Financial Planning Tips for Your 40s

Your 40s are a pivotal point in your life. You may have a house, a family, aging parents, and a busy job by this time. College expenses for kids may be looming, as well as retirement a little farther off. Maybe you’re hatching a plan to start your own business soon or buy a beach house that’ll be your empty-nester home.

Each person will have unique financial goals in their 40s, which will depend on many factors, like lifestyle, salary, and acquired assets. Now is the perfect time to crystallize those dreams and get your money in top shape. You’re old enough to know what you want, and chances are, you have many peak earning years ahead.

Read on for financial planning tips for your 40s, including:

•   Why it’s not too late to start budgeting and saving in your 40s

•   What are the right financial goals for 40-year-olds

•   Ways to save for children’s college expenses

•   How to save for retirement

•   What financial goals you should meet in your 40s.

Why Turning 40 Is a Big Deal

Where personal finances are concerned, your 40s are a big deal. You’re most likely approaching the height of your career and earning potential. Research from the Bureau of Labor Statistics says that primetime for earnings usually hits between age 35 and 54.

But you may also have many more expenses, such as planning for college for your children, planning for retirement, and caring for aging parents. Your 40s are a complicated decade where sound financial planning is crucial for a secure future.

Why It Is Not Too Late to Start Financial Planning in Your 40s

If there is one thing that is certain in life, it is uncertainty. Things change. Many people return to school in their 40s to boost their earning potential. Some take the plunge and dive into an entrepreneurial venture. Some leave the workforce entirely to focus on raising a family.

Whatever your life brings at this stage, you still have a couple of decades to plan for the years ahead, including your retirement, so set some goals now. It’s advisable to set long-term goals (5+ years), mid-term goals (2 to 5 years), and short-term goals (1 to 2 years). Having this staggered approach can help you balance your varied aspirations. Different timelines can demand different tactics.

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Financial Planning Tips in Your 40s

So how exactly can you successfully manage your money in your 40s? Here are some tips for developing a financial strategy, saving money in your 40s, and more.

Pay Off Credit Cards and High-Interest Loans

Pay off as much high-interest debt as you can. This debt, typically the kind charged on credit cards, can be a major drain on your finances. Currently, credit card interest rates hover near 20%, which can throw a wrench in your budget if you’re carrying a balance.

You don’t need to stop using plastic completely, but you do want to whittle down what you owe. Credit cards can actually boost your credit score if you use them wisely and pay off the balance each month. If you can’t easily prioritize this debt and pay it down, options include:

•   Getting a balance transfer credit card, which will allow you to pay no or low interest for a period of time and catch up on payments

•   Taking out a debt consolidation loan at a lower rate to pay off the cards

•   Talking with a low- or no-fee credit counselor for guidance.

Invest in Physical and Mental Health

Healthcare can be one of the biggest expenses a person faces, so it pays to take care of yourself. The healthier you are, the fewer services and interventions you will likely need, and the less you will pay in deductibles each year. Most importantly, your quality of life and ability to earn will be so much greater if you are physically and mentally healthy. Take steps to assess your wellness and address any issues that are brewing. Also make sure that you choose the right health insurance plan for your specific situation.

If you have aging parents, talk to them about their health insurance plan and finances so that you understand how they are handling their wellness costs and have peace of mind.

Look More Closely at Retirement

At age 40, many people decide now is the right time to start saving for retirement. Or perhaps they already have a retirement plan or a 401(k) through their employer that they haven’t revisited recently.

Whatever your exact situation, your 40s are a good time to focus on your plan. You might think about increasing your 401(k) contributions, opening a Roth IRA, or finding a taxable investment account. Also, if you get a raise or bonus, why not put a chunk of it towards saving for your future?

You’ll likely want to consider how much of a nest egg you will need to retire and whether your current plan will get you there. If you pay for a professional financial planner, they can help you figure out how to save money in your 40s and maintain your desired standard of living into retirement.

Plan for Children’s Expenses (College, Careers)

It can be a shock when you realize that your baby is suddenly heading to college, and the cost of paying for their education may be an even greater surprise—and not necessarily a pleasant one. It can be very expensive. That’s why, when it comes to budgeting for couples or single parents, paying for higher education is often a major (and majorly challenging) goal.

There are saving plans specifically designed for college; for instance, 529 plans offer many benefits. If your children are not headed to college, other savings options like certificates of deposit (CDs) might be a better way to invest in their future. Teach your children sound financial management skills so you won’t be supporting them in their adulthood.

Some people go back to school in their 40s to help them move to the next level at work or prepare for a new career. If you are among them, create a budget that includes all your expenses and income. Project those numbers into the next few years to help you plan your life and stay on track financially.

Choose or Revisit Insurance Plans

In addition to health insurance mentioned above, your 40s can be a good time to consider disability insurance. If something happens to you and you cannot work, you could be forced to use your retirement and emergency funds sooner. Whether you choose short-term vs. long-term disability insurance, a policy can protect you by providing a safety net.

Death is an unavoidable life event, so review your life insurance policy (could you get a better deal elsewhere?) and be sure you have drafted a will. Parents who plan and pay for their funerals ahead of time ease the burden on dependents. The median cost of a traditional funeral is around $7,848, according to the National Funeral Directors Association. An insurance policy, a payable-on-death account, or prepaying at a funeral home can be good options to fund end-of-life expenses.

If you are shopping for life insurance, there are many online comparison tools that let you quickly see some different offers and how they stack up. It’s an easy way to start the process.

Keep Emergency Funds in Good Shape

Life is full of unexpected twists and turns. Some of them are not so fun, like having your car conk out, the roof leak, or your job suddenly come to an end. In times like those, you will need access to funds to cover your costs. That’s why having an emergency fund is important; with enough money to cover three to six months’ worth of your basic living expenses in a savings account, you’ll have peace of mind. If you don’t yet have a rainy day fund, start putting money aside each month (even just $25). Funnel any “found money” (say, a tax refund) to this savings account too.

Invest in a Diversified Portfolio

Growing your wealth often involves investing. While it does carry risk, it can yield big rewards. For instance, the annualized Standard and Poor’s (S&P) 500 return over the last 10 years was a healthy 14.7%. You might invest on your own, with a broker, or with automated financial planning. The vehicles you choose will depend on your risk tolerance. Some people invest in CDs and bonds, which are relatively low risk, while others enjoy speculating on the stock market. Manage your risk by never investing more than you can afford to lose.

Some people prefer to invest in stocks using dollar-cost averaging—investing a fixed dollar amount regularly, regardless of the share price—which can help you to build a diversified portfolio while minimizing volatility over the long term.

How Technology Can Make Managing Finances Easier

Managing finances and investments is so much easier in the digital age. Mobile banking and finance apps mean that you can manage your finances from your armchair 24/7. Online lenders offer favorable investment and savings options, and online trading platforms allow anyone to trade on the stock markets.

Where Should I Be Financially by 40?

Financial goals by age 40 vary. One rule of thumb is to save 15% of your income each year, but this figure is subjective and depends on many factors, including your existing assets.

The Takeaway

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

One path to help pump up your cash: Choosing a bank that could help your money grow faster, like SoFi. Open an online bank account with direct deposit, and you’ll earn an ultra competitive 2.00% APY and pay zero fees. Plus, we make checking your balance and completing transfers super quick and easy.

Bank smarter with SoFi.

FAQ

What financial goals should a 40-year-old have?

Ideally, a 40-year-old would be building a nest egg for retirement, paying down high-interest debt, and finding ways to sensibly pay for children’s college fees and meet other financial obligations. How much anyone needs to achieve these goals depends on many factors, such as lifestyle, income, and financial obligations.

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

How much a 40-year-old should have saved depends on their current and future lifestyle and needs. A rule of thumb is to save 15% of your income each year towards retirement, but it will be different for everyone.

How can I build my wealth in my 40s?

You can build wealth in your 40s by paying down high-interest debt, choosing the right savings and investment vehicles, and planning for retirement.


Photo credit: iStock/shapecharge

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. 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.
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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Why an Emergency Fund Is a Necessary Financial Priority

Life can be unpredictable, and financial setbacks can crop up at any time — whether that’s a job loss, medical or dental bills, a fender bender, or a major appliance that suddenly stops working. If you aren’t convinced of that, just think of the COVID-19 pandemic and how disruptive it was to daily life and many people’s finances.

That’s why it’s important to have an emergency fund. An emergency savings fund is a lump sum of cash set aside to cover any unanticipated expenses or financial emergencies that may come your way.

Besides offering peace of mind, an emergency fund can help save you from having to rely on high-interest debt options. These include credit cards or unsecured loans which can snowball. Not having rainy-day savings can also threaten to undermine your future security if you wind up tapping into retirement funds to get by.

If you don’t yet have any emergency savings set aside, however, don’t panic. Below, we break down:

•   Why an emergency fund can be a key part of financial planning

•   How long it takes to save an emergency fund

•   How to prioritize your financial goals to include an emergency fund

Why Do You Need an Emergency Fund?

With all of the bills that a person typically has to pay, you may wonder, “Why should creating an emergency fund be a top priority?” Here’s why: An emergency fund can be a kind of self-funded insurance policy. Instead of paying an insurance company to back you up if something goes wrong, you’re paying yourself by setting aside these funds for the future. Building this cushion into your budget can be a vital step in better money management.

How you invest emergency funds is of course up to you, but keeping the money in a high-yield savings account typically gives you the liquidity you need while earning some interest.

Having this kind of financial safety net comes with a range of benefits. Below are some of the key perks of having an ample emergency fund.

Preventing You From Going into Debt

Yes, there may be other ways to quickly access cash to cover the cost of an emergency, such as credit cards, unsecured loans, home equity lines of credit, or pulling from other sayings, like retirement funds.

Preventing debt is one of the most important reasons to have an emergency fund.

But these options typically come with high interest fees or penalties. Though there are many reasons for having an emergency fund, preventing debt is among the most important and enticing.

Providing Peace of Mind

Here’s another reason why it is important to have an emergency fund: Living without a safety net and simply hoping to get by can cause you to stress. Thoughts about what would happen if you got hit with a large, unanticipated expense could keep you up at night.

Being prepared with an emergency fund, on the other hand, can give you a sense of confidence that you can tackle any of life’s unexpected events without experiencing financial hardship.

Providing Finances During Unemployment

Applying for unemployment benefits, if you are entitled to them, can help you afford some of your daily expenses. Unfortunately, these payments are generally not enough to cover your entire cost of living.

If you have an emergency fund, you can tap into it to cover the cost of everyday expenses — like utility bills, groceries, and insurance payments — while you’re unemployed.

Starting an emergency fund also gives you the freedom to leave a job you dislike, without having to secure a new job first. Sometimes this can be the best move if you stuck in a toxic situation.

Making Better Financial Decisions

Having extra cash set aside in an emergency fund helps keep that money out of sight and out of mind. Having money out of your immediate reach can make you less likely to spend it on a whim, no matter how much you’d like to.

Also by having a separate emergency account, you’ll know exactly how much you have — and how much you may still need to save. This can be preferable to keeping a cash cushion in your checking account and hoping it will be enough.

Recommended: Guide to Practicing Financial Self-Care

What the COVID-19 Pandemic Showed Us About Emergency Funds

For many people, the COVID-19 crisis revealed just how important having an emergency fund could be. It demonstrated that an emergency of a huge, global magnitude could occur without much warning. There wasn’t time to plan or save money gradually.

The situation unfolded and triggered major medical bills that couldn’t be paid for some, led to job losses for many, and disrupted just about everyone’s life in some way. For those who lost income and/or faced rising debts, it became clear that a cushion of cash was a great thing to have to stay afloat financially.

In terms of numbers, research reveals that among those who had emergency savings before the pandemic, 40% withdrew funds during the initial stages of the pandemic. Of those, almost three out of four spent half or more of their funds.

The other pandemic lesson regarding emergency funds was that a crisis can last a long time. At the beginning of the COVID-19 outbreak, many people thought the situation would resolve within perhaps a couple of weeks or months. Instead, it stretched on and continues to impact some people’s lives. Having an emergency fund to dip into during this long and challenging period proved to be of great value for many. This reveals why creating an emergency fund should be a top priority.

Emergency Fund Statistics

Curious about how much other people have in their emergency funds? Or what percentage of Americans actually have a rainy-day account? Here are some recent research numbers to know:

•   About 50% of people report having emergency savings.

•   23% have enough money to cover six months’ worth of expenses.

•   56% of Americans say they couldn’t cover a $1,000 emergency expense.

•   26% of people overall have no emergency savings at all.

•   37% of those who earn less than $50,000 per year have no emergency savings at all.

•   Less than half of people earning between $50,000 and $99,999 per year are comfortable with how much they have saved for a rainy day.

•   More than half of Americans are concerned about the amount of their emergency savings.

How Long Does It Take to Grow an Emergency Fund?

Emergency funds don’t necessarily come together overnight. Saving after-tax dollars to equal six months’ worth of typical living expenses can take some work and time. Here’s an example to consider: If your monthly costs are $3,000, you would want to have between $9,000 and $18,000 set aside for an emergency, such as being laid-off.

•   If your goal is $9,000 and you can set aside $200 per month, that would take you 45 months, or almost four years, to accumulate the funds.

•   If you can put aside $300 a month, you’d hit your goal in 30 months, or two and a half years.

•   If you can stash $500 a month, you’d have $9,000 saved in one and a half years.

A terrific way to grow your emergency fund is to set up automatic transfers from your checking account into your rainy-day savings. That way, you won’t see the money sitting in your checking and feel as if it’s available to be spent.

Next, we’ll take a look at how to accelerate saving for an emergency fund.

Growing Your Emergency Fund Faster

You’ve just seen how gradually saving can build a cash cushion should an emergency hit. Here are some ways to save even faster:

•   Put a windfall into your emergency fund. This could be a tax refund, a bonus at work, or gift money from a relative perhaps.

•   Sell items you don’t need or use. If you have gently used clothing, electronics, jewelry, or furniture, you might sell it on a local site, such a Facebook group or Craigslist, or, if small in size, on eBay or Etsy.

•   Start a side hustle. One of the benefits of a side hustle is bringing in extra cash; it can also be a fun way to explore new directions, build your skills, and fill free time.

These techniques can help you ramp up your savings even faster and be prepared for an emergency that much sooner.

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Prioritizing Your Emergency Fund When You Have Other Financial Obligations

Even with the lessons of the pandemic in recent memory, it can be hard to prioritize emergency savings. Most of us have competing financial goals: paying down student debt or a credit card balance; accumulating enough money for a down payment on a house; saving for college for kids; and socking away money for retirement. In many cases, you’ll see variability in financial goals by age, but there are often several needs vying for your dollars at any given time.

Here’s advice on how to allocate funds:

•   Definitely start or continue saving towards your emergency fund. Even if you can only spare $25 per month right now, do it! It will get you on the road to hitting your goal and earning you compound interest. Otherwise, if an emergency were to strike, you’ll likely have to resort to credit cards or tapping any retirement savings, which probably involves a penalty.

•   Continue to pay down high-interest debt, like credit card debt. You want to get this kind of debt out of your life, given the interest rates that currently sit between 15% and 19%. You might explore balance transfer offers that let you pay no or very low interest for a period of time (say, 18 months) which can help you pay down your debt.

•   Steadily stick to your schedule for low-interest debt, which typically includes student loans and mortgages.

•   Fund your retirement savings as much as you can. As with an emergency fund, even a small amount will be worthwhile, especially with the benefit of compound interest. Make sure to contribute enough to take advantage of the company match if your employer offers that as part of a 401(k) plan; that is akin to free money.

Banking with SoFi

If you’re looking for ways to save for an emergency and want your money to grow fast, why not open an online banking account with SoFi? When you start a Checking and Savings account with direct deposit, you’ll have automatic savings features at your fingertips, earn a super competitive interest rate, and pay zero fees. That’s what we call banking smarter.

With no account fees and up to 2.00% APY, you’ll earn more interest in one week than you would in one year in a big bank’s checking or savings account — so you can get the most out of your money.

FAQ

What is the purpose of an emergency fund?

An emergency fund is a financial safety net. It’s money set aside that you can use if you are hit with a big, urgent, unexpected bill (like a medical expense or car repair) or endure a loss of income. In these situations, an emergency fund can help you avoid using your credit cards and taking on high-interest debt or hurting your credit score by paying bills late. How to invest an emergency fund is up to you, but a high-interest savings account is one good, liquid option.

Can I use an emergency fund for a non-emergency expense?

Technically, you can use an emergency fund for a non-emergency expense. After all, it’s your money. But it’s not wise to do so and defeats the whole purpose of saving this cash. If you use your emergency funds to pay for a vacation or new clothes, then if a true emergency arises, you won’t be prepared.

How difficult is it to rebuild an emergency fund?

It can be difficult to rebuild an emergency fund, just as it was to accumulate the money in the first place. But even if it takes years to achieve your goal, it is worth it. Putting away money gradually for an emergency is an important step towards being financially fit.


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.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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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7 Ways to Tackle Financial Stress

7 Ways to Tackle Financial Stress

Even if you’re not the worrying type, there certainly is a lot of financial stress right now, enough to keep even the most stoic person up at night.

Inflation has been hitting 40-year highs; the supply-chain disruptions of the pandemic have led to ongoing scarcity and labor shortages. Chances are, you are shelling out more for groceries, gas, and other essentials.

Rising interest rates are threatening to price some people out of the housing market and can make credit card debt harder to eliminate. What’s more, rumblings of a recession and consequently job cuts fill the news. More than 80% of Americans surveyed are concerned about hard times ahead.

If you’re feeling as if you want to hide under the covers (or the bed itself), it’s understandable. But don’t: Life goes on. The economy is cyclical, and America recovered from a serious downturn that hit in late 2007. One smart move to make right now is to work on managing your money stress so you can keep calm and carry on — and stay on track with your goals.

Here, you’ll learn steps you can take to tackle financial goals during this or any other challenging moment in our economic history.

Steps to Help Relieve Financial Stress

While there’s no one-size-fits-all solution to wranging money stress, there are strategies that can help most people feel more in control of their finances. Try one or more of these tips, and see what works best for you.

1. Tackle One Decision (or Problem) at a Time

Part of the problem with money stress is that it can snowball. You may feel overwhelmed and try to tackle too much, too soon. Pace yourself, and don’t try to solve all your issues at once. Otherwise you can become burned out and make less wise decisions.

“Our willpower is like a muscle. Similar to how your muscles get tired at the end of a workout, the strength of your willpower fades as you make more decisions. Researchers often refer to this phenomenon as decision fatigue,” writes James Clear, the author of the best-seller Atomic Habits.

A good first step to lowering your financial stress can be to figure out what’s making you feel most anxious. Is it your spending, your student loans, your mortgage, or saving for the future?

Once you identify the key source of your stress, you’re better able to move forward with fixing it. Do so methodically, one worry at a time, to avoid making too many decisions, too fast.

2. Create a Budget

A major facet of money stress can involve feeling out of control in terms of your finances. There’s a simple solution to that: making and sticking to a budget. In one recent survey, 85% of respondents credited budgeting with getting them out of debt or had helped them stay out of debt.

Creating a personalized — and realistic — budget can be key to unburdening yourself from your money stress. This way, you don’t even need to think about your cash flow, because you’ll know where every single cent you make is going.

To create a line-item budget that captures your cash flow, you first need to know your post-tax income plus your basic living (housing, food, car payment, insurance, and any debt payments you might have). Also calculate how much you are spending on what are known as wants vs. needs: entertainment, clothing, takeout food.

Finally, list your income and savings goals. From here, you should be able to adjust and figure out how to increase your savings goals based on how much you have left over after necessary spending.

You can then choose among a variety of methods to budget, such as the envelope system, the 50/30/20 budget rule, and zero-based budgeting. As you decide which is best for you, consider the ways you might manage your budget, such as:

•   Pen and paper

•   Online spreadsheet, like budgeting with Excel

•   Mobile apps, including ones offered by your financial institution

•   A money journal

•   Consulting with a financial advisor

3. Prepare for the Unexpected with an Emergency Fund

One way to allay your financial stress is to know that you have some back-up funds in case you really need them. By saving an emergency fund, you know that no matter what happens, you’ll have it covered.

A healthy emergency fund should be stocked with at least three to six months’ worth of expenses. And since you already created a budget, you know exactly how much money you’re going to need each month.

It’s OK to start small with an emergency fund; even $25 a month will be a start. Consider setting up an automatic transfer on payday from checking to a linked saving account so you aren’t tempted to spend that amount.

Also consider keeping what’s known as a cash cushion of a few hundred dollars in your checking account, if possible. This money is there in case you, say, get hit with a higher than usual bill or forget about an automatic deduction. With a cash cushion, you’ll avoid those hefty NSF (nonsufficient funds) and overdraft fees.

Ready for a Better Banking Experience?

Open a SoFi Checking and Savings Account and start earning 2.00% APY on your cash!


4. Deal With Debt

Even in the best of times, debt can cause worry and stress. It may feel like a weight that is always hanging over you. During moments of inflation and high interest rates…ouch. It can make the anxiety more intense.

Take steps to reduce the debt and the stress; think of it as a form of financial self-care. Shop around for a better interest rate on your credit cards. Rates are currently around 15% on existing accounts and 19% on new offers; both are considerable numbers. Call your credit card issuer and see if you can get a lower rate; if not, look into other offers, including low- or no-interest balance transfers. Or you might take out a lower-interest personal loan to pay off your debt. Taking control of this debt can help you sleep better at night.

Similarly, if you have student debt, see if you can minimize it by extending your student loan repayment term and paying less each month. Or see if student loan refinancing could help you qualify for a lower interest rate, which could also mean your loans could cost you less money.

5. Just Say No to Splurging

When we’re stressed, there are a lot of ways to relax or blow off steam — and many of them cost money. Retail therapy, a big night out, a weekend getaway: Sure, they are all wonderful, but if you are dealing with financial stress, they aren’t a good option. They can add to any debt you are carrying and give you less cash for daily life.

Have a talk with yourself about this fact; how you will feel the morning after you splurge. Imagine the guilt and discomfort, and avoid it. Some other techniques for better spending habits:

•   Don’t window-shop or pit-stop at your favorite stores. That’s just putting temptation in your path.

•   If you see something you feel you must have, even though it’s not a true need, wait for a while (anywhere from 24 hours to 30 days) before buying it. You may find that the urge cools.

•   Set aside some “fun money” in your budget for low-cost treats. Buy yourself a fancy coffee on Friday morning to reward yourself for a week of hard work. Take yourself to the beach one afternoon. Climb a mountain, and savor the view. Get a 10-minute massage at a nearby day spa.

6. Add a Second Income Stream

Sometimes it’s not about subtracting spending from your daily life, but rather it’s about adding more cash to your pocket. There are many benefits to a side hustle: Picking one that fits into your current lifestyle without taking up too much of your free time can really add value to your wallet and your life.

Before choosing a gig, think about what you’d like to do. Perhaps you’d like to put your writing skills to use by freelancing on the side, or you’d want to offer up your services a few hours a week as a social media consultant.

Maybe you really love driving around on weekends, in which case working for a ride-sharing app might be for you. Or you could walk dogs. Or sell your suitable-for-framing travel photos online.

And why not resell any possessions you aren’t using anymore? Items in good, gently used condition could easily enrich someone else’s life (not to mention the environment, by staying out of landfill). There are dozens of places to sell your stuff: For clothes, try a local second-hand store near you, such as Crossroads or Buffalo Exchange. For furniture and other goods, try listing on eBay, Etsy (yes, it’s for more than crafts), Craigslist, or Nextdoor.

7. Reframe Your Financial Stress

Lastly, but importantly, try not to be mired in worry. Take a big picture view: Our country has seen and survived many economic downturns, and there are likely more in our future. That context can help you breathe a bit better.

Also, practice gratitude. Refocus on what is good in your life, whether that’s friends, family, your health, living in a neighborhood you love, or seeing improvement in your pursuit of a hobby, whether that’s playing guitar or pickleball.

And don’t forget to lean on those close to you for support. Let them know you are dealing with financial stress, and ask how they manage theirs. In addition to getting reassurance and comfort, you may learn some new strategies.

You might also consider consulting with a financial therapist if you need guidance; these professionals combine psychology and financial planning skills to help you manage your money.

💡 Recommended: Learn how to prepare and survive a recession with this guide.

The Takeaway

Money worries can get the best of us, especially in challenging times, such as when inflation and interest rates are high and there’s talk of a recession. To manage financial stress, it’s wise to take steps to improve your cash situation — say, by budgeting, building up an emergency fund, and lowering interest rates. It’s also a good idea to work on your emotional wellness by slowing down your decision making, avoiding temptation and the subsequent guilt, and seeking support from those close to you.

At SoFi, we’re doing our part to help you minimize your financial stress. When you open an online bank account with us, we’re dedicated to helping you grow your money faster and budget better. When you sign up for our Checking and Savings with direct deposit, you’ll earn a hyper competitive interest rate and pay zero fees. Plus you’ll have full access to simple tools for understanding where you’re spending and optimizing your money management.

With no account fees and up to 2.00% APY, you’ll earn more interest in one week than you would in one year in a big bank’s checking or savings account — so you can get the most out of your money.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. 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.
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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Starting (and Keeping) an Emergency Fund

How many times have you heard the financial advice, “Start an emergency fund”?

Probably dozens of times. But much as most people would like to have an emergency fund, it can be hard to prioritize saving for a rainy day when the sun is out and you want to plan a beach getaway…or just pay your current bills.

But what would happen if your car conked out en route to the beach and you needed a $800 repair? Or if you were unfortunately laid off and couldn’t pay the pile of bills without reaching for your credit card?

Those are examples of why emergency savings are so vital. It can be especially hard to save, though, when you don’t know how to build up that financial safety net. This article will change that. It shares step-by-step advice about how to ensure that you can handle the unexpected expenses that can be part of life. Read on to learn:

•   How many people have an emergency fund

•   How much money you should have in an emergency fund

•   How to save for an emergency fund

•   Where to keep an emergency fund

•   When to use an emergency fund

What Percentage of Americans Have an Emergency Fund?

Only about 44% of Americans could pay for an unexpected $1,000 emergency expense, according to a recent survey. This means that for 56%, or the majority of citizens, their emergency fund is effectively their credit cards.

And remember, a sudden bill of $1,000 isn’t the only reason an emergency fund is crucial — it can also keep you stay afloat if you suddenly lose your job or need to take unpaid time off work.

When you consider how to define an emergency fund, you may think it’s just cash to pay those urgent, unexpected bills. And, yes, that’s vital. But if you turn it over a bit, you’ll realize that in addition to covering the out-of-ordinary expenses, it can also keep you out of debt and your phone number out of the hands of creditors. What’s more, an emergency fund should help prevent you from reaching for your plastic when a big bill hits. The idea is not to rack up that kind of high-interest debt, which can be so challenging to pay off. These situations underscore the importance of having an emergency fund.

Rule of Thumb When Saving for an Emergency Fund

Most financial experts say you should have at least three to six months’ worth of basic living expenses in your emergency fund. That means you should add up the necessities that keep your household afloat (such as shelter, food, medical costs, utilities, WiFi, and so forth) and see what you would need if, say, you lost your job, became disabled, or had to take a leave of absence from work to care for a sick family member.

When deciding how much you’d like to have in your emergency fund, you might use another technique vs. adding up all your monthly expenses. Some people prefer to start with their take-home pay, subtract any money they’re already saving, and subtract money they don’t need to spend.

With this method, what’s left are your monthly expenses. Another benefit of this method is that it gives you the opportunity to see what spending you can live without, which you can cut out of your budget now and start weaving into your safety net.

Some people recommend yet another way to calculate how much should be in your emergency fund. They say to look at the deductibles for auto and health insurance you would have to pay in the event of an accident, emergency room visit, or ambulance ride. That cost is the very minimum amount of money you would have to shell out for a minor misfortune. If money is super tight, that could be a good goal for your emergency fund.

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Steps for Starting and Building Your Emergency Fund

If you are convinced of the value of having this sort of savings and are wondering how to start an emergency fund, follow these steps. They’ll help you know how to save for an emergency fund even if you feel your budget is already quite tight.

1. Setting a Specific Savings Goal

As mentioned above, most financial pros will recommend that you save three to six months’ worth of living expenses. You might come up with that sum and then divide it by 12 to see how much you’d have to save monthly if you wanted to accrue the whole amount.

Too steep? Try dividing by 24, and see what the two-year horizon looks like.

2. Starting Small and Stockpiling When You’re Able

Most young professionals don’t happen to have three to six months’ worth of income just sitting in their checking accounts, waiting to be moved to an emergency fund. If the method above of dividing your goal by 12 or 24 still yields a monthly number that’s too intimidating, start with whatever you can afford. If it’s $25 per month, great: The point is to pick a number and start stashing some cash.

You can also look for ways to fund your account from other sources. For instance, you could deposit any minor windfall — a tax refund, bonus, or even a birthday check from Grandma.

3. Making Consistent Transfers

If you use the method above of putting a windfall into your account, don’t forget about the emergency fund after that. It’s important to keep adding to it, especially in periods of high inflation. The amount of money you’d need to, say, pay the heating bill or plunk down for a car repair is likely to go up over time.

That’s why it’s important to keep funneling some money into your savings. If you have a side hustle going, you might want to make a rule to always deposit 10% or 20% of your earnings into the emergency fund to keep that account growing. Sure, you could spend all that pay and feel rich in the moment, or you can save it and increase your wealth over time.

4. Managing Your Expenses and Spending

If you’re feeling as if you just don’t have wiggle room to fund emergency savings, there’s a simple solution: Manage your money better and cut your budget a bit.

Take a look, and see where you can make budget cuts. Do you need to eat dinner out three nights a week, or can you cut it down to one? Do you need all of those streaming services you pay for? See where you can eliminate some costs in your budget, and put that extra money towards your emergency fund.

5. Turning on Automatic Saving

Automating your savings is a great, relatively painless way to continue saving money for your emergency fund. Set up regular payments from your checking account into your savings account so that money automatically gets transferred on a weekly or monthly basis. You won’t see the cash in your checking and be tempted to spend it.

6. Not Increasing Your Monthly Spending

Are you familiar with the phrase “lifestyle creep”? This means that, as you earn more, you start spending more. This means that even as your income grows, you’re not building wealth. If you get a raise and then use it on a more expensive car lease or frequent vacations, your savings will struggle to increase.

If you keep your spending in check, you can apply at least some of your salary increases to building up that emergency savings account.

Where to Keep Your Emergency Fund

Now that you know how to start an emergency fund, consider where to keep it. The whole point of an emergency fund is that it is easily accessible money, so when and if the unexpected happens (like a big dental bill), you will be able to dip into your account. That means it needs to be liquid. You will likely want to avoid accounts that require your money to be kept on deposit for a certain amount of time, like a certificate of deposit (or CD) account. These typically penalize you if you withdraw the funds early.

Interest rates are often fairly low for savings accounts, but if you shop around, you’ll find some out there that pay almost 2%. These high-yield savings accounts are typically offered by online vs. traditional banks. Because they don’t have bricks-and-mortar branches and the related expenses, they can pass the savings along to their clients.

Another point to note as you build your emergency savings: Look for an account that is FDIC-insured . Putting this kind of money into the market, which means there’s risk of loss, is probably not a wise idea. You don’t want to have the value of the fund drop.

Adding to Your Emergency Fund

As noted above, it’s fine to take your time building up your fund, but if you don’t take the first step and start, you’ll never get ahead. If you are struggling (as many people do), to find the cash for this goal, consider these hints:

•   Start a side hustle. You could get a weekend gig walking dogs. Or do you love ceramics? Try selling your pieces on Etsy. There is no limit to what you can try, plus a key benefit of a side hustle is making some extra cash, which you can put towards your emergency fund.

•   Gamify your savings. One month, go without fancy coffee-bar drinks and put the money saved into your emergency fund. The next month, skip takeout and cook at home. Put the extra cash into your rainy day account. You are likely to see the amount climb.

Tips for Staying Motivated to Build Your Emergency Fund

One of the biggest challenges some people face in saving for an emergency fund is motivation. If you find yourself tempted to spend your yearly bonus on a new car or status wristwatch, try this instead: For one week, live on the money you’d get if you filed for unemployment in your state.

This is no easy task, and it will give you an idea of exactly what you’re saving up to avoid. If you make it a week, consider if that’s really what you want to go through if you lose your job with no backup in place. Once you commit to focusing on your emergency fund, use the money you didn’t spend that week to start your account.

While saving an emergency fund is one of many competing financial priorities, having a cushion to catch you when you fall can prevent a minor calamity from spiraling into lasting debt. The toughest part may be getting started and staying motivated. Just remember, you walk 10 miles by walking 10 feet at a time.

When Should I Use an Emergency Fund?

When you know you have funds in your emergency savings, it can be tempting to dip into it for a variety of reasons that feel urgent but in truth aren’t. For instance, if a coat you have been coveting is marked down by 60% off, that is not a valid use of your emergency fund. Nor is upgrading to the latest mobile phone because you see a good deal.

Here’s when you should use an emergency fund:

•   An unplanned, unexpected event

•   An expense that is absolutely necessary

•   A cost that cannot be covered any other way

•   An expense that is urgent and must be paid ASAP

Examples of when these situations might occur include a major car repair that must be paid so you can commute to work regularly or your home insurance plan’s deductible after you experienced storm damage.

If an expense meets the criteria above, you can breathe easier knowing that you have the money to take care of the bill.

Banking with SoFi

Starting and keeping an emergency fund isn’t the most exciting place to put your money, but it is one of the most important. By keeping at least three to six months’ worth of expenses in a liquid account that earns a bit interest, you will be rewarded with peace of mind and an important cushion if you should hit one of life’s unexpected speedbumps.

If you’re looking for a place to begin and grow an emergency fund, see what SoFi Checking and Savings offers. When you open a SoFi bank account with direct deposit, you’ll earn a super competitive interest rate. and you won’t pay any account fees, so your money can grow faster.

With no account fees and up to 2.00% APY, you’ll earn more interest in one week than you would in one year in a big bank’s checking or savings account — so you can get the most out of your money.

FAQ

Should I put my windfall towards my emergency fund?

Putting a windfall, like a tax refund or a bonus, towards an emergency fund can be a great idea. Instead of spending the money on a purchase, which is likely to be a passing pleasure, you can put the cash aside and enjoy peace of mind. If an unexpected, urgent bill comes up, you will likely be better prepared to pay it.

How much of my paycheck should go to my emergency fund?

It can be a good idea to calculate what your monthly living expenses are and then multiply that by at least three or six to determine your goal for your emergency fund; then see how much you need to save to reach that in a year or two. If you do like a specific guideline, some experts say to save 20% of your take-home pay for emergencies and retirement.

Does the 50/30/20 rule apply to emergency funds?

The 50/30/20 rule is, in part, designed to help people have funds on hand for an emergency (as well as save money for retirement). The idea is that you spend 50% of your after-tax income on needs, 30% on wants, and 20% on savings. How much of that 20% you allocate to an emergency fund will depend on your own personal situation and your other savings goals.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. 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.
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.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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What Is a Second Chance Checking Account?

Whether it’s angling the perfect shot in a game of pool or telling a crush how you really feel, everyone wishes they could have a second chance from time to time — and money matters are no exception. Sometimes in life, things just … happen and don’t go the way one might hope. And sometimes, those circumstances can wreak havoc on our personal finances in a lasting way.

You probably already know that bureaus like Experian, TransUnion, and Equifax track your credit history. But you might not know that consumer reporting agencies track your banking history, too. And in the same way that having a poor credit history can hurt your chances of receiving credit in the future, having a poor checking history can make it harder to get a bank account.

There is a product on the market for folks who have a less-than-perfect track record with banking — in fact, there are several options. Read on to learn all about this, including:

•   What is second chance banking?

•   How do second chance bank accounts work?

•   Where can you get second chance banking?

Who Is a Second Chance Banking For?

Before we define second chance checking accounts, let’s take a step back and talk about why they exist in the first place. This means understanding a bit about ChexSystems.

What is ChexSystems? Think of it as the banking equivalent of a credit bureau. It catalogs information on consumers’ banking histories, including basics like name, contact information and Social Security number, as well as information on account closures, bounced checks and overdrafts, unpaid balances, suspected fraud, and more.

When a customer applies for a new checking account at a bank or credit union, the institution may look up the ChexSystem report to determine whether or not it’s willing to extend its services. Negative report items — such as unpaid overdrafts, involuntary account closures, or a high number of recent inquiries — can cause a bank to refuse regular checking services to the client.

That’s where second-account checking comes in. A second-chance bank account is one where the bank offering the account is willing to overlook a less-than-stellar banking history. This means a client can continue to use a bank account while rebuilding their ChexSystem report.

While this type of account isn’t available at all banks, it is available at many, including some major traditional and online banks, like Wells Fargo, Chime, and Varo.

In other words, an imperfect banking history doesn’t have to mean living an unbanked existence — which is good news, as we live in an increasingly cashless world.

Ready for a Better Banking Experience?

Open a SoFi Checking and Savings Account and start earning 1.00% APY on your cash!


How Does Second Chance Banking Work?

Here’s how second chance banking operates: much like any other regular checking account. The account holder deposits money into the second chance checking account, which they can then access using a debit card or making a withdrawal at an ATM.

Specific account features will depend on which institution is offering the account. For example, some banks may offer free paper checks or convenient mobile banking to give customers a bird’s-eye view of their finances.

On the other hand, some banks may impose monthly service fees or minimum opening deposits, and may not allow second chance checking account holders to use paper checks. And although checking account interest rates are notoriously low, it’s unlikely your second chance checking account will grow any interest at all.

That’s why, as when opening any other kind of bank account, it’s important to review the fine print closely to ensure you know what you’re getting into before you apply. If you need to use paper checks to pay rent, for example, an account where they’re not allowed won’t work — and there are other accounts available that will offer the service you need.

Applying for one of these accounts typically works in the same way as opening a bank account of any kind.

•   The bank will ask for a variety of personal information, and you may be asked to verify your identity with a form of official identification like a driver’s license or Social Security card.

•   You can do this in person or entirely online.

•   Depending on the institution, you may be required to put down a minimum initial deposit. However, in many cases, you will find second chance checking with no opening deposit, meaning the account will be 100% free.

•   You may need to wait a few business days for your application to process, and then you should be in!

Once you’ve opened a second chance checking account, you can use it as normal to pay bills, restaurant tabs, and grocery store totals — whatever expenses come up in your day-to-day life. Meanwhile, the negative items that might be on your ChexSystems report will slowly vanish. Most records fall off after five years.

If you’re interested in cleaning up your ChexSystems report, know this:

•   Consumers also have the right, under the Fair and Accurate Credit Transaction Act (FACTA), to request a free ChexSystems report once a year. A request can be made by phone, mail, fax, or online form, allowing review of the report for any incorrect negative items and disputing them.

•   If you do dispute something on your record, the investigation will generally take about a month. You will receive a letter in the mail notifying you of the results.

Thus, over time, it’s possible to clean up a ChexSystems record — which can unlock the ability to pursue other types of banking services, including high-interest deposit accounts.

Recommended: Guide to Reopening a Closed Bank Account

Pros and Cons of Second Chance Banking

While second chance banking does provide a valuable service, there are some drawbacks to these accounts as well. Here are the pros and cons of second chance checking accounts.

Pros:

•   Allows clients to use a checking account even without a perfect banking history.

•   Gives account holders time to rebuild their banking history and let negative items fall off their ChexSystems report.

•   In many cases, second chance checking accounts are free and don’t require a minimum opening deposit.

Cons:

•   Some accounts may assess monthly fees and have minimum opening deposits — and may not offer waivers.

•   The account may have limited capabilities (such as an inability to use paper checks or to access overdraft protection).

•   The account is unlikely to offer interest growth on account balances.

Alternatives to Second Chance Banking

Second chance checking accounts are a solid option for those who might not be able to open a traditional checking account because of their banking history. But they’re not the only alternative. Here are two options:

•   Prepaid debit cards. Many banks offer prepaid debit cards that can be used to pay bills and other expenses without using cash. It works like a gift card: Clients load the card with a certain amount of money, which they can then use as they see fit. The cards are also reloadable, making them a fair option for working around the handicap of not having a bank account.

   What’s more, many prepaid debit cards don’t require a credit check to open. This makes them a viable choice for those with poor credit histories as well as poor ChexSystems reports.

   That said, there are pros and cons of prepaid debit cards. In terms of downsides, they often include a variety of fees — such as monthly maintenance fees, activation fees, and reloading fees — which can eat into the user’s balance and make them unsustainable for long-term use.

•   Cash. Others who find themselves unbanked might try to simply pay their way through life using cash. After all, you can get a paycheck cashed at the nearest major grocery store or Walmart.

   However, there are downsides: Check-cashing services generally come with a fee. Plus, many utility companies, landlords, and other bill collectors don’t accept cash as payment. And if your cash is lost or stolen, there’s no reliable way to get it back. It’s gone.

This Digital Account Might Be an Answer

SoFi offers a product that can be helpful to anyone with dollars to manage.

SoFi Checking and Savings® is an online bank account that puts your finances under your control from the comfort of your smartphone or web browser — and sign-up is super simple. Your money will earn an amazing interest rate, plus you’ll pay no account fees. (There are no ATM fees either within the Allpoint network of 55,000-plus worldwide locations). Your money could grow faster with SoFi.

Ready to see if SoFi Checking and Savings can help you get your money right? Find out more and apply today.

FAQ

What is second chance banking?

Second chance banking is a kind of account that serves people who may not have a perfect banking record. If you have negative items on your ChexSystems record, you may still qualify for an account.

What is a second chance bank account?

A second chance account is one that can be opened even if you have a less than perfect history with banking. It may have some downsides (monthly fees plus no overdraft protection, for example) but it allows people to get back in the game and have checking privileges.

Who is second chance banking for?

Second chance banking is for people who have negative items in their banking history. These typically include unpaid overdrafts, involuntary account closures, and other events which show the account holder did not use their privileges responsibly.


SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2022 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
SoFi members with direct deposit can earn up to 2.00% annual percentage yield (APY) interest on all account balances in their Checking and Savings accounts (including Vaults). Members without direct deposit will earn 1.00% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. Rate of 2.00% APY is current as of 08/12/2022. 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.
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.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
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