while avoiding taking on even more — which can be difficult in a world where so many people struggle to make ends meet.

6 Ways to Climb Out of Debt

Fortunately, difficult doesn’t mean impossible. Here are some tried-and-true ways to become debt free.

1. Creating a Workable Budget

If you have a significant amount of debt to pay off and are looking at how to become debt free, you’ll likely be looking to cut costs in a meaningful way. A budget can help with that. You have to know where your money is going in the first place to know how to create a plan for where you’d like it to go instead, and getting familiar with your budget can help you decide which expenses are worth prioritizing.

Your budget can also help create a feedback loop, as you (and your partner, spouse, or other family members) compare real-world spending to the numbers in the budget and consider whether to take corrective action to stay on track.

Over time, your budget can help you uncover the behaviors that have been holding you back: those areas of excess spending you didn’t even realize were adding up.

If the idea of tracking every penny has been a barrier to budgeting, or if you’ve tried and failed in the past, it may help to keep the process simple. The 50/30/20 rule is a simplified budgeting strategy that’s gained traction because it limits the number of spending categories a budgeter must establish and then follow.

After determining net take-home pay (what’s left after paying taxes), it breaks down the spending money that’s left into three buckets: needs, wants, and savings.

•   50% of the money goes toward needs, including housing costs, utilities, groceries, transportation, medical expenses, and any regular debt payments that have to be made (e.g., credit card bills or loans). From there, it’s up to whoever is creating the budget to determine what the true necessities are and what belongs in the wants bucket.

•   30% goes to those wants. That’s everything from grabbing takeout or keeping your Netflix subscription, to getting your car washed and detailed for date night. Logically, this is the portion of the budget that has the most potential for trimming, but emotionally it might require some real effort to get everything to fit the allocated funds.

•   20% goes to savings. This money might go into an emergency fund, some sort of savings account for short- and long-term goals, and/or an investment savings/retirement account. If you decide to pay extra toward your credit card or student loan debt, that expense also would go in this category.

The percentages are meant as a guideline, and they can be tweaked to fit individual needs. The key is to make a budget that’s strict but doable when figuring out how to become debt free.

2. Making More Money

Yes, this is easier said than done. But before rolling your eyes and moving on, consider the possibilities.

Is it time for a pay raise? If a bump is overdue, it might be time to have a talk with the boss.

Is there side-gig potential? Do you always have nights or weekends off, and would your employer be OK with you taking on a part-time or occasional job for extra money? Maybe a friend does catering, landscaping, house-painting, or some other work and could use an extra hand from time to time.

Could a hobby become a money maker? Crafty folks can look into selling their wares online or at craft fairs and flea markets. History buffs could inquire about giving lectures or teaching classes. Animal lovers may want to offer dog-walking or cat-sitting services. Where there’s a passion, there’s often a way to earn income to help you become debt free.

3. Applying Extra Money Towards Debt

If that raise comes through, or you earn a bonus at work, or you get a tax refund from Uncle Sam, instead of living it up while the money lasts, consider using it to pay down some debt.

A few hundred dollars might not feel like it’s making much of a dent, but every dollar you pay over the minimum can help reduce the interest you owe on a credit card or student loan.

To get some idea of how paying even a little extra toward a bill can help, consider playing around with the numbers using a credit card interest calculator. It might be scary to see how much money you’ll pay in interest if you keep on paying only the monthly minimum, but it can also be motivating to dump as much extra money as you can toward getting that debt paid off once and for all.

4. Consolidating Separate Debts Into One Payment

One way to consolidate debt is with an unsecured personal loan. You may be able to consolidate all or some of your debts at better terms, such as a lower or fixed interest rate and possibly pay them off in less time than you expected.

This strategy could be useful for those who don’t want to keep tabs on several bills every month. A personal loan can be used to consolidate multiple debts together into one manageable payment, which could help make it easier to keep tabs on what you’ve paid and what you still owe.

And because the interest rates offered for personal loans can sometimes be lower than the interest rates on credit cards, you could potentially end up paying less in interest over the life of the loan than you would have if you just kept plugging away at those individual revolving credit card balances.

Typically, the better your financial and credit history, the better the loan terms are likely to be, so it can be a good idea to check your credit record and make sure the information listed on credit reports is accurate.

Then look for a lender who offers the best terms to fit your needs. Keep the length of the loan in mind, as well as the interest rate and other terms to help you on the road of becoming debt free.

5. Controlling Credit Card Dependence

It could be difficult (okay, next to impossible) to stop using credit cards completely, since they’re commonly used for things like booking or holding flights, checking into a hotel, or making online purchases. But making a commitment to reduce credit card utilization could help you cut spending and reduce the amount of money that’s only going toward interest on those cards.

A credit card is a convenient way to pay, but if you can’t afford to erase the balance each month with a full payment, the interest can start piling up.

And though many credit cards make limited-time “no interest” offers, it’s good to review the terms in detail.

For instance, some cards may have terms stating if consumers don’t pay off the entire balance by the end of the promotional period, they may be charged all of the interest accrued since the date of purchase. Yikes.

To better the chances of staying in check, one option may be to consider recording all credit card purchases with a budgeting app or pen and paper and to try and face the costs in real-time, instead of weeks later when the bill arrives.

6. Focusing on One Debt at a Time

Seeing progress is inspiring for many people. Think about how good you feel when you lose a little weight from dieting or gain some muscle from working out. Even small wins can be motivating.

How does that apply to downsizing your debt?

Two of the commonly recommended approaches to debt repayment are the Debt Snowball and Debt Avalanche methods. These strategies vary, but primarily focus on paying extra toward just one balance at a time instead of trying to put a little extra money toward all your balances at once.

The Debt Snowball

The Debt Snowball method directs any excess free cash you might have to the debt with the smallest outstanding balance. Here’s how it can work:

•   Start by listing outstanding debts based on what you owe, from the smallest balance to the largest. (Disregard interest rates.)

•   Make the minimum payment on all other debts and pay as much as possible each month toward eliminating the smallest balance on your Debt Snowball list.

•   After you pay off the smallest debt, turn your attention to the next-lowest balance.

•   Keep going until you are debt-free.

The Debt Avalanche

The Debt Avalanche method targets the highest interest rates rather than the balance that’s owed on each bill. It’s more about math than motivation — you can save money as you eliminate each of those high-interest loans and credit cards, which should allow you to pay off all your bills sooner. Here’s how it can work:

•   Disregard minimum payment amounts and balances, and list balances in order, starting with the highest interest rate.

•   Make the minimum payment on all other debts and pay as much as you can each month to get rid of the bill with the highest interest rate.

•   Move through the list one debt at a time until you pay off all the balances on your list.

Though the methods are different, both plans provide focus, and as each balance disappears, momentum grows. A newer approach, the Debt Fireball method, may be a better fit for modern-day debt, which could include a large amount of low-interest student loan debt.

The Debt Fireball

The Fireball method takes a hybrid approach to the traditional Snowball and Avalanche strategies. It’s called the Fireball because it can help blaze through bad debt faster by making it a priority. Here’s how it can work:

•   Categorize all debts as either “good” or “bad.” “Good” debt generally refers to things that can increase your net worth, such as student loans or mortgages. (Interest rates under 7% could be considered good debt — rates above 7% would likely fall into the “bad” category.)

•   List all those “bad” debts from smallest to largest based on each bill’s outstanding balance.

•   Make the minimum monthly payment on all other debts and funnel any extra cash available each month toward the smallest balance on the Fireball’s “bad” debt list.

•   Once that balance is paid in full, move on to the next smallest balance on that list. Keep blazing until all “bad” debt is repaid.

•   Pay off “good” debt on the normal schedule while investing for the future. Apply everything you were paying toward “bad” debt to investing in a financial goal.

The Fireball makes sense mathematically because it gets rid of typically expensive (or bad) debt first, but it also provides plenty of motivation because momentum can grow as you approach the finish. These two combined elements could provide an extra boost to your efforts.

Avoiding Potential Traps When You’re Getting Out of Debt

Even with the best of intentions, there are some hiccups that can happen on the road to debt freedom. Keep an eye out for these twists, turns, and tribulations.

1. Debt Consolidation

As mentioned above, debt consolidation can be a great way to get ahead of multiple debts at once, potentially save money on interest, and simplify your day-to-day life. Paying one bill a month can be easier to manage than paying (and keeping track of) five or six.

But debt consolidation still entails being in debt. If you choose to consolidate your debt, make sure you’re serious about keeping up with your repayment schedule and keeping your newly paid-down credit cards at a $0 balance. Otherwise, you might just end up right back where you started.

2. Credit Card Balance Transfers

A credit card balance transfer can feel like such a simple way to tackle multiple credit card debts, especially if you don’t have any money saved up to help get the ball rolling otherwise.

But it’s important to pay close attention to the terms and conditions of that new card. You really don’t want to end up on the hook for all the interest you would have been accruing during the 0% promotional period. And even if you do pay it all off in time, you may have to pay a balance transfer fee, usually a percentage of the transferred balance, which can add a significant amount to your transferred debt.

3. Filing for Bankruptcy

When things feel truly overwhelming, you may find yourself wanting to pull a Michael Scott, screaming to the world: “I. Declare. Bankruptcy!!!”

For one thing, it’s not that simple — there’s a lot more paperwork involved. And for another, filing for bankruptcy can have a serious impact on your credit score for a long, long time. It can be a helpful option in some cases, for sure, but it’s worth considering whether a different option might do the trick.

The Takeaway

The deeper the hole you’re in, the longer it may take to climb out. But having the right plan in place before you start could give you a better shot at sticking to a budget, minimizing your dependence on credit cards and methodically reducing your debt in a way that keeps you motivated and saves you money.

If you are looking for a way to help get a handle on your high-interest debt, one option is to look into an unsecured personal loan with SoFi. This option could allow you to consolidate your credit card and other debt into one unsecured personal loan with one fixed monthly payment.

Are you ready to dig in and work toward becoming debt free? Check out how an unsecured personal loan with SoFi could help.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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How Much Should I Spend on Groceries a Month?

How much you should spend on groceries each month will depend on factors such as the number of people living in your household, your lifestyle and even your dietary preferences. There’s no way around the fact that food is a significant line item when it comes to budgeting, but there are ways to make it easier on your budget than throwing caution to the wind and getting takeout three times a week.

Whether eating at home or out on the town, it’s helpful to give yourself some guidelines so that you and your bank accounts are on good terms. We cover some rules of thumb for how much to spend on food a month so you can better ensure you’re staying on track with your budget.

What Is the Average Cost of Groceries Per Month?

The average U.S. household spends $7,316 on food every year, according to a recent Bureau of Labor Statistics (BLS) consumer expenditure survey . That amount — about $609.67 a month, or $152.42 each week — represents nearly 12% of consumers’ income.

Of course, the amount people spend on sustenance can vary widely, depending on age, household size, dietary restrictions and where they live. For instance, the consumer expenditure survey noted that single-parent family households with children spent more on food compared to single folks. Your eating habits, including how often you dine out or order in as well as a penchant for impulse grocery buys, also affect your bottom line.

What Should My Monthly Grocery Budget Be?

When it comes to how much you should spend on groceries each month, the answer will depend on your situation. However, you can use the following guidelines to help you develop a reasonable monthly allowance for your grocery budget.

By USDA Guidelines

The U.S. Department of Agriculture offers a series of monthly food budgets that represent the cost of a healthy diet at four price levels: thrifty, low cost, moderate cost and liberal. These budgets can serve as a benchmark against which you can measure your own monthly spending on food.

Keep in mind that the USDA assumes that all meals and snacks will be prepared at home, and that costs will vary by age, gender and family size. It updates each plan to current dollars every month using the Consumer Price Index for food.

For example, in August 2021, the USDA pegs the monthly cost of food for a female who is 20 to 50 years old at $209 for the thrifty plan. For females ages 19 to 50, it’s $225.30 for the low-cost plan, $275.40 for the moderate-cost plan and $352.10 for the liberal plan.

The USDA budgets more for couples within the same age ranges. For instance, a household of two might spend $459.80 on a thrifty plan, $495.66 on a low-cost plan, $605.88 on a moderate-cost plan and $774.62 on a liberal plan.

By Household Size

Your household size should determine how much you spend on groceries each month. As you saw in the USDA guidelines above, different household sizes as well as the ages of individuals affected the amount spent on food each month.

Let’s say you are a family of four with one child aged 6 to 8 and another between the ages of 9 to 11. According to the USDA guidelines, you might spend $842.70 a month on a thrifty plan, $885.60 on a low-cost plan, $1,093.20 on a moderate-cost plan and $1,339.40 on a liberal plan.

The USDA guidelines can provide a starting point for a food budget, but they don’t consider all the variables that can affect cost. That’s why building a personal food budget while using these numbers as a benchmark is best. To do so, you can look at your past monthly spending on food and then compare that number to the USDA food budget guides.

If your spending is much higher than the USDA’s estimates, it’s essential to determine why. It could be due to unavoidable factors like where you live, or it may stem from discretionary decisions, such as eating out at restaurants. If it’s the latter, it may be helpful to look for ways to cut back on spending, so you can redirect money to other goals like building an emergency fund.

How Dining Out Fits Into the Equation

The USDA’s budgets only consider food prepared at home, yet a food budget will likely also need to account for meals eaten at restaurants. The BLS reports that the average household spends $4,942 a year on food at home and $2,375 a year on food away from home (note that the food away from home figure was a decent amount lower than in previous years, likely due to the pandemic).

Eating at restaurants is more costly than preparing food at home, so restaurant spending can be an excellent place to start making cuts when looking for wiggle room in a food budget.

Strategies to Keep Track of Your Food Spending

There are a number of budgeting strategies that can help you keep track of your spending. Here are some to consider if you’re trying to keep better track of your food spending:

The 50/30/20 Rule

The 50/30/20 rule is a simple strategy for proportional budgeting that breaks down a budget into three categories of spending. Here’s how it works:

•  50% goes to essential needs. These are necessary expenses, such as rent, groceries and health insurance.

•  30% goes to discretionary spending. These are fun purchases that you don’t technically need to survive.

•  20% goes to savings. The 50/30/20 method separates discretionary spending and saving for financial goals, such as retirement, a down payment on a house or paying off debt faster.

The 50/30/20 rule is a relatively simple form of budgeting, so it can help individuals keep their eyes on the big picture and avoid getting bogged down in minute details. That said, because it isn’t detail-oriented, it can be hard to pinpoint problem areas, such as places where overspending occurs.

The Envelope Method

The envelope method seeks to make budgeting more concrete by limiting most spending to cash transactions. It works by allocating a set amount of cash each month to different spending categories, such as groceries or entertainment.

At the beginning of the month, write each category on individual envelopes. Decide how much you want to spend in each category for the month, and put enough cash to cover that amount in each respective envelope.

This method takes discipline. You can only use the cash in each envelope to make purchases in that category. When the money’s gone, it’s gone for the month. That means you can no longer do any spending in that category.

Zero-Based Budgeting

A zero-based budget is one in which you assign each dollar of your income a specific purpose. For example, you may decide to spend $1,000 on rent, $325 on food, $200 on student loan payments, $100 on savings and so on, until there are zero dollars left without a job to do. While this type of budget can take a lot of effort, it can help you think carefully about every dollar you spend and be mindful of setting aside savings.

By getting your budget on track, you’ll have enough to work toward financial goals, like paying off student loans and saving for retirement.

Tips to Help Reduce Your Food Spending

Whether your food budget has gone out of control or you’re interested in spending less in general, there are several ways to lower your food budget.

Try Meal Prep

Shopping at a store without a plan can be a budget-buster, as it can lead to unneeded purchasing. To stay on track, create a meal plan that lays out breakfast, lunch and dinner for every day of the week.

Once you’ve created a menu, check to see what ingredients are already in the kitchen. Make a list of the items you’re missing and the amounts that are needed. Buy only those items at the store.

Consider planning some meals that have overlapping ingredients, as buying ingredients in larger quantities can be cheaper. You’ll also want to consider preparing meals you like and can cook relatively quickly. That way, you’re not tempted to get takeout one day when you’re tired and don’t feel like cooking.

Take Advantage of Coupons

Using coupons can help buyers save money at the checkout counter. Grocery stores or major brands often offer discounts in coupons — look for them online, in a grocery store flyer or in the mail.

Before you buy, however, make sure you actually need the food item. If there isn’t anyone in your household who will drink that carton of oat milk, it’s better to leave it on the shelf than to cash in your coupon.

While taking advantage of an individual coupon may not add up to much savings, using many coupons over time can start to open up space in your food budget. The same is true of buying store brands, which may be a dollar or two cheaper than their name-brand counterparts. Over time, and multiple purchases, those couple of dollars can add up to significant savings.

Freeze Meals

Having meals or ingredients ready in the freezer encourages you to eat at home instead of making the excuse of having nothing to eat in your house. It can be as simple as buying frozen vegetables, some form of protein or straight-up frozen meals (it’s still cheaper than dining out). You can even make your own freezer-ready meals by cooking additional portions of meals — eat some for dinner, then freeze the rest for later.

Shop at Discount Grocery Stores

The cost of food can vary widely from store to store, so consider visiting different stores to find budget-friendly prices. A great way to check if a grocery store offers lower prices is to look at their weekly flyer. You’ll be able to find sales and other advertised goods and identify which stores offer the best deals on items you’re most likely to purchase.

Some stores may offer certain foods in bulk, such as grains, nuts, coffee and dried fruit, which can be cheaper than buying the same packaged food items.

Getting a handle on how much you spend on food can help you build a larger household budget. That way, you may be able to set aside money for savings or other financial goals.

The Takeaway

As you can see, there’s no hard-and-fast rule for how much you should spend on groceries each month, as that varies based on your unique situation. However, everyone can likely benefit from giving their grocery budget a hard look and seeing if there’s anywhere they’re overdoing it.

Envelope and spreadsheet averse? Another way to track your grocery budget is with SoFi Relay, which lets you easily set monthly spending targets and see where you’re spending the most.

See how your current food spending fits into your overall budget.



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SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
SoFi’s Relay tool offers users the ability to connect both in-house accounts and external accounts using Plaid, Inc’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a Vantage Score® based on TransUnion™ (the “Processing Agent”) data.
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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Getting Approved for a Personal Loan After Bankruptcy

Your chances of qualifying for a personal loan after a bankruptcy depend in part on the type and date of your filing, your credit scores, and your income. If you are approved, you likely will pay a higher interest rate or fees.

A bankruptcy will remain on your credit reports for up to seven to 10 years, but with effort, your credit scores can become healthier during that time and beyond. While you should always consult with a qualified accountant or attorney regarding your finances post-bankruptcy, and never rely on a blog post like this one, here are a few tips to help you understand what to expect.

Two Main Types of Bankruptcy Filings

While bankruptcy can feel like an isolating experience, it’s not uncommon. Every year, hundreds of
thousands
of individuals file petitions, though it’s a figure dwarfed by the 1.6 million in late 2010, when a wave of filings spurred by the Great Recession crested.

There are two main types of bankruptcy available to individuals, Chapter 7 and Chapter 13. With both, typically a bankruptcy trustee reviews the bankruptcy petition, looks for any red flags, and tries to maximize the amount of money unsecured creditors will get.

About 70% of the petitions in 2020 were filed under Chapter 7, and 30% were filed under Chapter 13.

Chapter 7 Bankruptcy

This is often called liquidation bankruptcy because the trustee assigned to the case sells, or “liquidates,” nonexempt assets in order to repay creditors.

Many petitioners, though, can keep everything they own in what is known as a “no-asset case .” Most states let you keep clothing, furnishings, a car, money in qualified retirement accounts, and some equity in your home if you’re a homeowner. (Each state has a set of exemption laws, but federal exemptions exist as well, and you might be able to choose between them — definitely talk to a professional about this.)

After the bankruptcy process is complete, typically within three to six months, most unsecured debt is wiped away. The filer receives a discharge of debt that releases them from personal liability for certain dischargeable debts.

Chapter 13 Bankruptcy

This form, aka reorganization bankruptcy or a wage earner’s plan, allows petitioners whose debt falls under certain thresholds to keep all their assets if they agree to a repayment plan for three to five years. A trustee collects the money and pays unsecured creditors an amount equal to the value of nonexempt assets, according to Experian .

Once the terms of the plan are met, most of the remaining qualifying debt is erased.

If the debtor’s monthly income is less than the state median, the plan will be for three years unless the court approves a longer period. If the debtor’s monthly income is greater than the state median, the plan generally must be for five years, according to uscourts.gov .

Certain debts can’t be discharged through a court order, even in bankruptcy. They include most student loans, most taxes, child support, alimony, and court fines. You also can’t discharge debts that come up after the date you filed for bankruptcy.

Will Bankruptcy Ruin My Credit?

A bankruptcy will be considered a “very negative event” on your FICO® Score, the folks at FICO say, but the severity depends on a person’s entire credit profile.

Someone with a super high credit score could expect a “huge” drop, but someone with negative items already on their credit reports might see only a modest drop, FICO says .

The good news is that the negative effect of the bankruptcy will lessen over time.

Lenders who check credit reports will learn about a bankruptcy filing for years afterward. Specifically:

•   For Chapter 7, up to 10 years after the filing

•   For Chapter 13, up to seven years

Still, filing for bankruptcy doesn’t mean you can’t ever get approved for a loan. Your credit scores can improve if you stay up to date on your repayment plan or your debts are discharged — among other steps that can be taken.

You may even be able to help your credit scores during bankruptcy by making the required payments on any outstanding debts, whether or not you have a repayment plan. Of course, everyone’s circumstances and goals are different so, again, always consult a professional with questions.

That said, realize that some lenders deny credit to any applicant with a bankruptcy on a credit report, according to VantageScore®, which, like FICO, calculates credit scores.

Should I Apply for a Loan After Bankruptcy?

Before applying for an unsecured personal loan, meaning a loan is not secured by collateral, it’s a good idea to get copies of your credit reports from the three major credit reporting agencies: Equifax, Experian, and TransUnion. Make sure that your reports represent your current financial situation and check for any errors.

If you filed for Chapter 7 bankruptcy and had your debts discharged, they should appear with a balance of $0. If you filed for Chapter 13, the credit report should accurately reflect payments that you’ve made as part of your repayment plan.

Next, you can consider getting prequalified for a personal loan and comparing offers from several lenders. They will likely ask you to supply contact and personal information as well as details about your employment and income.

If you see a loan offer that you like, you’ll complete an application and provide documentation about the information you provided. Most lenders will consider your credit history and debt-to-income ratio, among other personal financial factors.

A heads-up on “no credit check” loans: They usually have high fees or a high annual percentage rate (APR).

If You’re Approved for a Personal Loan

Before you sign on the dotted line, it’s smart to take the following steps:

Read the Fine Print

Since you have or had a bankruptcy on your record, the terms of your offer may be less than favorable, so consider whether you feel like you’re getting a reasonable deal.

People with “average” to bad credit scores might see APRs on personal loans ranging from nearly 18% to 32%. Make sure you are clear on your interest rate and fees, and compare offers from different lenders to make the choice that works for you.

Avoid Taking Out More Than You Need

You’re paying interest on the money you borrow, so it’s generally better to only borrow funds that you actually need. Further, it’s probably wise to only take out as much as you can afford to repay on time, because paying on time is an important key to rebuilding your credit.

If You’re Not Approved for a Personal Loan

If you are denied a personal loan, don’t despair. You may have options for moving forward:

Appealing to the Lender

You can try to explain the factors that led you to file for bankruptcy and how you have turned things around, whether that’s a record of on-time payments or improved savings. The lending institution may not change its mind, but there’s always a possibility the lender can adjust its decision case by case.

You likely have the best chance at an institution that you’ve worked with for years or one that is less bound to one-size-fits-all formulas — a local credit union, community bank, online lender, or peer-to-peer lender.

Looking Into Applying With a Co-signer

A co-signer who has a strong credit and income history may be able to help you qualify for a loan. But keep in mind that if you can’t pay, the co-signer may be responsible for paying back your loan.

Building Your Credit

It’s OK to take some time to try to improve your credit scores before reapplying for an unsecured personal loan. You still have a chance to work toward reducing your other debt.

The Takeaway

Getting approved for an unsecured personal loan after bankruptcy isn’t impossible, but it’s a good idea to compare offers, go in with eyes wide open about interest rates and fees, and gauge whether it’s the right time to borrow.

SoFi offers unsecured fixed-rate personal loans with no fees. Adding a co-borrower may help you qualify for a loan or a lower interest rate.

Find your rate in two minutes, with no commitment.


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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